THE IMPACT OF POLITICAL AND LEGAL FACTORS ON INTERNATIONAL TRADE

As the governing body that have long intervened in international trade through a variety of mechanisms, some of the reasons why governments need to intervene in international trade are simply due to a combination of political, economic, social, and cultural reasons. Politically, a country’s government may seek to protect jobs or specific industries. And perhaps, some industries may be considered essential for national security purposes, such as defense, telecommunications, and infrastructure. A simple example would be a government may be concerned about who owns the ports within its country.

When it comes to addressing national security purposes, some governments may not want advanced technological information to be sold to unfriendly foreign interests which can impact both the import and exports of a country as a whole. As governments may influence trade to reward a country for political support on global matters, they on the other hand are also motivated by economic factors to intervene in the international trade. With that being said, they may want to protect young industries or to preserve access to local consumer markets for domestic firms.

Furthermore, governments have several key policy areas that can be used to create rules and regulations to control and manage international trade. Many governments continue to intervene in this particular area is owing to the fact that there has been a major shift towards free trade among nations. Because of this, those rules and regulations imposed are as follows:

 

1. TARIFFS

- Tariffs are taxes imposed on the imported products. There are two kinds of tariffs exist, one is specific tariffs which are levied as a fixed charge, and the other one is ad valorem tariffs which are calculated as a percentage of the value. Many governments, unfortunately, still charge ad valorem tariffs as a way to regulate imports and raise revenues for their coffers (money box/treasury).

 

2. SUBSIDIES

- A subsidy is a form of government payment to a producer. The basic types of subsidies include tax breaks or low-interest loans for which both of them are very common. Subsidies, in addition, can also be cash grants and government-equity participation, which are less common because they require a direct use of government resources.

 

3. IMPORT QUOTAS AND VOLUNTARY EXPORT RESTRAINTS (VER)

- Import quotas and voluntary export restraints (VER) are two strategies to limit the amount of imports into a country. The importing government directs import quotas while VER are imposed at the discretion of the exporting nation in conjunction with the importing one.

4. CURRENCY CONTROLS AND ANTI-DUMPING RULES

- Governments may limit the convertibility of one currency (usually its own) into others in attempts to limit the imports. While some governments will manage the exchange rate at a high level to create an import disincentive, they in contrast establish rules and regulations against any form of dumping practices, which is none other than when a company sells its product below market price often in order to win market share and weaken its competitors.

 

5. LOCAL CONTENT REQUIREMENTS AND FREE-TRADE ZONE

- Many countries continue to require that a certain percentage of a product or an item be manufactured or assembled locally. Some countries, in fact, specify that a local firm must be used as the domestic partner to conduct business. In conjunction with free-trade zone policy, many countries designate certain geographic areas in attempts to promote trade with other countries where they are free from tariffs, taxes, have less procedures or restrictions, and so forth.