Term Paper on "Global Financing and Exchange Rate Mechanisms Paper"

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Global Financing and Exchange Rate Mechanisms Paper

The concept of a state involves the element of governance over a certain specific area and connected with the area are a certain group of people. At the same time, the particular area market out has certain natural and other resources which are not available in other parts of the world. It also facilitates to manufacture/produce certain goods and services which are not available in other parts of the world. Today we have a world which is committed to the concept of free trade and that means goods and services should flow smoothly from one country to another, without any sort of restriction, and at the same time, the governments of different states have to run their states by means of a balanced budget thereby satisfying the demands of the residents of the country and one of the important sources that the government can earn money is through tariffs.

Analysis:

tariff is a tax which is placed on imported or exported goods and is also given the nomenclature of customs duty in some countries. Some of the tariffs are revenue tariffs which are expected to provide revenue for the government. Another type of tariff is called protective tariffs which are applied to imported goods and the intention of those tariffs is to increase the availability price of the goods when imported. This method is expected to "protect" domestic industries from "suffering" due to competition with the foreign manufacturers. There are differences among the two types of tariffs - revenue tariffs provide protection in addition to earning some money for the government and protective tariffs also result in some revenue, though if the tariffs are very high then nothing is imported and thus collection of revenue suffers. These may be compared to entry taxes on persons entering a country. The situation of tariffs lead to trade blocs where a group of countries decide to lower or remove tariffs on goods moving from one country to another, while imposing different tariffs for goods coming from countries outside the group. These groups of countries are named as trade blocs and one of the most famous of these blocs is the European Union. (Tariff)

Another form of common policy for certain countries is the formation of customs unions where the external tariff is common for the group and the resultant revenue is shared by the group as per the previously agreed formula. The importance of tariffs can be realized from the fact that many industries in different countries have collapsed earlier due to competition from outside the country. This has caused a lot of difficulties to the countries concerned due to loss of jobs and tax revenues. Tariffs can help in protection of the countries to some extent in this regard. At the same time, protective tariffs increase prices of good within the country which has imposed the tariff and thus causes difficulties to the consumers or users of those specific goods. A tariff on food items can cause difficulties in the normal diet of the general population of a country while tariffs on steel can cause difficulties to manufacturers who use steel. There are also situations when one tariff leads to another between two countries and ultimately this can take the form of a trade war. (Tariff)

Apart from direct import tariffs, there are other methods that are being used by governments from the time of the Second World War to restrict imports. These have happened mainly as a result of negotiations between different countries to cut down the regime of tariffs. These barriers are generally in the form of a fixed quota which can be imported into the country from the exporting country, or by forcing the exporting country not to export more than a certain limited quantity. In certain cases both the costs of production in the importing country and the exporting country may be the same, and in such cases, the effect of having quotas is the same as having tariffs. When the importing country is comparatively smaller, any increase in domestic price, or an increase in domestic production, or a decrease in domestic usage, or an increase in the surplus quantities with domestic producers, or a decrease in the surplus with the domestic users will all have the same effect on the net national loss for the item. The only difference is the earnings that the government can get with an import tariff. (Non-tariff barriers to imports)

The tariff is the earnings that will also be the differences in costs between the purchase cost from the world market by the importers and the domestic prices at the higher domestic prices. Thus the importer can gain profits. In the case of certain countries these rights for import are given away free to some parties with no procedures for application and then the procedure can be said to be one of fixed favoritism to a group of importers who manage to gain these licenses as they will gain profits from the transaction. In certain cases, the government auctions these rights and then due to the auction values, the government also gains a share in the mark-up that the consumer pays. For conducting these auctions, the government may use some elaborate procedures, and then the costs of the procedures that are used come from the difference earned between the import price and the consumer price. When the country is large enough, then the effects of fixing a quota or imposing an import tariff amount to the same, except that when tariff is imposed, the earnings come directly to the government.

Another choice is of direct communication of Voluntary Export Restrictions on the exporting country. In this case, there are effects in the exporting country as the exporters there have to organize themselves into some sort of a cartel for them to quote a proper quantity of export for each exporter and the prices at which the item would be exported. When the exporters raise the export price, then they get the benefit that could be collected by the government through an export tariff. In the case of imports, governments use many different methods to control them. These can be in the form of limiting the quantity of imports through import quota, VER, government procurement policies that stop or restrict government purchases of imported products; enhancing the costs of selling imported products in the market through applications or testing procedures; and creating a doubt about the restrictions of imports. (Non-tariff barriers to imports)

There is a great importance being attached to trade negotiations and one of the latest agreements that have been reached in with China. This removed the major barriers for export of U.S. products to China and was clear and enforceable. The agreement reached provided great access from the first day of the agreement being reached. U.S. was to get significant market access; there was to be full market access for U.S. organizations; tariff reductions were to be available immediately after China's accession to WTO; China agreed not to raise tariffs after it had become a member; China is to remove quantity restrictions once it becomes a member; China agreed to solving all previous problems regarding sanitary and phyto-sanitary levels for agricultural products; China agreed to accept the results of the discussions in three rounds held after the Uruguay rounds; an agreement was reached on different sectors like "distribution, value added telecommunications, insurance, computers, business services, environmental services, franchising and direct sales, legal and accounting, sound recording and entertainment software." (Market Access and Protocol Commitments)

Thus while taking into consideration the present day nature of living, agreements in relation to the permission of moving or transferring goods from one country to another have become all the more inclusive. These are all considered to be… READ MORE

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