Term Paper on "Trade Barriers"

Term Paper 5 pages (1575 words) Sources: 6 Style: MLA

[EXCERPT] . . . .

Trade Barriers

Visible and Invisible Trade Barriers

Few of the countries of the developed world would openly espouse rampant protectionism as a dearly held national policy, given the popular lip service paid to globalization in the international community today. The existence of the General Agreement on Tariffs and Trade (GATT), NAFTA, and the maintenance of the World Trade Organization are all seen as critical steps towards the creation of a truly fair and free global marketplace for international trade (Wood 1995). The European Community has attempted to curtail the protectionism that was once practiced by some of its member nations, and international lending organizations like the International Monetary Fund have encouraged free trade and discouraged the continuance of allowing protected, nationalized industries to keep the commerce of other nations out, because of their reliance on the crutch of government subsidies. In short, the international mood is in favor not simply of quota and tariff reduction, but also the elimination of less obvious barriers to free trade.

Some free-market American economists have stated that "the widespread proliferation of trade barriers" and their administration within the United States always seemed like "a mystery" (Reynolds 1993). "The benefits of specialization and of buying everything at the lowest possible cost" for the average American consumer seemed so "obvious," and "even when fairly plausible excuses for trade barriers could be imagined in a few special cases, this [often] failed to explain the way trade barriers are actually applied" (Reynolds 1993) Often political pressure groups within the nation rather than real economic interest seemed to determine what became a protected industry, as in the case of the agricultural industry. For example, "instead of temporarily protecting promising new 'infant industries,'" the United States would often protect older industries with tariffs and quotas, presumably because these industries had the more powerful lobbying groups in Washington, D.C. (Reynolds, 1993). Regardless, free market economists state that, given how protectionism has been enforced in the United States: "trade barriers do not really save jobs at all; at most, they simply slow the inevitable and desirable exodus of workers from declining industries whose products are not sufficiently valued by consumers to permit their suppliers to pay competitive wages" (Reynolds, 1993).

Despite this free market gospel, and the legal and economic push towards greater liberty from restrictions, many firms, large and small, continue to face import tariffs in the form of visible trade barriers in export market, particularly in nations such as Japan and Latin America, which often have far different regulatory and corporate cultures than the United States, with less freedom of competition and more widespread acceptance of the existence of government-favored businesses, industries, and workers. This explains why protectionism is not popular in most nations today, but it is still more popular in certain nations than in the United States.

As far as barriers in export markets are concerned, invisible barriers are often equally, if not more difficult to surmount, "with customs procedures and domestic regulations emerging as widely noted impediments to trade and less direct and visible procedural barriers also playing a role" (Fliess & Busquets, 2006: 1). For small and medium enterprises, as opposed to multinationals, the combination of visible and invisible barriers can prove insurmountable. "While barriers related to finance, access, and internal capabilities" are detrimental to all firms, these invisible barriers can be especially damaging for smaller firms "since these barriers are generally outside of their direct control," to lobby the enforcing nation, and are thus difficult to overcome (Fliess & Busquets, 2006: 4).

The most onerous invisible barriers that are often cited are "unfavorable foreign rules and regulations" specifically placed to keep competing firms out of the nation, such inadequate property rights protection, deliberately high costs of customs administration, and restrictive health, safety and technical standards without clear merit. But why do trade barriers persist when most economists consider these barriers an impediment to economic growth? "Consider the countries that have enjoyed the most international trade growth in the last five years: Vietnam, China, Russia and India. These same four countries are perceived to have the greatest visible (tariffs) and invisible (red tape, intellectual property risk and so on) trade barriers, according to a 2005 survey by the World Economic Forum. India has the highest average tariff rate at 29.1%, Vietnam is at 16.8%, Russia is at 9.9% and China is at 10.4%. It is worth noting, though, that China's average tariff rate has declined significantly since its accession to the WTO in 2001" (Polos 2006). For these rapidly developing nations, visible nad invisible barriers initially proved useful, perhaps because they have been used specifically to target infant industries in specific fields designated for cultivation development by the government.

In particular, that are supposed to be only concerned with the "protection of intellectual property" in Russia and China have instead been used by developing and transition economies as invisible tariffs, although the nations say that they are only concerned that without stringent laws, insufficient measures would be extant to "assure the protection of designs and models" (Fliess & Busquets, 2006: 7). While India and China may have welcomed nations that have provided an ample supply of jobs through outsourcing, core aspects of the developing technological infrastructure have remained effectively and strategically protected, both through tariffs and open regulations, and through other legal means that have proved just as effective.

These nations are hardly the first to deploy such strategies, as "private barriers to markets, such as collective boycotts or cartels," like OPEC that control essential inputs or bottlenecks, have long been effective in blocking the entry of new competition as governmental barriers in the form of quotas or tariffs (Wood, 1995). Nations with a high percentage of nationalized industries often use another, not always even deliberative invisible strategy that takes the form of protectionism or favoring of certain corporations within a nation that reduces competition within that nation, harming internal competitors but also external competitors. This is why "the existence of strong and sound competition laws, and the effective enforcement of those laws," within a nation's borders, "is an important component of an open and free international trading system" (Wood, 1995).

However, even though nations may use such barriers as heavily protecting nationalized industries, as these nations grow in confidence, liberalization may naturally occur. One example of this is Brazil, as during the post-war era, Brazil followed a pattern of growth and development policies, similar to other Latin American countries, and to India, China, and Russia today, with high tariff and non-tariff trade barriers "intended to protect fledgling industries. Such policies created short-term growth during the 1950s and 60s," but faced with inefficient state-protected industries in late 1980s and early 90s, Brazil began to eliminate these barriers and privatize these industries which allowed for more access to world competitions (Jennings 1991: 1). "As import barriers declined, total Brazilian imports increased, as did exports. Brazil's trade surplus is narrowing. Brazil now allows imports of globally competitive products and is anticipated to further reduce trade barriers while pursuing regional trade agreements with its Latin American neighbors" (Jennings 1991:1).A more competitive free market within the nation's borders thus allows for a more competitive and less protective global marketplace, as protected industries create invisible barriers to foreign competition.

One final invisible barrier, intriguingly discussed by Shigeru Matsumoto is if labeling a national product as an import can, in some instances; act as an invisible trade barrier. For example, "a provision listed in the 2002 Farm Security and Rural Investment Act requires retail grocery stores to identify certain agricultural products by the country of their origin," which caused "several key trading partners of the U.S. express their concerns over the negative impacts of the country-of-origin labeling (COOL) on trade, in the era where buying local foods is of such importance to… READ MORE

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