International trade refers to the exchange of services, goods or services across international borders; this gives firms in different countries opportunities to compete globally employing competitive pricing for their products and services (Chang et al., 2009). Indeed, trade gives a nation’s economy a boost. The mercantilist theory of international trade is based on beliefs and practices of maximizing exports and minimizing imports (Crystal, 2015). It is the oldest method, and it states or the holding of a country’s treasure primarily in the form of gold constituted its wealth. It was practiced widely between the 16th to 18th centuries by many European countries (Crystal, 2015).
The disadvantages of the theory are it benefited the colonial powers, and thus there were intense conflicts between nations. Also to minimize exports there were a lot of trade protection policies that arose, and finally it highly encouraged hoarding of resources, ‘this is whereby people are encouraged to pull themselves up by their bootstraps’ (Trebilcock et al., 2013).
Absolute advantage is the variation in productivity in how well a country can produce a particular product at a lesser cost than the competitor of the same product. This means that fewer resources consumption. It is, however, hard to measure for many goods because there are many factors inputs. On the other hand, comparative advantage looks into the difference in opportunity costs between nations and lower marginal cost. It encourages specialization in producing of a particular asset that it exports and imports goods that it produces less efficiently at higher opportunity cost it thus support the issue of free trade where both parties benefit as long they produce sing relative costs. Both theories give a country a clear idea of the goods to provide, what to export and what to import.
With TPP trade agreement, free trade grew because tariffs on NZ exports to TPP nations are all eliminated or largely reduced. Therefore a country does not have to produce what is very expensive but rather imports cheaply. There is fair access by NZ firms in the TPP countries. Aforementioned also enables NZ to improve it specializations as it introduces what it produces at high opportunity cost from the TPP countries produce and trade some specific products. Also, specialization will give NZ a competitive edge since it will import at low cost. Specialization leads to increased incomes for the nation, and the country produces more and the surplus exported with no restrictions to other countries.
Factor endowment theory holds that different countries have an abundance of various resources differently. The resources exploited are labor, land, money and entrepreneurship. The method is used to determine the comparative advantage in a country will have a relative advantage in the asset that uses the factor with which it is massively endowed. The country will have a comparative advantage in a product that uses the factor which it is heavily endowed. It should thus focus production on that good. With a heavy endowed with that factor, it will be most efficient at producing the product that requires that factor for production.
New Zealand (NZ) has great land for practicing agriculture, and there is enough workforces for agricultural work, and the climate is favorable. Therefore it is heavily endowed in the agriculture sector. It, therefore, has comparative advantage manufacturing concentrated milk, goat and sheep meat, butter over china and the TPP countries. NZ produces products largely for both local and international market. It imports mineral fuels, plastics, vehicles, etc. since it not factor endowed (Devadason, 2014).
Firstly, trade tariffs protect employment. Usually with more cheap imports, industries producing similar goods are likely to close down due to poor performance. Closing down means employees will lose jobs. Secondly, trade barriers protect infant industries during a start-up period of operation. Infant industries do not have the economies of scale as matured like that of competitors from other countries (Petri & Plummer, 2012). This ideology is mainly in developing or under developed countries. Infant industry protection was favorably executed in Japan and was after World War II. Also, trade barriers are enacted to defend national security; this is to industries that are of great interest to the nation. They are particularly the defense-oriented industries. Lastly but not least, trade barriers acts as protection against cheap labor, usually foreign industry pay tiny wages (Schott et al., 2013).
Non-tariff barriers refer to prohibition or restriction to introduce products and service without imposing the general taxes or duty (tariffs) they usually arise from actions undertaken by the government in the form of laws, regulation, policies or restriction requirement to protect local industries from international competition (Dal Bianco et al., 2016). They include:
Licenses; whereby the importer is required to acquire a state permit for foreign trade transaction. The license is usually for a specified period, therefore when it expires, the business should stop or the traders should seek renewal of license.
Quotas; this are licenses that come with a particular limit in value. Therefore the exports or imports should not exceed the stated limit value.
Embargoes; are forms of total or partial prohibition of trade for a particular product, though the reasons are usually political or health issue for the purpose of the economy. The standard tariffs are especially common in countries that deal in animal product. Standards of quality imposed are under the pretext of maintaining safety and health measures. That increases the cost of goods and services for importing countries.
How New Zealand use or could use NTBs
High licenses imposed on a country that wants to introduce products which NZ produce New Zealand increases cost, and therefore the foreign product is sold at a relatively higher price. Export quotas are imposed when production is considerably lower. It ensures that exports are few, hence enough to cater for local markets. With standard tariffs, NZ tries to minimize import since it is a high producer of animal products and this ensures it plays monopoly seller in its country.
Price based restrictions refer to the situation whereby local state sets rates low and the output high. These methods ensure foreign countries do not make little or no profits. Usually, a product sells at a price below the average total cost of the international entrants (Wendy, 2015).
International price fixing is whereby foreign competitors in a particular product opt to minimize competition by setting a fixed price of the commodity or even maintains market conditions in that prices remain at given level by managing supply and need. This method is considered illegal by the government whether prices are at minimum or maximum.
Financial limits refer to the amount set as the minimum by the government of a nation that qualifies or disqualifies a foreign country from investing it.
Foreign investment control refer to the limitation imposed to investing in a foreign country, this is usually to regulate more private sectors from operating. The flow of capital from one nation to another is limited. The investment is either direct or indirect like exporting (Kusum, 2010).
Reducing taxes reduces the loss efficiency and cost generated by changed in price system caused by customs duties. It also expands markets because other producers in exporting countries will enjoy economies of scale and bring benefits to the economy as a whole. It opens up for free trade thus enhancing improved goods due to the specialization of products (Biswas, 2014).
It provides a forum for business negotiation. Member countries have different terms for trade; therefore there needs to be an agreement before trading in the foreign country. WTO provides the forum for negotiating and agreeing. It also facilitates implementation, administration and smooth operations of trade agreements (Ziegler & Bonzon, 2007). Countries try not to adhere to agreed terms, but with WTO it oversees that these countries follow agreements. It helps in settlement of conflicts, whereby a member state failing to adhere to agreements may lead to disputes thus blocking them as trade partners. To resolve this WTO must be involved (Ziegler & Bonzon, 2007).
Again, it cooperates with IMF and World Bank concerning making cohesiveness in coaching global economic policies. IMF can lend capital to a member country payable with interests set by World Bank so the three must operate together and ensure smooth trading.
Licensing and franchising this is investing directly in NZ by obtaining a permit to operate with an own trademark for the company. There is 100% control of business and profits too.
Risk identification is whereby techniques such as expert judgment, monetary value analysis, and macro environment analysis (SWOT and PESTEL) are used to help uncover potential threats to the business. Wal-Mart should understand the NZ environment narrowing down to the small area of operations
Risk analysis step, whereby with the identified threats you identify the likely hood of occurrence of the risk and rank the risks. You use both qualitative which measure the probability of occurrence and quantitative analysis where a projected value regarding cost or time as listed using qualitative techniques.
Risk response plan. In this step, you determine ways to either eliminate or reduce the risk identified. The actions should enhance opportunities. Some risks you can accept them because the impact is so small than others. However, a contingency plan needed in case the effect intensifies.
Risk monitoring and reporting. The identified risk controls measures put in place have to be evaluated and checked if they are mitigating and eliminating risks accordingly.
References
Biswas, R. (2014). Tariffs that may fail to protect: A model of trade and public goods. MPRA
Paper 56707: University Library of Munich. Germany.
Chang, R., Kaltani, L. and Laoyza, N. (2009). Openness can be good for growth: the role of
policy complementarities. Journal of Development Economics 90: 33-49.
Crystal (2015) pros and cons of mercantile theory retrieved on 4 May 2017 from
Dal Bianco A., Boatto V., Caracciolo F., & Santeramo F.G. (2016) Tariffs and non-tariff
frictions in the world wine trade. European Review of Agricultural Economics. 43(1), 31–57
Daniels, C. ( 2008). “First step to wider free trade”. The New Zealand
Devadason, E.S. (2014). “The Trans-Pacific Partnership (TPP): The Chinese perspective”.
Journal of Contemporary China. 23 (87): 462–479.
Kusum, M. (2010). “Immigrant Networks and U.S. Bilateral Trade: The Role of Immigrant Income”. papers.
Petri, P., & Plummer, M. (2012) “The Trans-Pacific Partnership and Asia-Pacific Integration:
Policy Implications”. Peterson Institute for International Economics Policy Brief.
Schott, J., Kotschwar, B., & Muir, J. (2013). Understanding the Trans-Pacific Partnership.
Peterson Institute for International Economics.
Trebilcock, M. J., Robert, H., & Antonia, E. (2013). The Regulation of International Trade, 4th
(London and New York: Routledge, p.234-50
Wendy, M. (2015) value based pricing Retrieved on 4 May 2017 from
https://b2bprblog.marxcommunications.com/b2bpr/overcoming-the-5-barriers-to-value-based-pricing-in-b2b-business
Ziegler, A., & Bonzon, Y. (2007). How to Reform WTO Decision-Making? An Analysis of the
Current Functioning of the Organization from the Perspective of the Efficiency and kdsLegitimacy, Swiss National Centre of Competence and Research, Working Paper no. 23, p.123-130
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