The impact of the different forms of regional trading arrangements on international trade

international-trade-essay

Introduction

Trade refers to the exchange of goods and services with the aim of making a profit. Trade may occur between two individuals or between two countries. Trade was necessitated by the need for people to acquire what they may not have and those with a surplus of certain goods may also wish to dispose some of them at a profit. Trade between two countries is international trade. The international trade is under strict monitoring because money matters are quite contentious (Lesher &Miroudot, 2006). 

International Trade

The international trade that occurs between different nations has been advantageous to most countries that do not produce everything that they need. For example, Japan imports most raw materials needed for their industries (Lesher & Miroudot, 2006).  The international trade also serves to improve the relationship between the manufacturer, importer, and exporter. The international trade is in close relation to the regional trade. Regional trade is occurs where countries from the same geographical region amalgamate so as to sell their products for a few weeks or a specified period.

The usual regional trade is when a trade block, grouping of countries come together so as to have a larger percentage control of the market. Their main goal is to make substantial economic gains as a group. The regional trade blocks also form policies that enable them to trade together with minimal barriers .When it comes to regional trade arrangements different regional blocks have different rules and policies on how to trade thus making regional trade very hard to conduct. However, trading as a block has reduced the economic functions and liabilities of trading singularly.

Fostering Trade

Fostering trade refers to encouraging trade between market peers or non-peers. Fostering trade is important as it helps to develop closer and friendlier relationships which all concerned parties develop and attain profits. It is important to foster trade because it gives trade continuity beyond one transaction. There are several ways of fostering trade such as diplomacy (Lesher &Miroudot, 2006). Trade is only possible when there is peace between any two countries that have to trade together.

In order to foster the trade between two countries, diplomatic ties between the countries in question need to be peaceful, amicable, and encouraging for trade to occur. The less peaceful a situation is between two countries, the less their probability of trading. This is true as we can see in the world today. In fact, the less amicable the situation, the less trade the two parties do with each other.

Major international trade fosters trade as it is lucrative and everyone wants to at least be with the team especially this world cup period. The countries in the world love making money and the prospect of a lucrative deal to anyone of the countries inspires the countries to play with their hearts and not their passion for money. Thus, the major international trade plays a motivational role in fostering the trade.

Financial institutions such as banks foster trade by lending to anyone who needs extra money a loan to set up their trade. The financial institutions also play the advisory role of evaluating and giving a country advice if they should trade or not. The financial institutions, also give credit in transactions, which cannot be settled immediately. All these actions end up fostering the trade in the world.

Economic Issues Affecting Multinationals

Multinational corporations are any companies that operate in more than one country. Usually, such a company are quite many and a good example it the Coca-Cola Company. All these corporations first developed in to the dominant forces in their country of origin then ventured in foreign markets. Multinational Corporations depend heavily on the diplomacy of all countries that host them. Hostility in their host countries only strains their business opportunity.

One major economic issue that faces the multinational corporations is the international taxation. International taxation is the taxation of an individual or a corporation subject to several taxes from several different countries. Multinational Corporations face the international taxations. The major drawback of the international taxation is that it hasno uniform formula of calculating the uniform amount of taxes payable to every country (Crawford & Fiorentino, 2005). Every country independently has its own tax regulations imposed on the multinational corporations. This gives a sort of double charging of the tax imposed on the multinational corporation. This creates a huge burden that the multinational corporation has to carter for.

In addition, the fact that the taxing systems across the entire globe are not similar and the volatile nature of the currencies means that the corporations have a very little chance of budgeting for the tax amount due therefore the corporations make assumptions. In business, forecasting is important as it helps in the final budgeting for the company enabling the planning process to take place. Once forecasting becomes difficult for a company, then planning and budgeting becomes quite hard (Crawford & Fiorentino, 2005).Hence, the growth of the multinational corporation is not easy.

The taxing systems of the entire world need to be embraced, harmonized, and synchronized to enable Multinational corporations to do sufficient budgeting. In addition, there should be a uniform currency for paying taxes thus shielding the multinationals from the currency volatilities.

Exchange Rates

The exchange rates refer to the currency exchange value and the following outline is used to determine the exchange rate.

  • Inflation differentials
  • Interest rates differentials
  • Current accounts deficits
  • Public debt
  • Terms of Trade
  • Political stability and economic performance

There are effectively two exchange rate mechanisms, the fixed and floating exchange rate mechanism. The fixed exchange rate mechanism entails that the determination of the value of a currency is with respect to a fixed commodity for example gold. Therefore, the value of a currency depends on the fixed commodity. The advantage is the elimination of the risk of exchange rate resulting in much lower inflation rates (Carrere, 2006).

The floating exchange rate mechanism is whereby there is minimal interference by the government or the central financial institution. The value of currency fluctuates a market exchange rate. This mechanism has the advantage of no crises and lower foreign reserves. However the inflation of is high and the uncertainty of the currency value due to the daily fluctuation leads to lower or no investments (Obstfeld, 1996).

References

Carrere, C. (2006). Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model. European Economic Review,50(2), 223-247.

Crawford, J. A., &Fiorentino, R. V. (2005). The changing landscape of regional trade agreements.World Trade Organization.

Lesher, M., &Miroudot, S. (2006). Analysis of the economic impact of investment provisions in regional trade agreements (No. 36). OECD Publishing.

Obstfeld, M. (1996).Models of currency crises with self-fulfilling features.European economic review40(3), 1037-1047.

Posted on: October 14, 2018, by :

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