International Trade and Foreign Investment
Added on 2020-02-05
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INTRODUCTION TOINTERNATIONAL BUSINESSLAW
It can be evaluated that international trade is the process of exchanging the products andservices within different countries. Such type of trade gives rise to develop world economy inwhich prices, supply and demand get affected by the international events. Moreover, it can beassessed that international business and foreign direct investment are subject to the regulationfrom diverse sources i.e. both national and international (Klabbers, 2015). However, sometimesit develops conflicts among businesses due to certain reasons. For instance, there are certainregulatory aspects that aim to protect the national markets and financial interests in orderovercome issues. The main object of regulatory measures is related to overcome barriers, tariffsas well as leads to enhancement within international trade. Further, it can be assessed that foreigndirect investment has been encouraged by government which means that foreign companiesshould show interest to invest in other country and increase trade among nations (Chen, 2014). Furthermore, international business law states that appropriate rules and customs aredeveloped in order to handle effective trade between countries. Thus, here proper legal writingsshould be available in order to develop trade among private sectors (Cavusgil and et. al., 2014).It can be evaluated that free trade helps in eliminating barriers to international trade. However,the most common barriers to the international trade are tariffs, quotas and non-tariff barriers. Atariff can be stated as the tax on imports that is collected by the federal government and thatultimately raises the price of products for the consumers. For instance, it is also known as dutiesor import duties that help in increasing revenue for the government (Baylis, Smith and Owens,2013). While, another barrier is quota that states that it is a limit on the amount of a certain typeof product that may be imported within the country. However, quota can be either voluntary orlegally enforced. Moreover, the effects of both these barriers i.e. tariffs and quotas are the same.It limits the import and protects the domestic producers from foreign competition (Beamish,2013). Thus, it provides chance to local manufacturers in order to increase sales and earn profits.However, tariff increases the prices of foreign products beyond the market equilibrium price andthus ultimately it decreases the demand and supply of product in the market. On the other hand,quota is another barrier to international trade that limits the supply to a certain quantity thatraises the price beyond the market equilibrium level and thus, decreases the demand of productin the market (Forsgren and Johanson, 2014).
Furthermore, non-tariff barriers involve quotas, regulations regarding quality or productcontent and other factors that obstruct imports. While, one of the most commonly used non-tariffbarriers within the country is the product standard that aims to serve as “barriers to trade”. Forexample, at one point of time (Penrose, 2013), United States restricts the importing of cheesefrom France, at that point of time, country claims that they are protecting the health of Americanpeople while actually they were protecting the revenue generating from American cheeseproducers. Furthermore, there are varied other non-tariff barriers such as packing and shippingregulations, airport permissions, custom procedures etc. Thus, all these barriers impact upon theinternational businesses to carry out their operations within any other country. Further, all thelegal elements such as tariff, quota and non-tariff practices constitute a part of barrier to carry outinternational business (Casson, 2013). Moreover, barrier to foreign direct investment involves the exclusion of foreign investorsfrom different sectors, quantitative limitations on investment or ownership and varieddiscriminatory practices i.e. taxation affects business to carry out investment within othercountries. Foreign direct investment is the way through which government attracts businesses toinvest within other countries in order to raise the employment level and generate revenue(Ryngaert, 2015). Also, government provides varied subsidies to such investors but at the sametime, it compels them by involving numerous barriers. Practicing such international trade facesbarriers such as exclusion of foreign investors from varied economic activities, limitations ondifferent type of establishment such as opening subsidiaries or branches and joint ventures as itinvolves taxation and other forms of state intervention (Moran, 2012). Another barrier within theForeign Direct Investment restricts and applies a new measure in order to restrict investmentwithin certain sectors. For instance, government of the country restricts the entry of FDI andthus, it results into the barrier that leads to decrease the economic development and growth ofeconomy (Ramasamy, Yeung and Laforet, 2012). It is crucial for the government of country to undertake varied methods so thatinternational trade can be implemented effectively. Also, the implementation of internationaltrade affects the economy as local producers do not get chance to expand its business within thecountry as there is no restriction on the market entry for new businesses (Holmes and et. al.,2013). Also, there are different types of foreign direct investment that help in investinginternational investment or capital flows into different categories such as commercial loans,
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