Introduction
of the most important factors that a businessman must consider in order to gain
more financial strength and stability for his company. One reason of investing
to other countries provides a much larger opportunity for growth. But the
success of a business also depends on choosing the right country to transact
with, and having the ability to negotiate with that country in terms of their
rules and policies, in a fairly considerable way. To be able to do this would
guarantee both countries’ relationship to be beneficial. On the other hand,
most developed countries trade and invest with developing countries because of
less competition in terms of quality and innovation. However, it’s not easy as
it looks to deal with some of these countries because of the non-tariff
barriers that they employ within their own territory. Non-tariff barriers is a
legal means of implementing restrictive labeling requirements, health
certifications and also discriminations on product standards; government
subsidies and countervailing duties; quantitative restrictions, customs
clearances and quotas. To make matters more complicated, some informal
non-tariff barriers are also being practiced. These practices refer to
unpleasant deals like bribes and unnecessary approvals that exist within a
country’s import cycle. This might have resulted from poor management, or
perhaps from corrupt government officials. Certain organizations and agreements
regarding trade policies, like the World Trade Organization (WTO) and the
General Agreements on Tariffs and Trade (GATT), have already been established
to promote order in the trade industry. But because of non-tariff barriers, any
country can perform informal non-tariff barriers for it is beyond the WTO’s
scope of authority. Actions such as this can cause delays in business
transactions that would eventually lead to unfavorable effects.
International Business
limitations by uniting the world spiritually, intellectually, emotionally, and
economically. Spiritually, in a sense of spreading the gospels of each groups’
religion to convert as many as they can. Intellectually, in a sense of passing
common knowledge to take away the naiveté of the world. Emotionally, by
updating each other about the current situations to be able to sympathize or
reach out to those countries in need. And finally, economically united,
progressive and productive without the shackles of poverty and misery. As
ambitious as the human beings can get, none of these dreams have been achieved
yet. The world is still divided in all these forms perhaps because of men’s
nature of individuality – especially in the battlefield of international
business, where survival is a necessity.
what does one means? In the book “International Business: An Operational
Theory,” by Richard A. Farmer and Barry M. Richman (1966), International
Business (I.B.) is generally business operations of any sort by one firm which
take place within or between two or more independent countries. Farmer and
Richman (1966) also included that the general study of I.B. is subdivided into
various branches of study (which will be later discussed) such as: The
operation of domestic firm in domestic branches; export and import trade;
comparative management; comparative economics system; and functional business
analysis. A more recent definition of I.B. is that it consists of transactions
and activities that occur between people or organizations from different
countries, which take on various forms (Arpan, 1993). All in all, international
business is usually defined
as the transfer of factors of production owned by organizations across national
borders, or the transfer of parts of that organization across national borders.
(Agmon, 1989).
"Times New Roman"'>
an important role in international business. Loasby (2001) states that the
international business has a new agenda, which is based in four principles. The
first is that the primary focus should not be on the specific attributes or
policies of particular firms but on a general systems view. The second
principle is that the primary determinants of the organizational structure of
multinational enterprise are the volatility of the environment and the costs of
acquiring the information needed for high-quality decisions. The third is to
link the MNE and entrepreneurship, in particular by locating entrepreneurship
within information networks. Finally the study of international business should
be embedded within a broader psychological and social context, recognizing the
importance of non-pecuniary objectives and social structures, which support
high-trust relationships rather than opportunistic behavior.
that progressive and productive economically, one can say through observation
that the most significant alteration that the world economy has encountered
during the second half of this century has been the internationalization of business.
The global reform of industries and work has been particularly distinct within
the last 25 years, as evidenced by the swift growth in the number of
international business activities, worldwide and in the
is predicted to increase at an even faster rate in the future. This rapid
growth would have been impossible without its (I.B.) branches of study. As was
mentioned earlier, these branches of study will be discussed. The branches of
studies, according to Farmer and Richman (1966), are as follows: The operation
of domestic firm in domestic branches; export and import trade; comparative
management; comparative economics system; and functional business analysis.
overseas branches is one
of the studies that should be taken to consideration in international business.
One example of this is a Japanese firm can have its branch in other countries.
Toyota of Philippines is considered as a domestic firm in an overseas branch.
Farmer and Richman (1966) stated that this type of international business
involves a management dimension in a foreign environment, and as such is one of
the most complex and interesting types of international business studies.
management problems will be identical to those faced at home.
is also an important branch in business internationally for it involves the
purchasing of products by a local firm, like Bangladesh from other local firms
in foreign countries, e.g. Australia and sell them in Bangladesh, or an that
manufacturer may sell his domestically produced products abroad. Farmer and
Richman (1966) stressed that this area of study has long been of interest to
economists, since the flows of international trade have considerable impact on
the development and operations of the local economy.
international business refers to “ the domestic firms owned and operated by
nationals in different countries can be compared, analyzed, and studied (Farmer
and Richards, 1966). Farmer and Richards have provided an example:
in
in the
Studies of this sort might cast light on the relative efficiency of similar
firms in different environments and the impact of critical environmental
factors on managerial performances.” (Farmer and Richards, 1966: 14)
is important in order for a firm to decide strategically on the different
economic environment of each country. The different environments such as the
policies of a communist state in economics as compared to the policies of a
democratic state, the different economic and political-legal constraints.
“It is possible to analyze such differences to
determine how they influence the ownership, management, efficiency, and
operations of firms. More subtle differences, such as between the
insights into economic system changes for the better.” (Farmer and Richman,
1966)
functional basis analysis. According to Farmer and Richards (1966), it
involves studies of international marketing, finance, and management are
concerned with problems of these functional operations between different
countries. This type of study may be unified with several of the above studies.
Thus, an Australian manufacturer with a branch plant in
may be interested in studying marketing systems in
be fairly different from that of the past. Firms will obtain raw
materials, parts and other inputs in different countries, gather and assemble
them in another country, and then sell them in yet other countries around the
world. For example, Reebok designs their products in the
them in 40 locations around
them around the world. All firms will face competition from products and
services that come from abroad. Products, services, managers and
employees will all participate in a global business community.
Non – Tariff Barriers
government on any nation has the right to implement the standard of ones
country. In order to ensure the safety of its culture and people, a government
must conduct some necessary measures other than the current written tariffs.
These measures can be considered as the non – tariff barriers. The Consumer
Unity and Trust Society (1999) based in
non - tariff barrier means any government measure other than tariff that
restricts trade flows. Non-tariff barriers are particularly pertinent with
respect to trade in agricultural products. At the same time, they also exist in
other product categories, e.g. textiles and clothing as well as applied against
trade in services. It is a policy that restricts trade other than simple
tariffs (Deardoff, 1999). In recent times, non-tariff barriers are, among
others, emanating from social and environmental standards. Another definition
is what Lincoln and Naumann (1991: 60) have cited. They state that nontariff
barrier (NTBs) constitute a
complex set of constraints that can frustrate and thwart the small business's
international efforts. Recent literature has suggested that NTBs may now be the
major obstacle faced by firms attempting to enter foreign markets (Czinkota,
Rivoli, and Ronkainen 1989; Jeannet and Hennessey 1988).
Trade (GATT) envisions “Most Favored Nation (MFN)” treatment to be accorded by
every member to all other members. Article II of the GATT Agreement prohibits
levy of ordinary customs duties, any other duties or charges in excess of those
set forth and provided for in the schedule of concessions relating to the
importing country. The Agreement also requires such duties or charges to be
levied on a non-discriminatory basis on imports originating from whatever
source. (The Consumer Unity and Trust Society, 1999) For example, shrimps
that will be exported to the
States
shrimps harvested without turtle – excluder device. The same is applied on
fishes exported to
measures in this country require regulation on process and production method
such as breeding, water treatment system, packing, etc. Another example is the
stringent regulations of Japanese on fruits and vegetables and the ban of
hormones and livestock milk production in
The Consumer Unity and Trust Society (1999) in comment to
the previous examples, added that this
is the case with
where the applied rates are mostly well below the ‘binding’ commitments. The
only allowable exceptions to these bans and restrictions are those of
preferential treatment under a Regional Trading Arrangement or any similar
arrangement specifically permitted under the GATT.
Trust Society (1999) cites an important related concept regarding non-tariff
barriers:
“Another related concept is “water in the tariff”.
This expression was used at the Uruguay Round negotiations on tariffication.
Negotiators accepted that the conversion of non-tariff measures into tariff
equivalents (i.e. tariffication) can never be completely accurate because of
legitimate differences about the methodologies to be adopted. In many cases
countries offered tariff equivalents which were inflated. The difference
between a defensible tariff conversion and the one actually offered was
described as “water in the tariff” or ‘dirty tariffication’.” (
Society, 1999: 1)
in the establishment of regulations and order in the world trade industry. The
GATT’s roots can be traced towards the end of the Second World War, where a
number of international organizations where set in motion in order to create
institutional structures for the conduct of international relations in the
post-world war. One of the most important negotiating processes at the time was
the United Nations Conference on Trade and Employment, held in
in 1947, which led to the adoption of the Havana Charter. For many reasons,
including the failure of the
States
never entered into force. As part of the negotiations on the Havana Charter, a
group of countries engaged in tariff negotiations and in 1947 agreed on
substantial tariff reductions. The entry of the Havana Charter was into pending,
and with certain additions, converted it into the GATT. To bring the GATT into
force quickly, a Protocol of Provisional Application was developed. Thus, the
GATT was born, as a provisional agreement until such time as the Havana Charter
would be ratified. The Protocol of Provisional Application stated that the
governments involved would apply GATT’s parts I and III; however, part II
(mostly on non-tariff barriers) would apply only to the fullest extent
"not inconsistent with existing legislation". (WTO, 1997)
In light of the entry
into force of the Marrakesh Agreement establishing the World Trade Organization
(WTO) as of
and its ratification by almost all GATT Contracting Parties, those parties
decided to terminate the GATT 1947 as of
lives on since they are incorporated, with certain understandings, in the
Marrakesh Agreement as GATT 1994. (WTO, 1997) The WTO, considered as a
successor to the former GATT, retain most of GATT’s rules and focuses on new
concepts such as providing the
institutional framework for a unique system of rights and obligations for trade
in goods and services and for certain aspects of intellectual property
underpinned by rules and procedures for the settlement of disputes. (WTO, 1997)
barriers. Among them are: quantitative restrictions; import licensing;
voluntary restraint agreement; and variable levies.
Consumer Unity and Trust Society (1999: 1) describe “
the clearest example of non-tariff barriers. This limits or puts quota on the
amounts of particular commodities that can be imported or exported during a
given period. Article XI of the GATT prescribes the use of quantitative
restrictions, subject to the specified exceptions listed in Article XX (general
exceptions).”
import licensing. “It means the need to obtain a permit to import a
product. The administrative procedures require the submission of an application
or other documentation to the relevant administrative body as a condition for
importing (the WTO Agreement on Import Licensing Procedures)” (
Unity and Trust Society 1999)
voluntary restraint agreement refers to policy where a country
country to an agreed maximum within a certain period through the voluntary
restraint agreement (VRA). The WTO Agreement on safeguards makes VRA illegal. (
Unity and Trust Society 1999)
variable levies which is considered as a complex system of import
supplement. “It intends to ensure that the price of a product in the domestic
market remains unchanged regardless of price fluctuations in exporting
countries. Variable levies are a feature of the Common Agricultural Policy of
the European Union. The Uruguay Round Agreement stipulates that variable levies
have to be converted to tariffs.” (Consumer Unity and Trust
Society 1999)
Srivastava
(1997) from
stated some facts about the discrimination of other countries to their country
using the non-tariff barrier. Srivastava (1997: 1) stressed, “Many exports of
handicapped on account of quantitative restrictions. In case of certain woollen
garments,
the WTO for seeking redressal against the
absence of any solid reason.” In addition, “Countries like
Indian made watches in their trade fairs on the ground that
yet fully freed its import regime for watches under the low tariff system.”
Another point that Srivastava (1997: 1) stressed is the “indiscriminate use of
anti-dumping measures have affected exports of many developing countries
including
According to WTO report, as on 30th June 1995, 805 anti-dumping actions were in
operation. Of this, 305 were by the
178 by the EU, 91 by
and 86 by
(p. 1), and that “a few countries are extending preferential treatment to some
of their trading partners and are following discriminatory trade policies. For
example, in case of horticulture products, while flowers from the EU are
allowed duty-free in The Netherlands, the same flowers from a country like
an import duty of 18 to 20 percent.” (Srivastava, 1997: 1).
trade. Naka (1996) discusses that The 1989 National Trade Estimate Report
lists more than thirty Japanese trade barriers, more than any of the other
thirty-four nations and two regional trading bodies. These barriers include the
complexity and rigidity of
distribution system and the Large Store Law, keiretsu (an interlocking
corporate grouping), patent protection, services, and market restrictions along
with more traditional trade barriers such as tariffs, quotas, standards, and
government procurement practices. In
addition, The application of
product regulations and standards is becoming increasingly contentious as an
implicit nontariff barrier to trade. (Maskus, et al, 2000)
Management in the International Business
field, one must have an effective management strategy. According to Farmer and
Richman (1966), “management of productive activity carries with it significant
economic and political power, and much of the praise and objections to
international activities…” (p. 20) A major determinant of success in
international business is managerial commitment to international activities
(Cavusgil and Nevin 1981). To overcome the array of important NTBs found in
foreign markets, a small business must be strongly committed to international
trade. (Lincoln and Naumann, 1991: 60). In international business, there are
two types: the international business without foreign management, and the
business activities involving direct foreign management
International
business enterprises without foreign management are categorized as
import, where, as Farmer and Richman (1966) stated, “
businessman or a government body, merely buys from the foreign firm. Foreign
goods enter, but, as mentioned above, relatively little managerial content is
imported along with the goods. Such imports are restricted to goods, which can
be moved,” or as export, where “a local firm sends goods abroad. As in the
first case, managerial functions are not exported along with the goods.” (p.
20) It can also be categorized as portfolio investment, where an
investor may buy stocks in foreign corporations or bonds issued by public or
private agencies of a foreign country; licensing, where a firm may
license a foreign company to utilize its trademarks, patents, processes, or
other knowledge which may have proprietary value; and contracting, which
involves in projects that requires contractor design as well as engineers.
(Farmer and Richman, 1966) Another category is the turnkey projects,
“where, a foreign firm may design and construct a factory or other system,
carrying the project through its initial operations.” (Farmer and Richman,
1966)
involves direct foreign management is applied in situations where some types of
international business activity require
that the owners of the enterprise also provide managerial effort within the
foreign country. Owners can still have the direct control over the company as
long as they have the asset to do so. This kind of management is also called
the exported management. Exported management involves major kinds of activities
such as the sole-direct foreign investment, the joint venture, and
the international service. (Farmer and Richman, 1966)
investment is where a firm may completely own and operate a business in a
foreign country. As noted by Farmer and Richman (1966), “all of the managers
may be local citizens, but the owners provide ultimate management control. In
such cases, local management must be carried on in the local environment
including existing legal-political, educational, sociological, and economic
situations, which may be unique within a given environment.” (p. 24) The joint
ventures are activities of any type, which are performed by at least two
firms from different countries in some type of partnership arrangement, (Farmer
and Richman) and the international service, where firms were being
provided by international transports, sale of insurance, stocks and bonds, and
similar items across national frontiers.
“Corporate Management in Developing Countries: The Challenge of International
Competitiveness,” states that manager in developing countries, in public or
private sector are constantly aware of the problems of the third world, or the
underdeveloped. Wint also added other examples that depict the management
strategy of the developing countries as ineffective. He also stated that
managers in the public sector are aware of the problems typical of
stagnating economies that are growing only slowly, if at all. Wint commented
that managers and analysts in developing countries should consider carefully
how foreign exchange markets operate and how exchange rates are determined in
the particular context of the developing country environment. Similarly, public
policymakers must consider carefully how exchange rate policies of developing
country governments affect the competitiveness of the economies they manage. (p.
3)
internationalized. A was discussed earlier, local managers can manage an
expansion of a firm in other countries and some corporation allows locals in
the countries where they have their expansion to manage the firm. These activities
happen, and vice-versa. Richard Peterson (1993), in his book entitled, “
and National Culture: A Global Perspective,” claims that the international
business operations have
changed rather dramatically in the latter years of the twentieth century. The
first international presence of a German, American, or Japanese firm may have
been through exporting a product or establishing a sales operation in another
country. Later, the company may have established an international division to
manage operations in a variety of countries. (p. 5) He commented that someday
in the not so distant future, a company might be operating globally as Nestlé
does. Nestlé's world headquarters is located in
consider itself to be a Swiss company in terms of the thinking of its managers.
Its managers are drawn from many countries. (p. 5) Back in 1995, Nestlé might
have been the only company who practices this strategy, but now, almost all
company do this especially fast food. Wint’s vision has already come to
reality.
different perspective on the word “management.” Wint’s book provided the
readers tables containing the different perspective of some countries about
management. In
managers are defined as “all administrative and managerial personnel in private
and public sector
organizations. The managerial class evolved out of the civil service class.” In
they see managers as people who “include a great variety of people occupying
supervisory positions in private and public sectors plus foreign staff in joint
ventures.” In
owner-managers, entrepreneurs, and corporate leaders in both private and public
sectors. Most business organizations are family-owned firms; many are
characterized as autocratic, implicitly structured, paternalistic, and
nepotistic.” South Koreans refers managers as “those individuals who are
initially recruited to work as white-collar administrative employees and as
technical engineering and scientific staff by major private sector firms upon
completion of undergraduate and graduate studies, most of whom are later
promoted to managerial positions.” Japanese see managers as a job position
“including section chiefs, assistant department heads, assistant section
chiefs, and department heads in large firms.” In
that “should have strong collective sense. Managers should have importance of
honor, pride, and dignity in interpersonal relationships. They must also show
loyalty to work group, focus on people rather than task, high-risk avoidance,
centralized decision making, shame culture, strong influence of religion in
work. Unions are also outlawed in this country.” In
defined, but they “usually refer to those persons occupying middle to top-level
organizational position in the private or public sector.” (p. 406 – 412)
perspective on management that had been presented by Wint. In response to the
perspectives that he has conducted, he provided analyses on the relationship of
cultural values and managers. He concluded that there is a vast and important
difference within a country like the
heterogeneous population. Other more heterogeneous populations in Wint’s sample
include those in
very homogeneous populations from which the managerial ranks are drawn. Wint
cited some findings from Hofstede (1980) who identified four factors that
differentiated the employee and managerial populations of a large American
multinational corporation operating in approximately forty countries. Hoftede’s
findings states that The United States, Britain, Germany, and Austria share
more in common in terms of lower power distance, greater individualism, lower
uncertainty avoidance, and stronger masculinity. The situation tends to reverse
itself in countries like
and
that individualism is given considerable weight in
findings, this time from a research by Hall and Hall (1990) managers in
countries like
low-context cultures where the language is clear and direct. On the other hand,
French, Saudi Arabians, Japanese, Chinese, and Malaysians perform their duties
within a high context culture in which language and mannerisms are much more
indirect and complex.
managers, it is ironic that those definitions would only be just as effective
as they could be only when applied. It has been also a reality that some
multinational firm crumbles because of poor management. Countries lose trade
partners and decreases tourists because of poor management and cross-cultural
blunder. Robert Maddox (1993), in his book “Cross-Cultural Problems
in International Business: The Role of the Cultural Integration Function,”
defines a cross-cultural as a
decision affecting the foreign operations of a firm that results in a greater
than necessary cost to the firm. He also added that the cost might be in direct
dollars lost as the result of a poor decision or more indirectly in lost image
or reputation. Basically, a firm blunders because of attitude deficiency and
skills deficiency resulting from a poor management strategy.
Corruption
border interventions that usually being met in the form of taxes or quotas.
Hores (1992) declared that there are three major types of public measures
altering trade patterns. One of them was already mentioned. The other two are
macroeconomic policies, and commodity programs. The cost and benefits of border
interventions are usually distributed in the form of taxes (tariffs),
subsidies, and quotas. These policies can be applied to both exports and
imports. Hores wrote that “a nation is a small-country case if the
demand for its exports or supply of its imports is perfectly elastic
(horizontal). A nation is a large-country
case if the demand for its exports or supply of its imports is neither
perfectly elastic nor perfectly inelastic. And a nation is a very-large-country
case if the demand for its exports or supply of its imports is perfectly
inelastic (vertical).
their negotiations focused on reducing tariff barriers. The negotiations have
been successful and as a result, the border interventions are currently
dominated by non-tariff measures that often lead to bribe, delays, corruption
and discrimination. Hores pointed out some unpleasant predicaments that have
been brought about by non-tariff barriers. The examples were unofficial and
unauthorized delays in processing import or export permits behave like quotas.
The monopoly-like guild of wholesale merchants in
merchandise also constitutes de facto quota behavior. Excessive packing
requirements or shipping costs behave like taxes. Credit concessions provided
by the
and other exporters to foreign buyers of wheat are agricultural export
subsidies. Also,
levy on imports equal to the difference between the domestic support price and
the world price. (p.77)
journal entitled “Outlawing transnational bribery through the
World Trade Organization,” reveals that every
country in the world makes bribery of its own officials illegal. One major
problem is the demands by foreign government officials that bribes be paid are
considered by many businesspersons in Europe and the
greatest problems afflicting international trade. He also exposes that
“controlling the type of bribery that afflicts international commerce -
transnational bribery - is particularly difficult because only half of the
process is illegal; although every country in the world makes bribery of its
own officials illegal, only two countries prohibit the payment of transnational
bribes.”
The blame was usually on dishonest officials in
developing countries because of the open secret that almost all of developing
countries implements corrupt practices. According to Hores (1992: 1), of the
“134 countries that attended the 9th International Anticorruption Conference
organized by Transparency International in Durban last October, over a hundred
were developing countries. More and more of these countries are expressing
their resolve to combat corruption, echoing international initiatives, such as
the OECD Convention.” Nichols (1992) depicted that corruption involves the
misuse of authority or a position of authority for some self-interested
purpose. Like corruption, bribery can be classified into four types: cost
reducing, cost enhancing, benefit enhancing, and benefit reducing. Bribery,
which is a transaction in which something of value is transferred by the bribe
giver in exchange for a benefit from the bribe taker, can be further divided on
the basis of whether die benefit conferred by die bribe taker is according to
or against the rules. Care must be taken, however, that a definition of bribery
reflects the distinction between bribery and extortion. Nichols also exposes
that every country makes the bribery of its own officials illegal that include
countries such as
businessmen in these countries claimed this. Prevention of such activities led
to the enactment of certain laws to prevent the widespread of such
malpractices.
Corruption Act, which punishes any civil servant who accepts bribes or
habitually accepts gratuities for performing official functions.
has a law specifically dealing with corruption in addition to its statutes
prohibiting bribery.
Arabia
an older law, took effect in 1992.
Third World: From Policy Failure to Policy Reform,” by Hope (1996), widespread
epidemic corruption has reached epidemic proportions in most
World
inability of the administrative machinery to comply with reform measures is
symptomatic of the endemic nature of the negative ethical values that
perpetuate and maintain a system of corrupt activities to the detriment of
economic development irrespective of the form of government. (p. 129) Hope also
claims that “the politicization of the bureaucracy allowed for the entrenchment
of the use of favoritism and patronage as the means through which authority and
influence were exercised. The politicians and the bureaucrats forged a
dependent patron (politician)—client (bureaucrat) relationship through which
administrative decision-making occurred. This process, inevitably, led to the
abuse of public office for private and personal gains.” (p. 130)
interesting example of corruption in
“…a mass of letters from
businesspersons into seemingly lucrative, but ultimately fraudulent, transactions
requiring the use of the letter recipient's bank account. A typical letter
begins by stressing that the recipient was chosen as someone who is
"honest and reliable." In an apparent effort to establish the bona
fides of the sender, the letter then goes on to describe the sender as part of
a group of corrupt government officials who need the recipient's help to
launder some money. It is telling that the authors of these letters believe
that posing as corrupt government officials lends credibility to their
proposal…” (Nichols 1992: 92)
harmful bribery is in trade. He stressed that corruption acts as a barrier to
international trade and it blocks trade in two ways: by acting as a surcharge
on goods or services, and by creating de facto monopolies. Corruption also
distorts economies by distorting the market in a number of ways. Corruption
causes the market system to work in a way other than the way it is supposed to
work. One example is that corruption distorts relative prices by causing an
excessive amount of money to flow into the government (with, it should be
noted, no corresponding output by the government). Corruption is also different
from taxation in a sense that it is being done in secrecy. Corruption also
diverts resources from their most efficient uses. This occurs in three ways.
First, resources are consumed in the effort to maintain secrecy and to cover up
illegal transactions. Second, government officials are likely to hold back
resources in an effort to increase the premium that they can extract from bribe
givers and third, resources may be stolen by officials who will not put those
resources to their most efficient use. Corruption imposes others cost as well.
Corruption has a corrosive effect on societies in which it occurs at
significant levels because of its illegality.
corruption on trade restrictions,
and Schmitt (2003) states that governments have no incentive to introduce
nontariff barriers (NTBs) when they are free to set tariffs but they do when
tariffs are determined cooperatively. Quotas are preferred to antidumping
restrictions so that the model is consistent with a progression from using
tariffs only to quotas and then to antidumping constraints (when quotas are
eliminated). There is a corresponding narrowing of the range of industries
affected by trade restrictions.
Trade
Measures on Sanitary and Safety
through trade regulations, has made some rules on the application of sanitary
and phytosanitary measures to improve the human health. Sykes (1995) elaborated
that sanitary or phytosanitary measures include all relevant laws, decrees,
regulations, requirements and procedures including, inter alia, end
product criteria; processes and production methods; testing, inspection,
certification and approval procedures; quarantine treatments including relevant
requirements associated with the transport of animals or plants, or with the
materials necessary for their survival during transport; provisions on relevant
statistical methods, sampling procedures and methods of risk assessment; and
packaging and labeling requirements directly related to food. (p. 208) The harmonization
is the establishment recognition and application of common sanitary and
phytosanitary measures by different Members. Risk assessment involves the
evaluation of the likelihood of entry, establishment or spread of a pest or
disease within the territory of an importing Member according to the sanitary
or phytosanitary measures, which might be applied, and of the associated
potential biological and economic consequences; or the evaluation of the
potential for adverse effects on human or animal health arising from the
presence of additives, contaminants, toxins or disease-causing organisms in
food, beverages or feedstuffs. (p. 209) However, though measures have been
established, Fredriksson (1999: 1) states that interest in the trade and
environment debate has intensified as a result of international trade
agreements and because many proposed solutions to the climate change problem
have potential implications for the global trading system. Clearly more
empirical work is needed to inform the debate, guide policymakers toward
solutions, and help set priorities.
barricade among traders. But Gawande (1997: 425) states that these barriers are
being used as a strategy to prevent illegal trades. He further states that
Johnson (1953), Tower (1975), Riezman (1982), Kennan and Riezman (1988),
Thursby and Jensen (1983), Chan (1988), and Baldwin (1990), among others, have
made rich theoretical contributions to the subject of strategic trade barriers.
(Gawande, 1997: 425). But the one he stresses is
(1990) Game-Theoretic Political Economy Model, which depicts that two
countries, Home and Foreign, trade in n goods. Each good belongs to one of
three types, categorized according to trade: goods with intraindustry trade,
goods that are imported only by Home, and goods that are imported only by
Foreign. This model illustrates the retaliatory purpose of nontariff barriers.
Gawande (1997: 425), explains that
idea is to use offensive trade barriers to discourage politically protectionist
tariff formation in the foreign country. This imparts realism to the model,
especially given the empirical validity of political economy models of trade
barrier formation that has been established in the influential studies by Caves
(1976), Ray (1981),
(1993). From an empirical perspective,
idea is attractive because it allows the decomposition of observed level of
barriers into a politically determined protectionist component and a
strategically determined offensive component. Another model in the spirit of
(1995), who focus on a two-level game where bilateral trade barriers are
determined at the international level but that must be consistent with the
domestic political equilibrium where lobbying spending is an important
determinant of trade barriers.
The
Customs
Fitting into place in the international business
entails licensing and clearance stages. GATT recognizes that trade may be
enforced by means of licensing. A separate Agreement on Import Licensing
Procedures, which applies to all WTO Members, aims to strengthen general GATT
obligations in this domain. The Agreement resembles closely the code on
licensing that was negotiated in the
round. It establishes requirements to enhance transparency of licensing
systems, including publication requirements, the right of appeal against
decisions, and the length of license validity. (Sykes, 1995)
Sykes depicted the custom procedures from the
guidelines of the World Customs Organization that:
“Custom valuation involves classifying and valuing
imports for the purpose of levying tariffs and collecting statistics. Custom
procedures might become NTBs if officials assign goods to an incorrect
classification to which a higher tariff applies or assign goods a value greater
than appropriate. An agreement to reduce and bind tariffs would be practically
meaningless without a set of rules concerning the valuation and classification
of imported goods. Arbitrary customs procedures could then be used to ensure
that a government (or its officials) collect as much revenue as desired,
independent of the formally negotiated tariff schedule. Import-competing
industries might also bribe officials to harass importers. In many countries,
custom authorities do not accept importer's invoices as the basis for tariff
assessment. To reduce the likelihood that a country's published tariff schedule
is not representative of the real nominal tariffs that apply, GATT establishes
certain rules and principles regarding customs valuation.” (Sykes, 1995: 98)
depicted in custom is that valuation should be based on the transaction or
invoice value of the goods -- the price actually paid or payable for the goods
(subject to adjustments concerning freight and several other charges). This
method should be applied when: there are no special restrictions as to the
disposal or use of goods; the buyer and seller are not related; no proceeds of
the subsequent sales accrue to the exporter; the sale or price is not subject
to special conditions that cannot be quantified. The agreement does not
prescribe a uniform system regarding shipping, insurance, and handling charges.
A country may opt for a cost, insurance, and freight (c.i.f.), a cost and
freight, or a free-on-board (f.o.b.) valuation basis. If customs authorities
have reason to believe that the transaction value is inaccurate, they are
required to proceed sequentially through five alternative options: the value of
identical goods; the value of similar goods; the so-called deductive method;
the computed value method; and if all else fails method.3. Another rule that
should be taken into consideration is the pre-shipment inspection. As the name
suggests, pre-shipment inspection (PSI) consists of inspection of goods by
specialized firms before they are shipped to the country of importation.
Governments of importing countries usually decide to engage the services of PSI
firms in order to reduce the scope for exporters and/or importers to engage in
either over-invoicing or under-invoicing of imports. Over-invoicing may occur
in contexts where there are foreign-exchange controls, this being a classic way
to transfer capital outside the country. Subsidies are also important.
Subsidization may pertain to import-competing industries or export industries
that compete in international markets. To the extent that such subsidization is
trade-distorting (i.e. expands or reduces trade above or below the free-trade
level) it may threaten to offset market-opening commitments negotiated in an
MTN. However, in certain circumstances subsidies may be a desirable form of
government intervention, whether in the domestic economy or in international
trade. On the other hand, employees in the customs are more capable of corruption
because, according to Zuvich (1998: 51), tax directors, CFOs and other CPAs are
being entrusted to make corporate decisions regarding customs and international
trade matters. He explains that to be able to effectively make the "right
call," these professionals must understand the consequences of their
decisions and be informed. This holds true for some cases in Customs depicted
its officials to be involve even in drug trafficking. (Dettmer, 1997)
Skud (1996)
states that customs requirements that are redundant, unnecessarily complex, or
cause delay are ignored in the presence of tariffs and remain as barriers after
tariffs have been eliminated. The difference in customs requirements from
country to country also impedes trade, as exporters are forced to comply with
multiple import regimes. In trade, opportunities for corruption are scattered
like dusts all over, most especially in Third World countries because of
non-tariff barriers. Although the regulations of the GATT and WTO were being
implemented fairly, unpleasant malpractices of officials are still hard to
catch because of the vast opportunity to stealth what their doing. Another
problem is that individual interest frequently triumphs over what is morally
right. As tariffs on imports of manufactures have been reduced as a result of
multi-lateral trade negotiations, interest in the extent to which existing
nontariff barriers may distort and restrict international trade is growing.
Accurate and reliable measures are needed in order to address the issues involving
the use and impacts of nontariff barriers. (Deardoff and Stern, 2003)
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