International Relations

Write an 8 page essay (double-spaced, 12pt., numbered pages, one inch margins, stapled) about the following topic.

1) Transnational or regional trade regions are more than just about liberalizing markets and reducing tariffs. As much as they integrate different economies, they also can disrupt domestic regulatory and support institutions. Explain how domestic politics and institutions interact with international trade regimes in the following manner (drawing on the EU CAP case and the WTO case):

1. Explain how domestic protections and subsidies can actually help expand international trade. For instance, consider how a program like CAP _can be necessary to facilitate gradually increased trade over 40-50 years in Europe, how the different mechanisms of supports help allow increased imports and exports. Note also how a program like CAP is fundamental to the political strategies for managing key domestic interest groups so that international trade can progress.
2. Notice also how CAP can create greater costs and problems for especially less developed countries. For instance, explain how the CAP case and the WTO case show how less developed or margining market countries have greater barriers to enter international markets.

For instance, the very mechanisms help the EU maintain gradual trade integration (like CAP), creates barriers to entry for agricultural products from places like Latin American and Africa Also consider Embraer – was Brazil’s creation of export financing subsidies justified?

Should lesser developed countries be allowed to subsidize exports in certain technologies?

Why or why not?

ANSWER

International Trading

How Domestic Politics and Institutions Interact with International Trade regimes in relation to EU CAP and the WTO

Domestic politics impact the flow of goods within and out of the country (Islam & Apandi, 2019). Trade policy is any regulation that affects the goods within countries that also consist of the import tariffs, voluntary export restraints taxes, and subsidies during exporting. However, many of the countries have tried to bring down all the domestic politics that hinder development, which hinders trading with other countries. It has been seen that countries with policies that allow easy inter trading have showcased high growth in the economy. With such cases, the EU agenda 2000, which focuses more on ensuring that the Agricultural sector is working on ensuring that they increase their production, should also focus on environmental impacts and consider protecting the environment (Trumbull & Corsi, 2007). With this policy, the international trade regimes created two pillars of the market support measures. The first measure included measures that would support traditional indirect prices and then the MacSharry reforms that supported the direct subsidies (Trumbull & Corsi, 2007).

Considering the international trade regimes placed with the EU on environmental conservation, many of the domestic countries have to ensure that they create domestic rules that will align with the international trade regimes for them to receive payments. However, there have been concerns that giving many of the less developed countries lenient environmental regulations has given such countries competitive advantages, hence enriching their firms operating in the US. Furthermore, different country policies such as prisoners labor which is offered for free, low foreign wages that allows the exporters to gain more profits, gives some of the countries an advantage to get more profits after making the exports hence giving them a more competitive edge within international markets (Sliva & Samimi, 2018). Generally, in countries that are still developing, having different domestic policies is said to impact the production levels, trade flows, and domestic prices, but it does not impact or change the prices within other foreign countries. This directs to the fact that only major countries’ domestic policies, such as the EU, can affect the prices for foreign trades. Still, for the still-developing countries, this might only affect the production levels and the trade flows within the domestic levels.

In relation to the CAP event, in 2004 France was among the countries that we’re receiving more benefits from the CAP, it produced up to 24% of the cereals that were taken in the EU, it also produced up to  39% of the meat consumed in the EU, that lured the support of  CAP. However, with the bad weather, the production reduced, and the government did not bother to reduce the taxes (Trumbull & Corsi, 2007). The French peasants raised against the tax burdens, which led to the destruction of many properties that pulled the French back. Later on, the French farmers were seen to be war resistant to the point 80% of the FNESA were French farmers; however, they always ensured that before they considered launching a new reform, they had to consult with the leaders where they would consider factors such as tax that can impact the international trades.

Policies such as currency value affect the international trade regimes, as it becomes hard for CAP to offer adequate support. In this case, if a country experiences currency devaluation, this leads to an increase in the prices of agricultural products, which likely undermines the political support of the CAP. To ensure that such shocks have been buffered, a policy “green exchange rates” was created that aimed at ensuring that prices could be adjusted more gradually, as to the monetary exchange rates, which could then lead to the slow increase of the prices hence getting the prices back to their normal. However, there have been cases where countries are pressing in the EU to liberalize the CAP. This was because the EU had allowed free access to products from specific countries; in this case, the 77 ACP countries received benefits from the trade regime with the EU as it also had non-reciprocal tariffs for over 30 years (Trumbull & Corsi, 2007). They had duty-free and got free accessibility within the EU for their farm products. With the ongoing widespread conflicts, there arose extensive political corruption. There was no more social stability, including political stability; hence the countries started producing products that created competition with the EU products. Hence there is more regional trade than just liberalizing markets and reducing taxes. Domestic politics have greatly influenced the international trade regimes, hence affecting trade.

B

Explain how Domestic Protections and Subsidies can help Expand International Trade

Domestic protection helps reduce the quick currency devaluation that affects the pricing of products during trading. If the prices of products have been affected, that means that the producers will also be affected. In this sense, they might also end up making losses or smaller profits that, if compared with the input, isn’t worth it; with subsidies, it becomes easy for companies to still stay in production even after losses (Carranza & Weber, 2020). Domestic productions such as the CAP ensure that they slow down the currency devaluation. Farmers will not experience this as a bang but as a gradual process that will allow the products to easily get back to their prices. In this manner, there will be no reduced number of exports rather this gives countries, especially the developing countries, a chance to get through and increase their produce due to available funds. In 1972, it was experienced that the end of Bretton Woods impacted the price system, as there arose the need to manage the single set of agricultural products (Trumbull & Corsi, 2007). However, it was the duty of the CAP to ensure that the price fluctuations have been maintained and slowed down.

When producers get a place that they can sell at high profits, they will try to increase the production to ensure that they maximize the profits. CAP comes in with strategies to help them manage their self-interests to ensure that international trade progresses. Producers do not consider that they can end up overproducing, hence risking stockpiles and reduced prices. In reference (Trumbull & Corsi, 2007) with the overproduction experienced, the EU got self-sufficient. However, it came with a cost; the EAGGF had to include itself in spending to build up the stocks and ensure they supported the exports. This also affected the case that they had to dispose of some of the overproductions they had received as export subsidies. As the EEC pushed down the world market prices, the costs of the exports reduced.

This led to the CAP costing up to 62% of the EEC expenditures. Hence there was the need to reduce stockpiles (Trumbull & Corsi, 2007). An experiment began with combining the quotas and the variable price supports. This played a role in placing administration limits and actions that helped the producers. Domestic protection helps the farmers from experiencing low profits by coming up with such strategies. Although to some point, the producers might not like it, as in 1981, they ended up kidnapping the head of the French National Milk board due to the Quota that had been placed on milk; this helped regulate the milk production and also helped maintain the value of milk. With the above, it becomes easy for traders to get new markets without necessarily overproducing, which will lower its prices. Rather they focus on increasing the quality hence increasing the prices, which promises growth within the imports and exports sector.

Programs like the CAP are fundamental to the political strategy as they help deal with producers’ reforms. Like in any other business, there are conflicts where eth producers and the buyers fail to agree. This might be due to policies that have been set that one of the parties feels like they agree with. The program comes in as the mediator to ensure that the two parties agree with each other; they come up with revised policies and help the two parties. They also go to the extent of offering financial support to help the developing countries support their projects. During events such as overproduction, they come up with support in finances, such as high milk production. They supported the storage and the quotas to ensure that the prices of the international markets increased and not just reduced.

C

How CAP can create greater costs and Problems for especially less Developed Countries.

CAP can create great costs and problems for less developed countries as it aims at ensuring that all the countries have equal access to the international markets where they can sell their products. Despite the fact that the producers from developed countries feel like they should all have the same abilities, they should also be concerned that they have a wide range of resources which the people from the less developed countries do not have. It might be like, for instance, in farming, people from developed countries have access to high-quality pesticides and machinery that help them cultivate their land to the finest. When they get infected by pests, they can easily control the pests by using pesticides. In comparison, people from the less developed countries use the ancient tools to cultivate their farms; to this point, you might find that they might fail to have smooth soil textures as to those used by machine operators. This means that they will not have high production. In the same case, if their farm produce is attacked by pests, they would end up in losses contrary to those from developed countries. Hence, CAP is struggling to ensure that all the farmers have the same opportunity, which is a protest from farmers from developed countries who think that the others from less developed countries are highly advantaged to international markets. Considerations should be made (Pe’er & Lakner, 2020). The less developed countries should be provided with higher costs to ensure that despite the fact that international markets are receiving products, the less developed can also have a chance to grow their economy as they will increase the quality of exports they are making.

Was Brazil’s creation of Export Financing Subsidies Justified?

Brazil’s creation of export financial funding subsidies was not justified. First, the supported company was fully private; it was not a governmental company; hence the government could only benefit from taxes and not profit-wise (Abdelal & Laschinger, 2003). This raises concerns on why the government should spend taxes paid by the common citizens to support a private-based company. After the support, the company earned a lot of profits, which only benefited individuals. On the contrary, government money should be used on projects that will benefit all citizens. In this case, the government acted like it had a lot of funds, but it did not have places to direct to. Health care is one of the sectors that have reduced their yearly allocation. In that year, up to $4 billion of the allocation of healthcare was reduced (Abdelal & Laschinger, 2003). This means that there were experiences of disruption of services as the hospitals could not still manage the maintenance due to reduced funds. It becomes a worry being that the citizens’ health is as important as to a private business.

By providing such subsidies, it becomes a disruption in the markets. Other companies are forced to offer lower prices, hoping that they will attain the competitive advantage that Brazil has offered. This then means that products will be undervalued. Embraer was receiving subsidies that could comfortably help them maintain their profit levels, so it was easy for them to reduce their prices. How about a company that relies on the company’s profits after making sales? It becomes hard. It still applies to the fact that a regulation should be given to ensure that all the businesses are given the same working grounds, not others being advantages forcing the other business to be in losses.

Furthermore, it seems like subsidies are a non-important need for countries. A business can operate by itself without the need for subsidies. Instead, governments in all countries should consider making investments in the country’s infrastructures such as schools, roads, and hospitals. It will be easy to regulate all the markets as other companies won’t be forced to super reduce their prices to make sales.

Should lesser developed countries be allowed to subsidize exports in certain technologies? Why or why not

Yes, countries that are less developed should be allowed to subsidize exports in certain technologies. Countries with lesser resources find it hard to get their products internationally due to higher competition set by countries with high amounts of resources. Subsidizing the products will help them get their products to penetrate through the international markets hence growing economically (Dawar, 2020). However, this should only be done for some time. They should stop subsidizing to ensure that all the businesses that have penetrated the international markets have a fairground not just because they have come from less developed countries but should be allowed to subsidize their products for their lifetime. Here, a committee like CAP should form a timeline, in which vetting is also done to measure the success of the products, which are subsidized. If the products achieve the attained goal, then a notification is sent to them to stop subsidizing. If any country violates, then their products are banned from the markets to ensure that everyone will follow the set rules.

References

Abdelal, R. E., Alfaro, L., & Laschinger, B. (2003). Bombardier: Canada versus Brazil at the WTO.

Carranza, E., Farole, T., Gentilini, U., Morgandi, M., Packard, T., Santos, I., & Weber, M. (2020). Managing the Employment Impacts of the COVID-19 Crisis: Policy Options for Relief and Restructuring.

Dawar, K. (2020). Official export credit support: Competition and compliance issues. Journal of World Trade, 54(3).

Islam, R., Ghani, A. B. A., Othman, M. F., & Apandi, L. S. A. (2019). Political economy and its impact on international trade. Humanities & Social Sciences Reviews, 7(3), 651-660.

Pe’er, G., Bonn, A., Bruelheide, H., Dieker, P., Eisenhauer, N., Feindt, P. H., … & Lakner, S. (2020). Action is needed for the EU Common Agricultural Policy to address sustainability challenges. People and Nature, 2(2), 305-316.

Sliva, S. M., & Samimi, C. (2018). Social work and prison labor: a therapeutic model. Social work, 63(2), 153-160.

Trumbull, G, Dessain V, & Corsi, E, (2007) Common Agricultural policy and the future of french farming Gunnar Trumbull.