• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

An Argument on Restriction of Trade Should India be Easing Trade Restriction by force from the developed nations?

Free essay example:

An Argument on Restriction of Trade –

Should India be Easing Trade Restriction by force from the developed nations?

PGCBM -20

Name of the faculty: Mr. Vishwas Vallabh

Subject: Managerial Economics

Submitted by:

Arvind Mohan

An Argument on Restriction of Trade –

Should India be Easing Trade Restriction by force from the developed nations?

Introduction

Recently, the United States attacked India's trade policy criticizing its barriers to agricultural imports and retail sector investment and warned that India may not have shaken off the red tape and trade restrictions that have long plagued foreign business.        

Trade barriers by other Countries

In the wake of the strong hypothetical case that has evolved for free international trade, almost all the country in the world has put up at least some barriers to trade. Trade restrictions are typically embarked on in an effort to protect companies and workers in the home economy from competition by foreign firms. Aprotectionist policyis one in which a country restricts the importation of goods and services produced in foreign countries.

 The meltdown in the U.S. economy in 2007 and in 2008 had shaped a new round of protectionist sentiment The United States, for example, used protectionist policies to limit the quantity of some foreign-produced goods coming into the United States. The effect of this policy was to reduce the supply of the good in the U.S. market and increase the price of the good.

The Impact of Protectionist Policies

image06.jpg

Protectionist policies reduce the quantities of foreign good and services supplied to the country that imposes the restriction. As a result, such policies shift the supply curve to the left for the good or service whose imports are restricted. In the above figure, the supply curve shifts toS2, the equilibrium price rises toP2, and the equilibrium quantity falls toQ2. In general, this policy imposed for a particular good always reduce its supply, raise its price, and reduce the equilibrium quantity, Protection often takes the form of an import tax or a limit on the amount that can be imported, but it can also come in the form of voluntary export restrictions and other barriers.

Needless to say, India on the other hand, desires to ease trade restrictions. The Government also understands the imperative of trade liberalization India needs no preaching on the imperative of eliminating trade restrictions, but this exercise has to be undertaken on the basis of proportional reciprocity.

        Developed countries like the US who tend to champion the cause of free trade but their own trade policies have been turning highly protectionist over the past decade. If American companies import something more from India, it is because that they find it cheaper to import from India. Otherwise, they can source the item from somewhere else. If this leads to a trade surplus for India, it is no reason to change the country’s trade policies.

Besides, the US argument on trade liberalization lacks conviction, given its own recent actions — antidumping duties on steel and legislations banning business process outsourcing. While tutoring the virtues of free trade and multilateralism to developing countries, they themselves are creating strong regional trading blocs bound by common external tariffs and strong rules of origin such as the North American Free Trade Agreement (NAFTA) and now Free Trade Area of the Americas (FTAA).

Accounting for more than 60 per cent of world trade carried out on a preferential basis now, these trade blocs are diverting trade and investments away from the developing countries. In general, the average tariffs and other trade barriers are low in industrialized countries. However, their tariffs and trade barriers remain much higher on many products exported by developing countries. A startling example is the fact that tariffs collected by the US on $ 2 billion worth of imports from Bangladesh are higher than those imposed on imports worth $ 30 billon from France.

In order to facilitate free flow of goods and in the interest of fair trade, easing trade restrictions should be seen as a multilateral responsibility to be shared by all and the developed countries have to take the lead. In fact, developed economies maintain far greater trade restrictions compared to developing economies such as India. The latter cannot even afford to meet the costs that are usually associated with trade restrictions.

The fact is, India is going about removing trade restrictions in a unilateral and systematic way. It is important that developed economies like the United States and the European Union commit themselves to greater liberalization by eliminating all trade restrictions against products from developing economies, especially in the way of trade in agricultural commodities and services.

Trade Freedom by Year

image07.pngimage02.pngimage00.pngimage01.png

United StatesWorld AverageIndia        image04.pngimage05.pngimage03.png

Of course, India needs to reduce its tariff barriers, but before it does that, It need to be assured that the US and the EU should also open up their markets to a substantial degree to enable other developing countries to access them particularly about market access for agricultural commodities, where developed economies have erected huge walls to protect their own markets.

On the lines of the services sector, developed economies have barely removed any restriction that could assist greater access to their markets. On the contrary, more barriers are being mounted in the name of protecting jobs, security concerns and public interest.

While developed economies maintain peak tariffs on products from developing countries, India does not maintain any such discrimination. In any case, our government has been consistently reducing tariff barriers, irrespective of whether the industry can bear it or not.

India does not maintain any major Non tariff Barriers(NTBs).whereas the developed economies are benefiting most from the existing World Trade Organization (WTO) agreements relating to NTBs and trade defense measures such as subsidies and countervailing measures, safeguard duties and so on. Although the Doha agenda has mandated negotiation for elimination of NTBs and India is actively participating in the negotiation and commit itself to implement the results of the negotiation

Developing economies cannot be oblivious to the needs of the vulnerable sections of their populace and their development. Just as the US, the EU and Japan are not ready to expose their farming community to open competition from outside; India need not expose millions of its small and marginal farmers to cheaper imports from other countries.

The current stalemate in negotiations on agriculture is on this issue. India need not bend over and ease trade restrictions just because the Cancun impasse has to be resolved.

India’s trade policy should be determined by domestic compulsions and should be driven solely by national interest and not by what the US, the EU or the developed countries wants.  

It is also not incumbent on India to sign a blank cheque for the sake of multilateralism.

 stall

This student written piece of work is one of many that can be found in our AS and A Level UK, European & Global Economics section.

(?)
Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Related AS and A Level Economics Skills and Knowledge Essays

See our best essays

Related AS and A Level UK, European & Global Economics essays

  1. A study of Patent system in India in the light of Patent Cooperation Treaty.

    But, PCT application showed the way where the time can be extended to make a decision to file the application in foreign countries. Meaning there by, by filing the PCT application, the applicant can postpone the decision for 20 months to decide whether they want to spend the money for

  2. North American Free Trade Agreement (NAFTA)

    UPS contended that since Canada Post provides a public mailing system, it should not be able to "monopolize" on the parcel and courier industries as well7. UPS proclaimed that by the way of Canada running a subsidized parcel and courier service it was in breach of the NAFTA investment chapter

  1. This investigation will try to test the level of external debt and measure its ...

    However the debt as a percentage of the Gross Internal product has had a substantial decrease, from its original percent being 116.6 to 49.88; this drastic change is due to the economic increase. Structure of Debt by debtor: The 100 largest debtors, represented by 0.8 % of the total indebted companies, concentrate 46.5% of the total debt.

  2. Why did it take until 1833 for the British government to illegalise the transatlantic ...

    Charles II owned the slaving company, "Company of Royal Adventures" (16), which became a profitable organisation. So, evidently he did object to the trade. As all ready mentioned the Jamaican government had made great profits from the trade, so they wished it to continue "An abolition of the Slave-Trade of

  1. This paper investigates an evidence to support the HOV model by carrying out a ...

    that first factor also exceeds the relative abundance of the second factor. The relationship between the true factor abundance and the trade-revealed factor abundance is a consequence of the HOV theorem, which implies that countries that have an abundance of a particular production factor k should have net exports of the factor services of factor k.

  2. Will trading fairly reduce world poverty?

    than branded products and an even smaller amount of people feel that fair-trade products is better quality than other products. Another reason for why people wouldn't buy Fair-trade products could be that they feel that Fair-trade isn't the best solution to solve world poverty.

  1. Critical Review of 'The Natasha Trade' by Donna Hughes. The Natasha Trade article ...

    Not all sex workers choose sex work over starvation for themselves and their children, but many choose it over low-paying manufacturing or agricultural jobs. The Natasha trade article did not seek to produce new data on the problem of trafficking in human beings but to document the evidence base as it currently exists.

  2. international trade

    If both countries now specialise, Portugal producing only wine and England producing only wheat, total production is 18 units of wheat and 12 units of wine. Specialisation has enabled the world economy to increase production by 1 unit of wheat and 1 unit of wine.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work