However the government has a major role if it comes to political influences, by influencing the supply and demand, in this case is not only an economic factor but also a political factor because it is governed by the policies of the government. Governments are making efforts to remove barriers for political and financial movements and they join organizations who embrace these ideas. Other countries are becoming an important aspect as well; they are combining together so they can be less vulnerable. For instance since 1950 several countries have joined forces for economic and political reasons and they are now none as The European Union (The EU). The EU promotes trade and cooperation between different countries. Between the EU countries there is the freedom of trade, investing and travelling and workers. Nevertheless after the postwar period there was need for an international trade law. For instance to protect the domestic car industries ,The E.U has introduced General Agreement on Tariffs and Trade (GATT) is an international treaty to lower and reduction of tariffs and other barriers to trade in 1947 the General Agreement on Tariffs and Trade (GATT) was signed.
GATT it is an international treaty that lowers barriers to the free flow of goods across borders from signatory countries and that had lead to the World Trade Organization (WTO).what became an official international organization in 1995. The CATT and now the WTO principles are Non-discrimination, Reciprocity, Transparency, Prohibition and stability on trade restrictions other than tariffs.
Furthermore different countries have seen the usefulness of the trade liberalization and more countries joined the GATT. Over the Years there was an increasing of the protection of non-tariff measures, which lead to the Voluntary Export Restraint (VER).
The voluntary export restraint (VER) is a government-imposed limit on the quantity of goods that can be exported by a country during a certain period of time. It is an arrangement between different countries to avoid imposition of mandatory restrictions. VER provides protection and is created to protect the import-competing industries against exporting countries like Japan.
For instance the Japanese car industries produce a large number of passenger cars and supply car parts. Well known cars from the Japanese car industries are Nissa, Honda, Masda and Suzuki. After the WWII the Japanese car industry grow and was exporting there products on a high scale, although in contrast to the United States(U.S) they rely on outside suppliers for the car parts. This expands business relationships and their opportunities with outside firms; as a result they attract investors. For the Japanese car industry the VER had lead to higher prices and profit, this in relation to the price increasing on parts which has leaded to negotiating prices on cars. The car manufacturers had several suppliers and could negotiate the parts prices between different suppliers. Large car manufacturers and suppliers where benefiting from the VER, this effect could only occur if the part suppliers were cooperating with their competitors. In the study of John which indicates that VER creates rents for Japanese manufactures of passenger cars, the large (car) part suppliers shared the rents. In addition Japan controls their foreign investments and the exchange which Japan has with foreign countries.
During the 1980s the VER became a well know form of protection.
VER is attractive to exporters because they allow exporters to control the trade restriction, which can lead to increase of export price. When the VER was introduced in 1980 on the car industry, it had a positive impact on the Japanese car industries. There was increasing showed in the profit of the car industries exported. The VER was used to protect the Western domestic firms against Japanese competitors, but recording to the analyses shows that domestic firms gain from VER at the expense of consumers.
According to Dinopoulos and Kreinin the VER it is a negotiation between important countries like The E.U., U.S and Japan. They allow a set of foreign suppliers to export there product or service with limitation of quantity. In the meantime this rule does not apply for the European supplier. This is seen as discrimination for the U.S. and Japan suppliers. Although in 1980 the VER was applied when Japanese car manufactures and firms tried to sell there cars in the U.S, under pressure they ‘’voluntarily’’ limited their exports to the U.S market. It was a way for governments to protect there industries against competitors. This car VER had a major effect on economy of the United States (U.S) and Japan. In addition Crandell developed a Japanese car supply equation. They used this method to do a realistic estimate of the actual price for the VER period in 1981-1984.A similar approach has been used to estimate the VER effect on the domestic products in the U.S. Although the VER rule excluded the European suppliers, it was expected that they would benefit from it in form of higher export or quantity. But according to the U.S car import research showed, during the VER period the European suppliers did not increase there quantity.
Despite nations enrolled the protective tariff to protect their economy. Tariff is a tax that levied on imports goods, it is meant as a barrier against certain foreign goods in order to keep the domestic market protected, also they serve the export of domestic raw materials and intermediate products hamper. Countries have the tendencies to protect their domestic industry so that they can stand independently and when they are able to compete international, depending on the business and industries sometimes the barriers will be removed.
The EU uses the protective tariffs to protect the national developing industry against foreign competitors .This form of tariff protection is in the battle to dominate the world capitalist market and has economic and political influence. For instance Mercantilists viewed mercantilism’’ which held that countries should maximize export and try to limit import as much as possible ’’. Hamilton,L & Webster,P (2009). 2009 International business environment . Oxford : Oxford University . p49-50
Those governments would use tariffs and quotas to restricted or banned imports but at the same time encourage export. Mercantilist’s point of view was export as a positive movement for them to increase the wealth of the nation and import has a negative viewed for it was seen as loss of demand and that meant job losses. Although I have to agree with David Ricardo (1817) ‘’ a country has a comparative advantage over another country if it can produce at a lower opportunity cost.’’ Hamilton,L & Webster,P (2009). 2009 International business environment . Oxford : Oxford University . p49-50
These theories help us to understand but don’t give direct answers, there are different theories depending on the culture and the economic culture of a country. Countries combine with other nations to be stronger and globalization between nations and organizations brings opportunities with threats. There still remain important barriers alone with all the compromising and legalizations.
In other words globalization and innovations of technology helps to improve the economy and is seen as key to raising standards of living. In addition governments of different countries are trading for improving their economy. Economic goods are no more made at one place in the world and are no longer used only at one place, through globalization were increasingly worldwide consumed. Globalization is bringing closer together of different countries and cultures.
Nevertheless the effort to liberalize global trade has had disagreements between EU and Japan. The increasing of world output is a result that business and nations are trading with each other. However many countries are imposing trade restrictions to protect their domestic industry, and also the WTO is aiming for liberalization trade, it is seen as an organizations that often supports the ‘’rich ‘’ countries. The voluntary export restraint (VER) and tariffs are governments attempts to increase productivity and so that businesses can efficiency explore there market and to protect there (domestic) industries and economy from foreign competition. Protectionism is used to encourage the environment and the industries and helping them to explore and develop of induced export restraint. However the VER had a positive influence on the Japanese domestic car producers and in terms of tariff revenue it has also a positive impact on the government. Given the facts it is seems that Japan profits from the VER. The country had an increase in well-being as a result of the VER and the decreasing of their domestic price. The negative side is for the customers who are been effected by the increasing prices of certain goods.
The impact of trade policy, trade flows and distribution trade restrictions, influence the well-being of a country. The whole idea behind the tariffs is the control on capital; countries impose capital control when they are in financial crises. When the domestic car industry deals with financial problems, the Japanese firms exported there goods but by limiting the car supply from Japan under pressure of tariffs, the export restraints raised the prices of Japanese cars and because the prices for Japanese cars where so high, customers would purchases European cars. With less Japanese competitions, sales for the EU car manufactures increased and this as a result of the tariffs. This concludes that the Japanese firms prefer VER instead of Tariffs. For the Japanese firms the tariffs on the domestic (car) industry are too high, as a result the tariff makes imported cars more expensive.However foreign organizations and companies continue to grow and they maintain to invest, which increases the sources of finance.
References
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