0 | P a g e
Global Business
Environment-
Individual
Assignment
2014
POLITICAL REASONS FOR GOVERNMENT
INTERVENTIONS
BY: AAN...
1 | P a g e
University of Bradford
Government intervention can be defined as an authoritarian action, which is regulatory ...
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University of Bradford
a plant in Lima. Had these duties been revoked, it would have led to renewed flood of u...
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University of Bradford
National Security argument, is another reason why government of the land might interven...
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University of Bradford
better quality imported cars. (Livelifedrive.com, 2014). Signing of the NAFTA agreement...
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University of Bradford
References
1. Brown.senate.gov, (2011). Following Brown Push to Defend Nearly 240 Lima ...
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University of Bradford
6. Livelifedrive.com, (2014). [Online] Available at:
http://www.livelifedrive.com/malay...
7 | P a g e
University of Bradford
persists-despite-the-recent-peace-accord-writes-charles-richards-1465211.html [Accessed...
of 8

Political Reasons for Government Intervention

Global Business Environment
Published on: Mar 4, 2016
Published in: Education      
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Transcripts - Political Reasons for Government Intervention

  • 1. 0 | P a g e Global Business Environment- Individual Assignment 2014 POLITICAL REASONS FOR GOVERNMENT INTERVENTIONS BY: AANCHAL SAXENA UOB: 12032303|
  • 2. 1 | P a g e University of Bradford Government intervention can be defined as an authoritarian action, which is regulatory in nature, with the purpose of affecting or interfering with the decisions made by certain individuals, groups or business organizations on social and economic matters. As of today, there is no country in the world where its government of the land does not interfere, in some form or the other in its economic or social activities. State Intervention in business is as old as the business itself. State Intervention became a historical necessity chiefly since the era of industrial revolution of late 18th and early 19th Century. Prosperity and poverty, suffering and comfort, and helplessness and exploitation became so collocated that the need for state intervention began to be felt. In today's world, political strength can be regarded as one of the key factors for trade between two nations. Generally, the government intervenes in trade in order to provide support to a range of activities such as domestic or exports and also during tough economic situations (insidebusiness360, 2014). There are various reasons for which government intervenes in trade. These are classified as political, cultural and economic. In the following essay, the various arguments for government intervention for political reasons will be discussed supported with examples. Furthermore, it will also discuss whether these interventions are justifiable or not and what implications these policies can have on the managers of an international company. Government interventions in trade can be usually carried out by creating various rules and regulations such as administrative policies, subsidies, tariffs, subsidies, important quotas, currency controls etc. One of the main arguments put forward for government intervention by various analysts is the protection of jobs and industries. It refers to saving jobs and boosting local industries by imposing subsidies or tariffs. For example, the Omani government has decided to cut down 100,000 expat jobs in order to provide for the nationals under its 'Omanisation' Scheme. This move was adopted due to the growing unemployment rate with the Omani youth and the increasing number of expats in the private sector jobs with the ratio being 1:6 between the expats and the nationals in private sector jobs.(Oman, T. 2014).Another example could be the U.S, where following a push from the U.S Senator, Sherrod brown, the International Trade Commission (ITC) had voted on 16th November 2014, to extend the anti-dumping duties on nitrogen fertilizers imported from Ukraine and Russia. This move was done in order to prevent nearly 240 jobs mainly agriculture related in Lima and in order to safeguard PCS Nitrogen Ohio,L.P firm which is one of the few remaining American producers of solid urea and operates
  • 3. 2 | P a g e University of Bradford a plant in Lima. Had these duties been revoked, it would have led to renewed flood of unfairly traded Ukrainian and Russian urea imports. (Brown.senate.gov, 2011). Another argument put forward for government intervention is the retaliation argument. This refers to how government of certain nations use intimidations or threats as a bargaining tool in trade policies to further open foreign markets or force other nations to play by their game. For example, in the year 2013, the Ukraine government had to suspend its plans of signing far- reaching political trade agreements with the EU. This was due to the threat of crippling trade sanctions by Russia. Had the deal been signed, it would have been a serious threat and an economic version of the West's efforts to building a military power by the eastward expansion of the North Atlantic Treaty Organization (NATO). Similar pressure by Russia, forced Armenia to abandon its talks with the EU as well. (HERSZENHORN, D. (2014).An example of retaliation can be understood with the help using two major trading giants the America and China. The two have been known for imposing tariffs on each other since years. In the year 2011, Chinese government retaliated against the American government imposing additional duties on all cars imported from the US. This move was in response to the dumping and subsidizing policy of the American Car makers which had substantially affected the Chinese car makers. (Wearden, G. 2011). Governments are also known to intervene in trade for protecting its consumers. This is called the protecting consumers argument. For example, the Federal Consumer Protection Service for Russia, issued a statement where it suspended a range beef imports from Germany as well as 10 other EU countries over the fear of anthrax, a bacterial disease, which when transmitted can be harmful for the human body.(The Moscow Times, 2014) Also, The Indian government decided to ban the Taxi App 'Uber' when one of its driver's was held responsible on Rape charges against a passenger in the country's capital. The government has also decided to ban other such taxi apps from operating within the country. Uber was also banned from Thailand this week and the Spanish judge had ordered for a temporary halt to the company's operations in the country. It also faces lawsuit in its home country, where the Californian courts sued the company as they were falsely claiming to have screened out their driver who had offences on their names. (Sugden, J., Malhotra, A. and MacMillan, D. 2014).
  • 4. 3 | P a g e University of Bradford National Security argument, is another reason why government of the land might intervene in trade. Some industries in the country are protected due to national security reasons. Industries like defense, aerospace etc. are often controlled by the government as it is believed that the government should always be self-reliant. Humanitarian reasons can also be argued as a point due to which the governments intervene. Since the establishment of Israel, The Arab has league boycotted any trade with the country. Companies that were having a branch, agency or factory in Israel are put on the blacklist. This was another reason due to which for many years, Coca Cola was banned in the Arab states and only Pepsi was available as Coca Cola Company was known to provide aid to the Israel.(The Independent, 1993). Governments sometimes also intervene in order to gain influence over other nations. The dominant nations through trade relations often take advantage of smaller nations. For years the US has enjoyed strong trading relations with the Latin American countries and has a strong hold over them through agreements like NAFTA. These small countries rely heavily on America for their business and since America is a super power it has tried to take advantage of these nations. A small disruption in trade can be a heavy cost to most of these nations.(Daily Reckoning, 2009). Since Commerce being an important tool to achieve foreign policy goals, preferential treatments are sometimes awarded to certain countries with which strong relations are built. The US shares a close tie with Kuwait due to common strategic interests in mainly defense,trade, technology and energy. When Iraq invaded Kuwait in the year 1990, the American military backed the Kuwaiti Army, also America imposed sanctions on Iraq as a consequence of the war.(Kuna.net.kw, 2014) Cases cited above reflect only the positive reasons and outcomes of the government interventions. Just like a coin, government interventions too have a double side to it. Researchers have often questioned whether how justifiable certain government actions can be. For example, the Malaysian government imposes heavy tax duties as high as 30% on cars imported from America Europe and Japan. This is done in order to protect the home car manufacturer "Proton", which without government help and subsidies would collapse in the international market. Thus, the Malaysian nationals pay RM140, 000 for 2013 Toyota Prius which is only for RM80, 000 in US or Japan. Thus the protecting industry argument clashes with protecting consumer arguments as the government is forcing a poor home-made brand on its citizens and depriving them off
  • 5. 4 | P a g e University of Bradford better quality imported cars. (Livelifedrive.com, 2014). Signing of the NAFTA agreement was done to have a free trade relation between all the signing countries and it was expected that it would boost jobs for the Americans. However, according to a report by Economist Robert Scott of the Economic Policy Institute, around 682,900 jobs in the US have been lost as a result of the treaty.(The Huffington Post, 2014). American government had denied China Most Favored Nation (MFN) due to humanitarian reasons, however the US government led invasion in Iraq was on variety of grounds except for humanitarian. (Coalition, S. 2014).In 2009, China unexpectedly took a step to impose tariff on American auto motives imported and chicken meat as a retaliation in response to Obama levying tariffs on tires from America. This proves that retaliation technique adopted does not always work and sometimes leads to conflicts where the sufferers are the businessmen and the consumers. (Nytimes.com, 2014) Hence a Manager of a global firm needs to understand that trade barriers hold severe importance and need to be discussed upon before formulating a strategy. A sound knowledge of the global environment be it political or economical is crucial for continued success of the business. In conclusion, government interventions in trade are done one various arguments. Namely, protection of jobs and industries, consumers, retaliation and gaining influence over other nations. And lastly for the foreign policies and humanitarian reasons. It can be seen from the situations discussed above, that government interventions can be good or bad. They differ from situation to situation. However, before an intervention is carried out, it would be better if the government sits and ponders over all the possible pros and cons of adopting a certain technique as this would help prevent in the adopted policies having a negative result. (Word count: 1564 words)
  • 6. 5 | P a g e University of Bradford References 1. Brown.senate.gov, (2011). Following Brown Push to Defend Nearly 240 Lima Jobs, International Trade Commission Votes to Protect Key Agricultural Industry Manufacturers | Press Releases | United States Senator Sherrod Brown. [Online] Available at: http://www.brown.senate.gov/newsroom/press/release/following-brown- push-to-defend-nearly-240-lima-jobs-international-trade-commission-votes-to-protect- key-agricultural-industry-manufacturers. [Accessed 2 Dec. 2014]. 2. Coalition, S. (2014). US intervention is not humanitarian and will not protect the people of Iraq - Stop the War Coalition. [Online] Stopwar.org.uk. Available at: http://stopwar.org.uk/news/us-intervention-is-not-humanitarian-and-will-not-protect-the- people-of-iraq [Accessed 1 Dec. 2014]. 3. Daily Reckoning, (2009). The Decline of the US’ Imperial Influence in Latin America. [Online] Available at: http://dailyreckoning.com/the-decline-of-the- us%E2%80%99-imperial-influence-in-latin-america [Accessed 1 Dec. 2014]. 4. HERSZENHORN, D. (2014). Facing Russian Threat, Ukraine Halts Plans for Deals with E.U.[online] Nytimes.com. Available at: http://www.nytimes.com/2013/11/22/world/europe/ukraine-refuses-to-free-ex-leader- raising-concerns-over-eu-talks.html?pagewanted=all [Accessed 1 Dec. 2014]. 5. Kuna.net.kw, (2014). KUNA: US, Kuwait share "strong" friendship that reflects "common strategic interests" - Politics - 07/09/2013. [Online] Available at: http://www.kuna.net.kw/ArticleDetails.aspx?id=2332225&language=en [Accessed 1 Dec. 2014].
  • 7. 6 | P a g e University of Bradford 6. Livelifedrive.com, (2014). [Online] Available at: http://www.livelifedrive.com/malaysia/news/view/3802/explaining-the-mystery-behind- high-car-prices-in-malaysia---part-1 [Accessed 1 Dec. 2014]. 7. Nytimes.com, (2014). China Moves to Retaliate Against U.S. Tire Tariff - NYTimes.com. [Online] Available at: http://www.nytimes.com/2009/09/14/business/global/14trade.html [Accessed 2 Dec. 2014]. 8. Oman, T. (2014). Minister of Manpower Sheikh Abdullah bin Nasser Al Bakri said the ministry plans to reduce the number of expatriates working in the private sector from current 39% to 33%. [Online] Timesofoman.com. Available at: http://www.timesofoman.com/News/29950/Article-100-000-expats-to-lose-jobs-in- Omanisation [Accessed 5 Dec. 2014]. 9. Sugden, J., Malhotra, A. and MacMillan, D. (2014). Uber under Attack around the Globe. [Online] WSJ. Available at: http://www.wsj.com/articles/india-advises-all-states-to-ban- uber-and-other-car-hailing-services-1418119647 [Accessed 10 Dec. 2014]. 10. The Huffington Post, (2014). NAFTA Cost U.S. 700k Jobs, Report Says. [Online] Available at: http://www.huffingtonpost.com/2011/05/12/nafta-job-loss-trade-deficit- epi_n_859983.html [Accessed 9 Dec. 2014]. 11. The Independent, (1993). Arab states still clinging to Israel boycott: The 45-year-old trade embargo of the 'Zionist state' persists despite the recent peace accord, writes Charles Richards. [Online] Available at: http://www.independent.co.uk/news/world/arab- states-still-clinging-to-israel-boycott-the-45yearold-trade-embargo-of-the-zionist-state-
  • 8. 7 | P a g e University of Bradford persists-despite-the-recent-peace-accord-writes-charles-richards-1465211.html [Accessed 12 Dec. 2014]. 12. The Moscow Times, (2014). Russia Bans Imports of European Beef Products Over Anthrax Fears | Business. [Online] Available at: http://www.themoscowtimes.com/business/article/russia-bans-imports-of-european-beef- products-over-anthrax-fears/510653.html [Accessed 1 Dec. 2014]. 13. Wearden, G. (2011). China imposes tariff on US car imports. [Online] the Guardian. Available at: http://www.theguardian.com/business/2011/dec/15/china-taxes-us-car- imports [Accessed 5 Dec. 2014].