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THINKING ALOUD (Business&Law) INTERNATIONAL TRADE: Free Trade

Updated on December 12, 2016

Trying to decipher where President Obama really stands on free trade can be like trying to trace the U.S.-Mexico border with a Google map. There are words, and there are actions - but there is mostly that long squiggly line in between.

— Nina Easton: FORTUNE's Washington columnist and senior editor
Raffles Place Commercial District Singapore 1920
Raffles Place Commercial District Singapore 1920 | Source
Raffles Place Commercial District Singapore 1955
Raffles Place Commercial District Singapore 1955 | Source
Raffles Place Commercial District Singapore 2014
Raffles Place Commercial District Singapore 2014 | Source
FREE TRADE AGREEMENTS
MEMBER STATES
YEAR FTA SIGNED
ASEAN–China Free Trade Area (ACFTA)
CHINA, Singapore, Malalysia, Indonesia, Brunei Darrusalem, Thailand, Phillippines, Vietnam, Cambodia, Lao PDR and Myanmar
2010
New Zealand–China Free Trade Agreement
CHINA & New Zealand
2008
Australia–China Free Trade Agreement
CHINA & Australia
On-going
China–South Korea Free Trade Agreement
CHINA & South Korea
On-going
China–Peru Free Trade Agreement
CHINA & Peru
2009
China, Hongkong & Chile Free Trade Agreement
CHINA, Hongkong & Chile
2012
China & Canada Free Trade Agreement
CHINA & Canada
In-the-works
China & European Union Free Trade Agreement
CHINA & The European Union
in-the-works
Trans-Pacific Partnership
UNITED STATES, Singapore, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru and Vietnam
on-going
KORUS FTA
UNITED STATES & South Korea
2006
The Transatlantic Trade and Investment Partnership (TTIP)
UNITED STATES & European Union
on-going
MAKE TRADE, NOT WAR! But the rhetoric does not seem to match the reality of the situation if one studies the following chart of FTAs. Economics & Politics are complements. China is actively promoting regional economic integration with neighbouring c
MULTI-LATERAL TRADE AGREEMENT
REGIONAL TRADE AGREEMENT
 
The World Trade Organization (WTO) deals with the global rules of trade between nations the world over. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
Free Trade Agreement e.g. Transpacific Partnership. An FTA can be signed between two or more countries
 
To create a global multilateral trading system i.e. a “behind-the-border” trade liberalisation system
An FTA creates a regional trade block; a fragmented system.
 
The system is non discriminatory as it is interested in bringing about multilateral trade liberalisation
An FTA discriminates against outsiders. It has little interest in multilateral liberalisation although it does not expressly say so.
 
The system sees FTAs as complements eventually achieving multilateral trade liberalisation by default.
FTAs head in the direction of an alternative system. TPP is now effective an alternative to WTO.
 
The system advocates a free and fair world trading system
FTAs marginalise the WTO as a deterrent to protectionism
 
Many business people cannot make out the difference between works of World Trade Organisation vis-à-vis the numerous Regional Trade Agreements signed between countries worldwide. This quick-reference-guide provides a simplified comparison between the
FACT SHEET :
The World Trade Organization (WTO)
 
Location:
Geneva, Switzerland
 
Established
1st January 1995
 
Created by
Uruguay Round negotiations (1986-94)
 
Membership
159 countries on 2 March 2013
 
Secretariat staff
640 and headed by Director-General
 
Functions
• Administering WTO trade agreements • Forum for trade negotiations • Handling trade disputes • Monitoring national trade policies • Technical assistance and training for developing countries • Cooperation with other international organizations
 
Home of the World Trade Organization
The WTO building:Centre WILLIAM Rappard
 
The World Trade Organization (WTO) is a global international organization dealing with the rules of trade between nations. The objective of the WTO agreements is the helping of producers of goods and services, exporters, and importers in conducting t
Chinese Name "WILLLIAM"
Chinese Name "WILLLIAM" | Source

Chén Róng’s

Little English-Chinese Dictionary

  • a run for their money = qiáng liè jìng zhēng
  • Bread and butter business = zhǔ yè
  • Take a Leaf out of = xiào fǎ
  • It is a trade-off = jiāo huàn
  • First mover advantage = xiān rù yōu shì

China opened an anti-dumping probe into European wine, which could lead to an increase in duties, distributors said. Provided. Source: China Daily
China opened an anti-dumping probe into European wine, which could lead to an increase in duties, distributors said. Provided. Source: China Daily | Source

Disclaimer

The writer makes no warranty of any kind with respect to the subject matter included herein or the completeness or accuracy of this article which is merely an expression of his own opinion. The writer is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information. Without limiting the above the writer shall have no responsibility for any act or omission on his part. Readers should take specific advice from qualified professionals when dealing with specific situations.

Trade Fair Washington DC USA 1974
Trade Fair Washington DC USA 1974 | Source
A Case For Free Trade by Melvyn Krauss
A Case For Free Trade by Melvyn Krauss | Source

BOOK RE-VISITED

The Case for Free Trade

In his book “How Nations Grow Rich –The Case for Free Trade”, Melvyn Krauss put forward his argument for free trade.

There can be no doubt, writes the economist, that the prosperity of the industrial nations since the Second World War has been due largely to global specialisation and interdependence. No one country does all tasks today – products are designed in one country, produced in another, and assembled in a third. The impressed standard of living resulting from global specialisation in turn has led to the growth of the modern welfare state, including an increased demand for economic security and social measures which guarantee politically-determined minimum consumption standards for citizens.

Ironically, says Krauss, as the debate over the North American Free Trade Agreement (NAFTA), the General Agreement of Tariffs and Trade (GATT), and the established World Trade Organisation demonstrate, today’s welfare state has evolved into a protectionist state. consumer advocates see free trade as a threat to environment legislation. Human rights advocates see free trade as a threat to human rights abroad.

Krauss argues there is no inherent reason why the growth of the welfare state in the Western industrial countries should conflict with free trade – that is, there is no inherent reason for the welfare state to be protectionist. Exposing fallacious ‘welfare state’ argument for protection, Krauss makes a powerful case for free trade in general, and as mechanisms for raising living standards. Countries are made better off through a reallocation of productive resources from lower to higher productivity uses – from textiles to computers, for example. Moreover, by raising wages in countries like Mexico relative to developed countries like USA, Krauss expects FTAs like NAFTA to help reduce both legal and illegal immigration. Krauss’ insight that migration and foreign trade are alternative means of effectuating international exchange is used in his book to shed light on a host of important policy issues. By the very act of restricting textile and apparel imports, some countries are virtually compelling foreign textile workers to migrate to their land.

Looking back at history, Krauss addresses the belief that protectionism boosts employment, he points out that import restrictions can destroy US jobs when imposed on materials used as parts. For example, Apple and Toshiba suffered a dramatic increase in their production costs as a result of a 63 percent tariff on imported Japanese flat-panel display screens in 1991. This protect-America policy backfired, causing these two mega-companies to move their production facilities abroad. In response to protectionist demands that the U.S. close its markets until Japan reduces its trade barriers against U.S. goods – that trade be fair before it can be free – Krauss points out that in a market economy where consumers are kings, only a consumer-based equity standard is valid. Thus what the ‘fair trade’ protectionist argument really comes down to is the nonsensical proposition that because foreign countries damage their consumers by foolish protectionist measures, equity demands the United States follow suit.

This wide-ranging and stimulating book clarifies such important and often inaccessible issues as development policy, foreign aid, trade sanctions, child labour, human rights, trade linkages, immigration, European Monetary Union, and affirmative action trade policies.

Commentary by Chén Róng

"The Case for Free Trade", like many other books on free and fair trade agreements between countries, is a good read to economists and chief executive officers of multi-national companies. But people managing small and medium-sized companies (SMEs) may not share the same sentiments.

True, there are SMEs well positioned to reap benefits offered by the numerous free trade agreements (FTAs). Yet there are many others who encounter the head winds while navigating through trade pacts - even if they appreciate the writer's arguments that these FTAs will affect their well-being and survival. Today's FTAs are not just about lowering of trade tariffs. Offers made by trade pacts may be viewed in the same light as frequent airline promotion of cheap airfares. Offers often made in tantalising bold prints that can be read one meter away. Do take a few steps forward and examine the fine print. It reads: "Terms and Conditions Apply".

Many SMEs have the same reservations about free trade agreements. They find Anthony Rowley’s portrayal of Trojan horses not a fantasy tale fit for children. History has a subtle way in replicating itself.

The Trojan Horse
The Trojan Horse | Source
The Shanghai Free Trade Zone
The Shanghai Free Trade Zone | Source
Shanghai Free Trade Zone
Shanghai Free Trade Zone | Source
SHANGHAI Free Trade Zone
SHANGHAI Free Trade Zone | Source
Shanghai Free Trade Zone
Shanghai Free Trade Zone | Source
Shanghai Free Trade Zone
Shanghai Free Trade Zone | Source
STRAIGHT Letter of Credit
It is a limited engagement clause. The issuing bank will pay the beneficiary upon presentation of all required documents at certain banks
 
RESTRICTED Letter of Credit
Allows beneficiary to redeem paymemnt at a selected bank. It also restricts negotiation to a bank nominated by the issuing bank
 
REVOLVING Letter of Credit
It is designed with terms on value or time that are flexible. With a single document, it allows for multiple shipments to take place over long periods.
 
TRANSFERABLE Letter of Credit
The primary beneficiary is allowed to transfer some or all of the credit available to anther party. In this way, a separate beneficiary is created.
 
UNCONFIRMED Letter of Credit
An unconfirmed LC is one which has not be guaranteed or confirmed by a bank other than the issuing bank. Hence the beneficiary is left only with one option in seeking recourse.
 
REVOCABLE Letter of Credit
Seldom seen in use because if offers little protection to sellers. It can be modified or cancelled at any time with consent of the beneficiary.
 
GLOSSARY for new merchants of International Trade: A Letter of Credit is a document from a bank which guarantees that a seller of goods receives full payment when certain conditions are met.

Exporters become collateral damage in a trade war


( A commentary on Collateral Damage contributed to Merriam-Webster)


Collateral damage is the unintended victim of a conflict.

Let us take international trade as the example. Country-A may put up tariffs because it considers free trade with country-B unfair. Certain industries will become collateral damage because of such import/export duties. With Donald Trump as president, he might slap high tariffs on exports. USA exporters from aerospace, autos and iPhones to commodities such as corn and soybeans will become collateral damage. Whilst big brother Boeing takes the biggest hit, European arch rival Airbus group becomes the beneficiary of the trade war.

China has a growing middle class and, therefore, an insatiable demand for passenger jets. More wealth means more Chinese passengers will take to the skies whether on business or holiday trips. A Trump adminstration should realise that a trade war with China may not benefit USA because jobs might just go to other low-cost countries.

A free trade fracas may bring about unintended consequences. For one, Airbus will enjoy a string of merry Christmases for years to come.


PS: For Chinese readers, the term for collateral damage should be: wúyìzhōng shòuhàizhě


INTERNATIONAL TRADE: Free Trade

What it means to small & medium-sized firms

Writer: Chén Róng



FTA stands for Free Trade Agreement. The name speaks for itself. It promotes free trade exclusively between members. A free trade area comes about when member-states do away with most tariffs and quotas on trades between them. In some instances, their agreement may cover only manufactured goods and commodities. Other trade pacts may cover services, too. In a few cases, their agreements incorporate free movement of labour. The variations seem infinite.

As a commercial man, you probably know that these commercial contracts (or free trade pacts between governments) will affect your business in some ways. Whether you are just a small outfit doing local business or a medium-sized one engaging in international trading of goods and services, you will feel their impact. Think nothing of these free trade agreements; you may be put at a serious disadvantage. The more immediate consequence is: you may be out of business because of new competition coming from outside. You cannot blame the Taiwanese business community for staging street protests over their country's trade pact with China. The pact with China would open up as many as 80 industries including banking, brokerages, publishing and hospitals. Chances are, the deregulation and liberalization of this trade agreement will destroy small Taiwanese businesses.

A free trade pact signed by your government may enable businesses from certain countries to set up in your country. All of a sudden you may find new beauty salons, groceries, pharmaceutical shops, boutiques sprouting around you in your otherwise cosy little neighbourhood. Your regular clients stop coming to you. You later got news that they are giving your new competition a run for their money. They never had this opportunity in the past because there were few choices for them as consumers. The one-eye jack in a blind-man's business world is the king! The ‘king’ has little incentive to improve on this standard of services or the quality of goods as his business world was then safely guarded against competition; but no more. Your world is beginning to turn upside down.

It is a wake-up call!

Ignorance is no longer bliss

Most business people caught up with the daily bread and butter business are totally oblivious to the challenges and competition that these trade agreements could bring along with them. Ask some business people to give you a one-line answer what these trading pacts are all about, they may just blurt out: free trade with countries with the lowering of tariffs for international sale of goods and services.

Once upon a time, these FTAs between countries were all about trade tariffs; and people in the business of exporting goods and services might feel elated because they can increase sales at more competitive prices. However, when more FTAs and other bilateral investment treaties get negotiated and finalized, their conflicting terms confuse merchants and traders. There was fear of infringing tariff rules which can be hard to decipher, as these are subject to change later. These business people thought, it would be better off not to apply the lower tariffs as unforeseen delay and fine for infringement might turn profit into a loss.

Other firms may simply ignore everything concerning FTAs, regarding them as inconsequential. Yet there are also traders who considered the lowering of tariffs only benefit the importers of goods and services, so the various FTAs are of no importance to them as exporters. Ignorance is no longer bliss, unfortunately. In truth, firms big and small can gain much from these various trade agreements. Like the fear of darkness, it is a phobia that can be overcome once we have prior knowledge what is obstructing our path. Knowledge is the key to gaining the competitive edge in international trades. If such expertise is not found in-house, the service can be outsourced. Over a period of time, a firm's staff-members may have sufficient enough knowledge to weave through the various tariff rules to harvest the most advantageous ones out of the prevailing FTAs.


Knowledge is the key

FTAs -- both regional and bilateral ones - are discriminatory. Countries lower tariff barriers between their pact-members, but not everyone else. Discrimination means trades may be diverted from lower-cost outsiders. Hence, the skills needed to navigate the various FTAs must be acquired, and it should preferably be learned by a firm's own staff. Chances are, if merchants are using third party logistics providers (3PLs) for all their supply chain management functions, they may not necessarily reap the benefits of lower tariffs. 3PLs with a vested interest in speed and cost in customs clearance may find FTA classification codes cumbersome as they may not have intimate knowledge of products. A trained in-house staff that can complement the services of a competent logistics service can make the big difference to a merchant's bottom-line.

Another point to note is: FTAs are phased-duty reduction programs for eligible products. In other words, duty reduction will come about in a phased, time-bound manner to prevent disastrous consequences to domestic economies caused by a sudden slashing of import duties. Henceforth, what was not worth a merchant's trouble a year ago may now be worthwhile now. Moreover, most FTAs are reviewed regularly. Merchants should proactively seek to have their voices heard to get tariffs lowered for products that they sell.


FTAs are not just about tariffs – no longer

These trade agreements have now expanded to include workers’ welfare and labour standards; environmental issues; intellectual property rights; and competition policy, especially involving state owned companies. These comprehensive articles are getting rather hard-pressed on the small and less endowed nations as pressured by more developed countries of European Union, USA, China and their likes. FTA signatories have now to create labour standards that match either that of USA or International Labour Organisation standards. An enhancement of wages and work environment means increase in business costs. Firms have to ensure humane conditions for low-wage workers and refrain from exploiting them by implementing work long hours at low pay. Similarly there is the need to employ environmentally friendly manufacturing processes by all FTA members.

Governments involved are now to offer protection against infringement of intellectual property rights; invariably it means local firms can no longer produce pirated software and counterfeit goods that helped other local firms from profiting from the unfair practice. Do not for a moment think that these trade rules seek to protect product-design and fabric pattern of handbags made by Gucci and Louis Vuitton or similar high-end product firms. No, the FTAs do cover commonplace items as wines, olives, ham and other agricultural products. Suddenly, these products may be harder to find in your country or priced significantly higher as a result of these international trade agreements! For companies, these higher costs can be a heavy burden and may cause less competitive smaller firms to fold up.

All these measures will certainly increase production costs for firms and level the playing field for all. This is precisely what the developed countries hoped to achieve, that is, closing the gap between the goods and services produced in their advanced economies and those of emerging ones. All these happenings have a beneficial result. Workers receive better wages. Their work environment improves. Hopefully, they too will join others to keep a lid on improper actions that will lead to severe climate change - a scenario which is bad for business.

The present generation of FTAs is a double-edged knife. It cuts both ways.


Embracing a new business frontier

SMEs hhave little time left to embrace the change brought about by this newer generation of FTAs. Firms have to innovate and restructure their business to compete with the rest of the world. There will come a time, your government can no longer shelter you against the competition. Take a leaf out of Japan and its farming industry. The country tried protecting their farmers but the Japanese government knows the end is near. So it is now pushing its younger entrepreneur farmers to innovate and produce better crops at lower costs. Invariably, it is almost always the older people who resist the changes. The way forward may be to encourage older farmers to sell their land to younger and better educated people who are keen to try their hands at new farming techniques, especially when finding jobs is difficult.

If you are heading a business organization, the way to remove objections from employees who cannot change out of their old ways is to have the new business housed in a completely different joint venture or subsidiary company. It has to be a new set-up with new employees to experiment with the new approach to make way for the changes brought the various FTAs.

One main reason small and medium-sized firms (SMEs) have to take immediate steps to embrace changes is because low-skilled firms are eventual losers in an FTA world.

Increased trades provide firms with a more diverse selection of inputs -- resources such as people, raw materials, energy, information and finance that are put into a business. But increased trades also eliminated low-skill factories. In other words, FTAs accelerate the demise of low-skill factories and promote value-added ones. Those firms which are supply chain partners of multinational companies are the winners.

State owned enterprises (SOEs) in big trading nations like South Korea and China are gradually being re-organised and made more market-oriented and efficient. These SOEs will be opened up to partial private ownership or listed on major stock exchanges with the state and local government holding only minority stakes.

Free trade pacts signed with USA or European Union members will see the breaking down of state-owned or politically connected companies as sole suppliers to government procurement programs. These sheltered firms which are too slow to making changes to the international trading environment will no longer be competitive and may just wind up business on such a level playing field. Firms that are under the protection of government policies fail to cope with a liberalized trading environment. The changed environment offers small and medium-sized firms a new business opportunity as suppliers to these re-structured state-owned enterprises.


Sceptics do have their points and they have an option

The writer is aware that many small and medium-sized firms remain sceptical as trade barriers fall. They feel that free trade has made life harder for them. Business people struggled to compete against cheaper goods produced elsewhere.


Political Agenda

These smaller business enterprises may still be unconvinced and hesitating with the need to march in time with the changed business environment. Their response is not necessarily unreasonable. Unfortunately, FTA is not just a dry trade pact. It is actually moisten with geopolitical and diplomatic power play, and a kind of economic warfare within regions and between nations. While they all agree that free trade is essential for the economic health of every country, in truth, every nation tries to get more than it gives away. This is reason why it takes so long for trade pacts like the Trans Pacific Partnership (TPP) to take so many rounds of negotiation and yet only hoping that the next round in 2014 shall be the final. The negotiations among countries are like a multidimensional game of chess. It is full of caveats and concessions. If the deal does end, all delegates will breathe a sigh of relief when a compromise agreement gets inked at the end of a lengthy negotiation period.

But a compromise is just that: A compromise. Why is it so? Lobbyists and special interests of big trading nations are well entrenched hence trade negotiations carry political implications. The big powers use trade to exert their influence over smaller nations.

This is a business article, so the writer will not discuss politics. Nevertheless, you may want to hear his concluding thoughts at the end of this article.

Complex FTA rules hard to navigate

FTAs are getting more complicated and difficult to follow as negotiating nations keep flip-flopping their way and deferring the finalizing of talks. Small businesses are sceptical of promises of lower tariffs under FTAs. Some said the promises are like the Goods & Services tax rebates tourists could get back from purchases made at local shops; and these cash refunds are made available at airports when visitors leave for home. The challenge for visitors is: They have to comply with all documentary procedures, and then join a long queue for their turn. Queuing for between four and five hours is not uncommon for one main reason -- not everyone is familiar with the procedures. Most visitors fumbled, which resulted in protracted delays. Many gave up their queue number in order not to miss the flight home. It is trade-off. Many visitors walked away feeling frustrated that the rebate system seems cleverly designed to pay back as little as possible.

It may seem unfair to label trade agreements as made in bad faith; but merchants do have legitimate concerns about the ability of nations to negotiate in good faith. Some procedural requirements seem daunting. There are different rules and regulations for every different country, that they are constantly changing, makes it really difficult for smaller companies with key management likely to handle lots of the export business.

Some free-trade agreements leave out sensitive sectors and subjects. China's agreement with the Association of South-East Asian Nations, for instance, allows signatories to classify 400-500 tariff categories as sensitive, meaning, they are eligible for slower tariff reduction. By excluding sensitive sectors it complicates life for companies whose supply chains crossing multiple borders.

Establishing whether a product meets the trade deal's rule of origin conditions is also another complicated process especially for the small companies. The components of labour and raw material costs as sourced from various countries (the supply chain) have to be engineered or re-engineered to meet the percentage-criteria for the zero per cent duty rate to apply. Vietnamese pants do not win preferential access to America's markets under Trans-Pacific Partnership if they are cut from cloth made in China. Different trade pacts have widely different rules.

The challenges do not just stop there. Non-tariff barriers such as foreign exchange controls and taxes; hygiene checks and quality control inspections; and phytosanity restrictions are new administrative red tapes which smaller firms find a lot harder to qualify. Incidentally, phytosanity restrictions are measures for the control of plant diseases especially in agricultural crops.

FTZs may be a way out for firms in doubt


Small companies may wish to consider Free Trade Zones as viable alternatives to free trade.

Free Trade Zones are special zones for free trade. An FTZ is subject to laws of the country concerned; and it is outside the customs-territory of that country. Goods warehoused in these free zones can be altered, re-assembled or re-processed as an FTZ company deems fit.

The pilot Shanghai Free Trade Zone is one such FTZs worth considering. It was urgently put in place because of China's pressing concerns and considerations over the Trans-Pacific Partnership. The TPP is a potential game changer that now includes United States, Canada, Mexico, Peru, Chile, Vietnam, Malaysia, Singapore, Brunei, Australia and New Zealand -- covering almost one-third of world trade. China has every reason to worry the game changing environment. The TPP will pry open economies and put pressure on China to up its competitive game -- the Shanghai FTZ is its answer; a self-interest which China will put its heart and mind into it.

It may be an opportunity in the making for smaller companies which are sceptical about free trades and their various agreements between countries. With the FTZ, a foreign investor will only need to go through registration procedures before starting business; and the rules have also removed the minimum capital requirement for forming new companies. Outside the FTZ, an investor needs to abide by rules on minimum capital requirements. In addition he has to prepare a feasibility report, get the necessary official approval and registering with local branches of the relevant commercial sector.

The writer will leave you to get all the various details on setting up within the FTZ. But what is clear - the Shanghai free-trade zone will integrate modern transportation and communications infrastructure; and it will also come with a tax-free framework for domestic and foreign firms. It is China's strategy to become a pan-Asian supply chain hub. By allowing the free movement and warehousing of commodities, the country enables Shanghai to develop world-leading commodities exchanges. Shanghai FTZ is also promoting the use of the Chinese currency in global trade, allowing companies within the zone to freely move the Yuan across China's borders for trade-related services, hence reducing foreign exchange risk for exporting firms.

Now the complaints -- from the multinational companies -- that clear rules and regulations are slow in coming. Some predicted it will be another Qinghai -- a special zone in Shenzhen, near Hong Kong -- where there is not much happening since its creation more than three decades ago. True, there are teething problems for the Shanghai FTZ. But then, you are not a multinational company where the interests of other stakeholders or corporate rules require extraordinary caution or detailed due diligence work. You are a small company with lots of flexibility. Besides, you are not producing goods and services in big quantities. It is a window opportunity when the bigger firms are in a wait-and-see state of mind. You get the first-mover advantage.

Smaller firms may choose to set up their own subsidiaries or joint venture with local firms to source components from within the country and importing some from neighbouring countries. Working within China is the best way to gain a foothold into the big country. Sure, you can be a supply chain provider to multinational firms in the FTZ. But are you allowed to sell your goods and services to the Chinese population, in other words, domestically to the wider Chinese market?

Ask the Chief Executive Officer of a multinational company for his views on the Shanghai FTZ and he will likely tell you it is not yet clear what the Chinese government really intends to do. In his position, he has every reason to be less opportunistic. This is the writer's opinion: The Shanghai FTZ is not a stand-alone scheme. It is a starting point to liberalise the entire economy. Therefore, strictly on rules, officials will confront “leakages” - the cost and price differences inside and outside the zone -- that enterprising firms will find ways to arbitrage the difference and make handsome profits by selling domestically. In reality, if the intention is to liberalise the entire economy, the borders around the zone will remain porous. There are opportunities for the smaller firms whose CEOs are answerable to themselves and a few major shareholders.

Business is a calculated gamble. So be it.


Concluding thoughts


Anthony Rowley, Business Times Tokyo correspondent has some interesting thoughts on TPP to share with us. Why are members of the recently launched Transpacific Partnership often seen running into trouble with their negotiations?

His short answer is: The TPP “is no longer about trade as such. Rather, they have taken on the appearance of Trojan horses pushed into enemy (trading partner) territory in an attempt to covert internal systems into a form that allows the ‘invader’ to secure maximum access to markets there. They are a kind of a stealth weapon that, by disguising itself as an instrument of mutual benefit – that is, increased commercial interchange – is able to demand changes in trading partners to lower tariffs on imports of goods and thereby enlarge global commerce and prosperity. This is a laudable objective even if there were winnersand losers in the short term.

Let's all go back in time - just for a short moment -- to see what the Trojan horse is all about.

3000 years ago, the Greeks fought a 10-year war with the Trojans. The Greeks failed in their numerous attempts to enter the Trojan city of Troy. Finally, they had a plan. A huge wooden horse was constructed and hidden within its body was a select force of men. The Greeks pretended to sail away, and the Trojans pulled the horse into their city as a victory trophy. That night the Greek force crept out of the horse and opened the gates for the rest of the Greek army, which had sailed back under cover of night. The Greeks entered and destroyed the city of Troy, decisively ending the war.

If Anthony Rowley is correct with his observation, then, the developed countries are using the Trojan horse as a device in penetrating the emerging markets of Asia, Africa and Latin America. Unlike the Trojans, the present emerging nations know what lies in the belly of the Trojan horse. But emerging nations limited options because they depend on big powerful nations for trade and political stability. One option is to allow as few men inside the wooden horse; or probably to find ways to deal with them when their limited number emerged from the wooden horse. It sounds more like trade war than free trade!

We can now see the reasons why TPP negotiations have dragged on for 13 years and still no end in sight. Trade rounds of talks at the World Trade Organisation (WTO) commenced in 2001 and it is still on-going or rather talks have stalled on major issues.


..END...


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