Emerging Markets - Preferential Treatment: The New Face of Protectionism? - Sun and Planets Spirituality AYINRIN

 Emerging Markets - 

Preferential Treatment: The New Face of Protectionism?  -  Sun and Planets Spirituality AYINRIN

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Author:His Magnificence the Crown, Kabiesi Ebo Afin! Oloja Elejio Oba Olofin Pele Joshua Obasa De Medici Osangangan Broadaylight.

Summary.   

As free trade agreements become more popular, they present global executives with thorny strategic and operational decisions.

The postrecession era will be a heady time for countries in the developing world as they find themselves wooed not just for their materials and labor but—increasingly—for their consumers. All that attention will most likely lead to more free trade agreements (FTAs), in which countries arrange to lower or eliminate tariffs on selected goods for each other. That scenario has implications for global corporations’ strategy and operations.

FTAs, which have been proliferating since the 1990s, are a popular and politically acceptable way for countries to give an edge to firms based inside their borders, at a time when “protectionism” is universally acknowledged as a dirty word. Today protectionism isn’t practical; every country depends on imported goods and foreign markets. But with government bailout and stimulus money flowing freely, politicians in developed countries cannot argue too forcefully for free trade, which is often blamed for job losses and declining competitiveness at home. Free trade agreements allow countries to be “preferentialist” instead of downright protectionist.

China will be among the countries showing the keenest interest in FTAs. Until recently it relied heavily on strengthening its trade ties with the United States and Europe, but the worldwide recession has brought a rude awakening. The collapse in orders from the developed world and the resultant shock to domestic manufacturing made clear to Chinese officials that their country had become dangerously dependent on U.S. and European markets. Unsold inventories flooded the Chinese market at bargain prices last year at Christmas, but domestic consumers offered no remedy for China’s downturn dilemma. Layoffs numbering in the millions have spread a chill even to the dynamic economies of Beijing and Shanghai. Officials in China need to find new markets for Chinese goods—not just Haier TVs and Li Ning running shoes but Baosteel alloys and Sinochem polymers as well.

How China Is Changing the Rules

China’s free trade agreements will most likely differ from the United States’ and Europe’s in one respect that’s very ...

China already has a few free trade agreements in place, and more are in the pipeline. FTAs allow China to encourage imports in sectors that support national development goals without weakening domestic firms in industries that the Chinese government wants to dominate, such as petrochemicals and telecom. FTAs also cement China’s position as a key player in the global economy.

Not everyone is so enthusiastic about FTAs, however. The Columbia University economist and free trade advocate Jagdish Bhagwati has likened them to termites nibbling away at the nondiscrimination principles on which the World Trade Organization depends. Others question whether FTA rules giving preferential treatment to goods manufactured in specific countries do more to benefit tariff-savvy multinationals than to aid indigenous development.

And at individual firms, free trade agreements sometimes present executives with thorny strategic challenges. An FTA might get a company’s goods into, say, Chile on the cheap, but winning over customers there may require different marketing strategies or even organizational changes. Executives presented with new low-tariff opportunities also need to be sure that the potential gains outweigh the costs of following stringent rules about where products’ components come from. And if another country’s FTA offers more-lenient rules of origin and thus a cost advantage for an overseas competitor, a company must sort through the pros and cons of moving production to that country to reap those benefits. In this ever-changing landscape, the challenge is no longer obtaining access to foreign markets; it’s figuring out how to enter them wisely.

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