South Africa: Yes or No to Trade

         South Africa is the EU's largest trading partner in Africa and its exports to the EU are growing and the composition of those exports is becoming more diverse. South Africa is gradually moving from mainly commodity-based products to a more diversified export profile that includes manufactured products.

Trade in goods

• EU good exports to South Africa 2010: €21.507 million
• EU goods imports from South Africa 2010: €17.912 million

South Africa's primary exports to the EU are: fuels and mining products (27%), machinery and transport equipment (18%) and other semi-manufactured goods (16%). EU exports to South Africa are dominated by machinery & transport equipment (50%), chemicals (15%) and other semi-machinery (10%).

Trade in services

• EU services exports to South Africa 2009: €5.3 million
• EU services imports from South Africa 2009: €3.8 million

Foreign Direct Investment

• EU investment flows to South Africa 2009: €5.9 billion
• South Africa investment flows to EU 2009: €1.0 billion
• EU investment stocks in South Africa 2009: €70.8 billion
• South Africa investment stocks in EU 2009: €6.2 billion

Therefore, as it could be understood about the trade role in emerging economies such as South Africa, it is really essential for them to have free trade to be developed. However, as time goes by, they should find their position in the global market and try to take advantage of comparative advantage to produce more specialized products. Otherwise, they will be altered to just main importers which do not have any reliable domestic industry to improve its national economy and GDP.

Hence, it is strongly recommended for emerging countries to pay attention to their domestic industries and prevent them from failure in production. Otherwise, they would have to spend more time to think about job problems for employees who already have been laid off.  

ASEAN: Risk or Opportunity for China

ASEAN was founded on 8 August 1967 in Bangkok, Thailand by Indonesia, Malaysia, Philippines, Singapore and Thailand. The main purposes of this establishment are:

Ø  Speed up economic development

Ø  To help to improve regional peace

Ø  To maintain regional and international cooperation and reinforce it

Ø  To promote southeast Asian studies

In addition to these countries, china just jointed this group. The Chinese’ government is very optimistic to play an important role in this establishment. With regards to this foundation, there are some advantages and disadvantages for countries that are the members of these establishments.

The main upside would be related to restrictions on trade. Naturally, there would be no limitation in front of commercial activities between those countries. However, things are not that easy all the time. Although it is really great to have trade with no limitation, sometimes countries should pay off for taking these opportunities.

 Paying attention to European Union as an example, it could be understood that joining a group always does not have advantages. As a way of illustration, Greece is experiencing a critical economic situation right now. It is bankrupt and it is the European Union members’ responsibility to help it to figure the problem out. Only Germany has to pay 200 billion dollars to help Greece.

Hence, it is not illogical to investigate all of downsides a well as upsides. Without saying, to have a free trade and open economy, nations have to develop their relations with other countries but, reviewing potential risks would prevent countries from paying off for their decisions later on.        

Comparative Advantage: Shipping Industry

Undoubtedly, shipping is one of the major basic components in trade process. To understand the importance of shipping in our lives, we only need to look at the diverse types of goods we use often from the mouse to the computer screen to the fuel that powers our vehicles and factories around the world every day. What we now call basic necessities of modern life is brought to us by world trade which the majority of them are transported by sea.

Therefore, there is more need to have shipping companies in order to handle transportation system both domestically and internationally. Since there are too many shipping agencies, they should have some benefits for customers to choose them which means high competition for shipping companies.

Although the comparative advantage is more common to use for products rather than services, paying attention to it cause better result in every industry. For instance, this concept can be applied in shipping industry as different aspects such as:  

Ø  Geographical considerations: some companies can provide the really great price of shipping due to their accessibilities to the ports particularly Free Trade Zones. As it known, these areas are tax free so the companies could offer lower prices.

Ø  ISO: International Organization for Standardization which is responsible for quality control on management systems for different companies and industries. Obviously, customers would rely on companies which is graded based on ISO rather than entities that do not have any standards.

Ø  Strategic connection and marketing strategy: have effective partnerships would result in strong unity and it also could synergize companies in order to be more efficient.

As it can be understood, opportunity cost which is based on comparative advantage also exists for service provider by overlooking these components.    

International Sugar Agreement: Mutual Benefits

There have been great reductions in trade barriers in front of developing countries. Associated with this has been a shift away from dependence on export to reliance on domestic manufacturing. As a matter of fact, there were some reforms of trade policy in developing countries.

 Prior to the mid-1980s, developing countries just relied on imports from other countries, a situation that exposed them to a higher volatility of prices and high concern about dependency on imported manufactures. However, by the late 1990s, around 80 percent of developing countries’ exports were manufactured goods which cause to lower concern about the role of trade.

Nevertheless, the developing countries were not alone to improve their economic situation. There were many agreements that helped them to reinforce their international marketplaces. One of these agreements is International Sugar Agreement. A brief objectives of this agreement includes:

Ø  Increase the level of international trade in sugar, especially for enhancing the export earnings of developing exporting countries

Ø  Provide enough supplies of sugar to meet other countries’ needs

Ø  Increase sugar production in order to help producers economically

Ø   Provide a growing access to international markets for developing countries

As it can be understood, the International Sugar Agreement is based on comparative advantage and mutual benefits. Although it helps developing countries to be improved, it provides a high degree of assurance for importers so they have no concern for their sugar demands in their domestic marketplaces.    

Tit - for - Tat Retaliation: Chicken Feet, Chinese Tires

Unquestionably, every development based on global trade has some expenses rather than usual costs for both importers and exporters. However, sometimes each of trade partners could be smart enough to impose these expenses to each other which would result in unwillingness for either both sides or just one of them. Refer to China as the biggest commercial partner of most of the countries, it can be understood that Chinese economic development is highly tied with everyone else’s expense. Although it is ideal for China, many countries are dissatisfied due to this situation.

With regards to US as one of the biggest tire importers from China, it could be realized that they have a big share of tire industry in the US which resulted in market disruption as well as high rate of unemployment. Even though the profit margin in auto industry has decreased in US gradually during previous decades because of the company’s price policies and not paying attention to R&D, exceed tire imports from China cause to depressed vehicles sale in the US. Arguably, China also increased the tariffs for chicken feet imported to China. Nevertheless, it seems that this time, this is China that cannot meet chicken feet demand in the internal market.

As it could be seen, every single change in either country’s policy or marketplace condition would cause to the big issue between the countries. Although president Obama’s verdict is paradoxical, it sends the right message to China: Cease and Desist.  

Are all barriers on trade intentional?

Without a doubt, there are several barriers in front of international trade which some of them created by governments in order to protect their domestic production and some of others have been created through various situations either inside the country or internationally. Basically, there are two different major barriers:

1.    Tariffs (tax on imported goods) and quota (limitation on amount of imported goods). As it said earlier, tariffs and quotas are usual ways to support national products and producer. Therefore, they can be encouraged to produce high quality goods which can be competed in international marketplace.

2.    Nontariff barriers are countless. Various nations have different perspectives such as: product quality, religion attentions, harbor and airport permits or environmental factors which cause to lower amount of trade.

However, other factors which could lead to trade limitation cannot be ignored. The most important example that is really well known is about the war between Iran and Iraq in 1980. In the following I will discuss impacts of this war on Iranian trade.

Over the past 3 decades conflicts and international sanctions in the Middle East have had a significant impact on regional trade flows. Currently there exists a strong potential and development in sectors which the Gulf countries may maintain regional comparative advantage rather than international one. Development of trade in such sectors and commodities could particularly enhance regional trade flows and condense the strength of regional economies through expansion and diversification.

Overall Iranian trade contracted in 1986 because of increased import restriction coupled with consistent decreasing export earnings. Iranian world imports began to decline of almost 55 per cent. The import of capital and consumer goods had started to decline after the 1979 Revolution; however, between 1979 and 1982, after the outbreak of the war, capital goods imports fell from 30 percent of total imports to 15 percent.

 Exports suffered worse as they fell from their peak of USD 19,185 million in 1983 to their lowest point of USD 8,044 million in 1986, a decline of almost 60 per cent. The increase in prices and fixed salaries cause to a high rate of inflation, which ranged between 10 and 50 percent and Iran faced a large trade deficit during those years.

 Part of this deficit was formed by Iran's sky rocketing food imports. Food imports

increased to more than USD 2 billion by 1983 and by 1986 food imports consumed as much as 20 percent of total foreign exchange. The nation spent about USD 3 billion per year on food items such as wheat, rice, meat, vegetable oil, eggs, chicken, tea, and sugar. Soon, through a conscious effort by the Iranian government to contain the deficit crisis through restricting imports of luxury goods and import substitution imports declined to USD 2.6 billion at the end of 1986. Iran resorted to barter agreements with some countries in 1986 and 1987, trading oil for goods such as tea from Sri Lanka, rice from Thailand, wheat from Argentina.

In conclusion, it is clear that frictions in the Middle East have had a substantial impact on regional trade flows. In addition, the lack of predictability in regional trade may have created greater reliance and eventually crowded out the development of regional trade integration.

Detroit's Big Three Obstacles

Factually, all industries have been faced with these difficulties in all aspects. It is not just about auto industry or just about the USA. It is about the whole world. The determining factors for being survived today are competition and take care of customer in the best way. However, most companies still insist on their old approaches to gain profits without paying attention to the marketplace demanding.

Regarding to the Detroit’s Big Tree, it seems they are experiencing the worst situation that they have ever had: Dealing with bunch of workers who were working for a number of years then retired and have been waiting for their pension expenses which is logical from their point of view to gain. However, a huge competition makes their employers unable to pay them. In order to solve this issue, I am thinking to three possible ways:

1)    Applying more robots and machines instead of using human beings in production process would be helpful. Although it will have expense to replace machines instead of human workers, it has two advantages: first, the company can use the most up to dated machineries by leasing them and put the relevant expense on their off balance sheet documents. So, the revenue will be shown in upper level than before and the stock price will go up and company can gain more investors for covering its costs. Second, the company will not have to pay for healthcare expenses anymore. The only cost they need to pay is the lease cost which is completely incomparable to the gained profits from.

2)    Merging is another solution for this issue. In this way these companies will be come together and create a new big and powerful entity which can have the control over the national market as well as international markets.

3)    Producing new and low price generation of autos which do not need to use gas as their basic source of energy will encourage customers to buy domestic products in reasonable price with regards to the gas charge.       

Besides, there are two policies which can be administered by these firms:

1)    Outsourcing is a great way to compete with international entities. In this way, the companies can assemble their products outside the US in target countries with very low expenditures and then sell those autos to them. Therefore, with regards to comparative advantages, these companies would hit two birds with one stone: first, they are not paying healthcare expenses for foreign workers. Second, they find a ready market for their products with the lowest amount of marketing expenses.

2)    Using governmental healthcare program instead of special healthcare program inside the company can be useful if the federal laws allow employer and support them to do it.

Paying attention to these perspectives and putting them in to the practice, improving in the US auto industry would not be out of hand.