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International Trade Relations
Introduction
Trade restrictions are export or import barriers created by nations, against the principles of a free trade economy, to protect their industries and consumers. Such restrictions can be posed in the form of tariffs or non-tariff protection policies. Tariffs are duties or fees levied against import or export of a particular economic good. Non-tariff protections policies include anti-dumping policies, fixing import or export quota and restrictive licensing.
The company I work with is a multi-brand retail chain that is contemplating to begin trade in India. The objective of this paper is to understand the types of trade restrictions imposed by India and who are its target beneficiaries.
Trade Restrictions in India
India imposes both tariff and non-tariff barriers on exports of the United States. Since 1994, the country has taken significant steps to open up its markets for international trade. But, barriers impeding imports from other nations still exists considerably. Its tariffs continue to be high when compared with other countries (World Bank, 2011). While the country has liberalised remarkably in the non-agricultural product segment, its restrictions are still high in agriculture, retail trading, railways and real estate (United States Trade Representative, 2008).
India has imposed heavy trade restrictions on retail trading, prohibiting the United States retail giants like Wal-Mart. The trade restrictions include complex and non-transparent regulatory environment, cap and prohibition on foreign direct investment in retail, inadequate infrastructure, and inefficient legal system. The complexity in the regulatory structure creates hurdles in foreign investment. India has a put a foreign equity cap on foreign direct investment (FDI) in single brand retail outlets and does not allow FDI in multi-brand retail (United States Trade Representative, 2008). Inadequate infrastructure can make investments profitable unviable. Inefficiency in legal structure is a big obstacle for foreign investors. Incidences of arbitrary legal action and delayed judicial procedures render investments risky.
Benefits from Trade Restrictions
The benefits of imposing these trade restrictions accrue to the domestic investors. More specifically, small and medium enterprises dominate the retail market in India and benefit the most from trade restrictions in retailing (Dey, 2007). These small retail outlets are distributed across India and are able to make huge profits because of their accessibility and convenience. With presence of foreign retail giants, these petty traders are bound to collapse.
Losses from Trade Restrictions
Domestic traders earn big margins from customers creating inefficiencies in the market. Thus, while they benefit from restrictions on FDI, the consumers are likely to suffer along with the foreign retail chains. Due to lack of alternatives, customers are bound to make purchases at the prevailing price. Presence of large retail chain can help customers in getting products at a good bargain.
Conclusion
My company is into multi-brand retail trade and will be adversely hit by trade restrictions on retailing in India. Even though I am confident that we can create value for the Indian consumers I am prevented to do so.
Trade restrictions are tools used by countries to protect their producers and consumers. Restriction on FDI is on such step taken by Indian government. The restrictions are in the form of non-transparent regulations, inefficient legal structure, cap on FDI and inadequate infrastructure. While, trade restrictions on FDI benefit the retail traders, the consumers are likely to lose. Thus, it is important for governments to have a holistic view when imposing restrictions on foreign trade.
References
Dey, Dipankar (2007). FDI in India’s Retail Trade: Some Additional Issues. Retrieved from http://rupe-india.org/43/retail.html
United States Trade Representative (2008). 2008 National Trade Estimate Report on Foreign Trade Barriers. Retrieved from http://www.ustr.gov/sites/default/files/uploads/reports/2008/NTE/asset_upload_file931_14662.pdf
World Bank (2011). India: Foreign Trade Policy. Retrieved from http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPINTECOTRA/0,,contentMDK:20592520~menuPK:579454~pagePK:34004173~piPK:34003707~theSitePK:579448,00.html
