Intellectual property refers to the works or inventions that are as a result of creativity, including a manuscript or a design, to which one has exclusive rights or for which one may apply for a patent, trademark or copyright. If a person or organization registers their original works such as inventions, ideas, innovations, writings and artistic performances among many others, with the relevant government and they own the exclusive rights for a particular period of time, this is referred to as intellectual property.
Intellectual property has become a major issue in recent rounds of international trade negotiations because of a number of factors. One, the costs associated with copying an individual’s original works is relatively cheap as compared to the amount of time, cost and research that was used to come up with it. It is less expensive to pay for an original work than to purchase or lease it. In many cases the penalties are associated with copying are usually lower. Two, there exists different intellectual property rights regulations among different countries hence it becomes difficult to determine cases of infringement of intellectual property. Three, piracy reduces the profits earned by the organizations that invent and innovate. This ultimately leads to a reduction in the incentives for investment in research and development. Lastly, the lack of enforcement of the International Intellectual Property Regulations has become a major issue. Some of the developing countries cannot afford the costs of protection or find it difficult to pay the high prices for fair or legal usage.
Question 7
As a result of import competition, some domestic workers may lose their jobs and some firms may find it difficult to operate. With that being the case, the government grants assistance to the domestic workers displaced by the increased imports and firms facing hardships because of trade liberalization. This is referred to as trade adjustment assistance. Trade adjustment assistance attempts to help the affected workers and firms through the means of compensation or other relevant programs. Such methods may include the use of profits accrued from the free trade to compensate the groups affected by it and concerted efforts to ensure that everyone enjoys the benefits of free trade. In the United States for example, the displaced worker is assisted through income support, job training and allowances for job search and relocation (Carbaugh, 2011). For firms affected by import competition, assistance may be in the form of market research assistance, low-interest loans and technical support in moving to newer lines of production (Carbaugh, 2011). All these efforts would be aimed at helping the firm regain a competitive advantage.
Question 12
Economic sanctions are government-mandated limitations or penalties placed on customary trade or financial relations among countries. A country may restrict trade or financial aid to a targeted country in a bid to ensure that the target country changes its policies or disengages from a particular project or activity. The nation imposing the sanctions hopes to impair the economic capabilities of the target nation to a point that the target nation would succumb to its objectives. Economic sanctions may be imposed for purposes including protecting the domestic economy, combating international terrorism, reduction of nuclear proliferation and protection of human rights among other cases. Economic sanctions cause economic inefficiencies to the target nation. Economic sanctions cause a reduction in savings, investments and national output and also increase the unemployment of the target country. Ultimately, the sanctions would lead to reduced growth of the target country. Sanctions are most successful in achieving their goals when many countries join to impose sanctions to one country. It would also be successful if there is a high degree to which the target country has economic and political ties with the imposing country. The lack of strong cohesion in a country would also lead to a successful sanction. A strong cultural tie between the residents of the target country and the imposing nation would also lead to the success of an imposed sanction as they would be more likely to identify with the objectives of the imposing nation.
Chapter Seven
Question 5
The Organization of Petroleum Exporting Countries (OPEC) is an international organization and an economic cartel consisting of a group of nations selling petroleum to the world market (Danielsen, 1982). As a cartel, it aims to manage the supply of petroleum in an effort to set the price of oil to avoid the fluctuations that might affect the producing and purchasing economies. OPEC was formed in 1960, but it was infamous until 1973. This is because each of its members was an individual seller of exported petroleum. Individual nations were insignificant to the world as they could not control the price of oil by their exports levels. The 1970’s saw OPEC member countries taking control of their domestic petroleum industries hence acquiring a major say in the petroleum pricing in the world market. The price of crude oil was controlled through the control of the production volume.
However, in the 1980’s OPEC experienced a number of problems. The skyrocketing crude oil prices had a major effect on the world market. This saw a decline in the demand for crude oil as non-OPEC members reduced their oil consumption. The non-OPEC members shifted to other newer energy sources leading to a decrease in the revenues for the OPEC members and shrinking of the petroleum market. Non-OPEC members shifted to fuel-efficient vehicles leading to a reduction in demand and a surplus of petroleum in the market. The search for petroleum alternatives such as nuclear and coal by the non-OPEC members also led to a decreased demand for crude oil (Danielsen, 1982). These were the main reasons behind OPEC’s problems in the 1980’s.
Question 10
In the 1970’s, China was an insignificant participant in the world market for goods, but by 2005 it had risen to be the world’s second largest economy. A number of reasons are responsible for China’s rapid growth. China transformed from communism to capitalism hence enabling farmers to sell their produce and also opening doors to foreign investors. Central to China’s economic reforms was opening the economy to international trade and foreign investments and this contributed greatly to its transformation. China also applied to join the WTO which enabled it to gain full non-discriminatory treatment in trade relations with the WTO members.
The normal-trade-relation status of China has been a source of controversy in the USA because of the Chinese Government trade policies that aim to promote and protect the domestic industries. The policies attempt to promote the importation of products deemed beneficial to their economic growth and development such as raw materials used in the production of goods for export. For products not considered high priority or which compete with products from Chinese firms, they usually face trade barriers. Enforcement of laws protecting the intellectual property rights of foreigners has also been a major problem in China.
Some of the likely effects of the entry of China’s to the WTO include lowering of tariffs on average industrial products, anti-dumping regulations, stiffer penalties for intellectual property piracy, and reduction in export subsidies for agricultural products among others. China’s entry to the WTO would also affect trade in other regions for example an increase in the number of imports from the Chinese market by the European Union as Europe would eliminate quotas.
Chapter 8
Question 3
The formation of a customs union by a nation often results into a static or welfare effects. Included in the custom union are the welfare increasing trade creation effect and the welfare decreasing trade diversion effects. A nation’s decision to participate in the customs union mainly depends on which among these effects is most significant. Ultimately in the long run, custom union formation affects the national welfare through the economies of scale, incentives for investments and the competition levels. If a customs union exists among several nations, their welfare will increase which in turn will lead to a single nation’s increase in welfare. Customs union should be formed when the trade creation effect is stronger. Carbaugh (2012) states that a dynamic welfare effect comes from the economies of scale, higher level of competition and a stimulus of investment because they bring a greater welfare in freer trade under the customs union.
Question 4
The European Union’s Common Agricultural Policy (CAP) refers to a support price policy for the farmers of the members states. The objectives of CAP are to increase agricultural productivity, stabilize markets, provide certainty of food supplies, ensure fair standard of living for farmers and ensure steady supply of produce to consumers at reasonable prices (Senior & Perani, 2012). Deficiency payments, direct income payment and output controls are some of the methods used to achieve these objectives. Over the years, it has come under heavy criticism. The financial costs of the policy have been very substantial. In the 1970’s and 80’s for example, CAP consumed close to a third of European Union’s budget. CAP’s price intervention has also been criticized for creating artificially high prices for food within the EU. The high import tariffs have kept the prices high through the restricting of competition from the non-European Union members (Senior & Perani, 2012). Producing countries receive high level support price from variable levies when agricultural goods are trading among the EU countries. When there are surplus goods needed to be exported, the producer receives export subsidies. This policy not only protects a farmer’s interests but also increase incentives for production. As a result, this leads to hurting of the market’s efficiency and a loss of welfare for the European Union.
Chapter 9
Question 6
Licensing and franchising are some of the common methods of entry into foreign markets by businesses. Licensing is a common method for businesses with a distinctively and legally protected asset. Franchising on the other hand, has been used as a rapid method of international expansion using the intellectual property of the franchisor and the capital and enthusiasm of network of owner operators. Under the following conditions, the use of licenses and franchises would offer approach for entry to the foreign market. One, where the transportation costs are high or there are trade restrictions, licenses and franchises would be a good option. Direct exportation would not be a good way under such conditions and the production costs can be offset. Two, licenses and franchises are feasible if the foreign market size is large enough. If a market size is huge and the production capacity of the parent company is limited, then licenses and franchising would be a preferred choice. Three, if the costs of direct investments are relatively high for the parent company to afford, licensing or franchising would be a good option. This is because this approach would only require the provision of the name and operating procedures. Other costs such as the fixed costs and variable costs are avoided. Licensing and franchising are also low risk investments because there are typically no upfront investments. Lastly, in a situation whereby the political or economic environment of a given country appears uncertain, licensing and franchising would be better options as they would avoid potential risks associated with fixed facility investments.
Question 7
The major issues involving multinational enterprises (MNE’s) as a source of conflict forsource and host countries are the employment issue, technology transfer, national sovereignty, transfer pricing and balance of payments (Carbaugh, 2012). In the employment issue, host countries usually expect multinational enterprises to create new jobs but are not usually the case as they bring in top level managers from the source countries. This means that workers from the host countries cannot attain top level jobs. For the source countries, they have to grapple with ‘runaway jobs’. In technology transfer, the host nation benefit from the advanced technologies brought in which would boost their productivity. The source nations on the other hand have to contend with the fact that these MNE’s would reduce their exports and jobs. Transfer pricing is about the taxation issue. MNE’s would want to consider tax evasion and avoidance while the host country would want tax income. This is a major source of conflict. Under national sovereignty, many countries believe that the presence of MNE’s in a country undermines national sovereignty. The host countries tend to believe that MNE’s would use accounting techniques to evade taxes. On the other hand the source countries have to monitor the foreign exchange problem as MNE’s might move funds rapidly from one center to another to avoid making losses. In balance of payments, when MNE’s make direct foreign investments, these payments represent an outflow of capital from the source countries. When they are in operation, they have to make additional investments and material from source countries which would be strengthening the exports position of a source country and increasing imports for the host county.
Question 10
Labor migration has both positive and negative effects to the country of immigration, country of emigration and the world as a whole. To the country of immigration, there would be an increase in total output and revenue because of an increase in labor (Carbaugh, 2012). The factors of production for the country would increase to which it is a positive effect. On the other hand, it would bring a negative effect given that the native labors would experience losses with labor migration. Immigration workers always move to countries with high wages and hence the native workers would have to contend with lower wages. Native industries would cut their labor costs but it is the native workers that would suffer as a result. To the emigrant countries there would be a reduction in the factors of production which would lead to a reduction in the total output and revenue. This is a negative effect. But this would mean an increase in income for the rest of the workers in the country as labor supply decreases. To the whole world, labor migration would go into areas of higher wages and high productivity. Labor migration into these high productivity areas would lead to an increase in the world output. On the other hand, the gains in the world income that result from labor migration are not distributed equally among nations.
References
Carbaugh, R. J. (2011). International economics. Mason, OH: South-Western Cengage Learning.
Carbaugh, R. J. (2012). International economics. Mason, OH: South-Western Cengage Learning.
Danielsen, A. L. (1982). The evolution of OPEC. New York: Harcourt Brace Jovanovich.
Senior, N. S., & Pierani, P. (2010). International trade, consumer interests and reform of the common agricultural policy. London: Routledge.
