Interpreting Risk in International Trade’
This article ‘Interpreting risk in international trade’ by Wintle and Cleeland (2012) explains a long dispute between the Australian and New Zealand governments. The dispute was caused by the Australian government banning the apple importation from New Zealand because of scientific issues. The New Zealand government reported the matter to the World Trade Organization, and the decision by the Australian Government was reversed in 2010.
This article is, therefore, focused on the restrictions in the international trade. These kinds of restrictions are non-tariff barriers and include standards of production and packaging of a certain product in order for the product to be allowed in the market (Finance 2010). Trebicock and Howse (2005) noted that trade restrictions are very important in international business because they help regulate trade. The country is in a position to ensure quality imports through these regulations.
Implications of this Action for the Australian Government
According to Ludwig (2011), Australian farmers are also huge producers of apples. Allowing importation of New Zealand’s apples into the country will lower the market for the apples produced by the local farmers. However, the industry will generate income through importation duties. In addition to the increased revenue due to importation duty, the trade relations between the two countries improved when the dispute was solved. Ludwig noted that Australia’s total export to New Zealand in 2010 was about $8 billion. Continued dispute on the ban of the commodity would have resulted in New Zealand imposing importation ban on Australian exports, thereby declining the country’s foreign income.
However, to lift the ban the government will have to deal with high unemployment rates in the country, because many employees currently employed by the apple industry in the country will lose their employment due to the cheap importation of the product from New Zealand. McGregor (2012) noted that the apple and pear industry, which currently contributes about $41.9 to the economy of South Australia annually, is currently seeking about $21.9 to effectively compete with these imports.
The domestic firms must invest a lot in the market in order to compete effectively with the cheap products from other countries. The added investment is mainly used to fund research that would identify methods of production at lower prices. For this reason, the Australian industries had to invest about $125 million to be effective in competing with apples from New Zealand.
McGregor noted that added investment will encourage more people to join the industry in order to maintain the profitability. However, due to the reputable image of the Australian firms in terms of quality, the industry will only lose a little market share to the imports from New Zealand. On the other hand, a large proportion of the market that had been previously held by the local firms will be left vulnerable (McGregor 2012).
The multinational corporations dealing with apples will experience reduced sales as a result of increased competition from the small local companies. This is because these local firms are at a position to buy the product in bulk due to the reduced market prices for fresh apples. The multinational corporations will also experience reduced market share as the local corporations move to strengthen their position in the market.
‘Greenpeace leads war against coal’
This article by Morton and Wroe (2012) explains how Anti-Coal groups are determined to stop the country’s coal exports claiming that the expansion of the industry would lead to increased global warming. The industry is very important to the country’s economy, and it is valued at $43 billion. Many foreign companies have invested either directly or indirectly in the industry.
The government protection of the industry for its foreign income generating capability is one of the international business concepts under political economy. The industry is protected by the government despite the fact that its use leads to global warming (International Business 2012).
Implications of this Action for the Australian Government
Australia is a leading coal producer in the world. The campaign is aimed at stopping the production of coal by the country. In case the production of this important mineral is halted, the government would suffer more. First, the revenue generated by the mineral in export would be lost. Secondly, a lot of companies, both local and multinational corporations, would not go on with their operations, and, therefore, the revenue collected by the government from this important industry would be lost. The group further aims at preventing investments in the coal mining industry. This will lead to low foreign direct investment in the country.
The local firms in mining would experience increased competition from the companies that had been previously contracted in the coal mines. Furthermore, those local firms that depend on coal for normal operations could be negatively affected. Coal is an alternative source of energy. The use of coal leads to reduced costs of production. A change in the form of energy used would lead to increase in production costs. As a result, the local companies have to pass on the added cost to their customers. Increase in prices leads to a drop in the demand of the products. Therefore, the local industries are likely to lose market to the imported products.
Most multinational corporations in the coal mining fields of Australia export the product to other multinational corporations in other countries. Reduced production of the product might lead to reduced production of other commodities in other countries. Such campaigns have the effect of discouraging multinational companies from investing in the country. According to Hernandez (2012), the campaign mainly targets a Chinese investment worth $8 billion.
Analysis of these Articles
There are two international business concepts discussed in these two articles. The first concept is the political economy in international trade. The second concept is the ethics and corporate responsibility in international trade. The ‘Interpreting risk in International Trade’ describes the process that led to the 90 years’ ban on the importation of apples from New Zealand to Australia. Even though Australia insisted to the World Trade Organization (WTO) that the reasons for the apple import ban were all scientific, other non-scientific factors such as politics played a part.
According to Madura (2011), government policies affect the international business directly and indirectly. In addition, government regulations such as the ban on apple importation from New Zealand by the Australian government have an influence on the control of the market in a certain industry. The political economy factors are, however, important to the country because they allow the country to regulate the unemployment level, income and economic growth. For instance, a country might encourage exportation of most of its products as a result of the high income levels and because it increases jobs. On the other hand, a country can encourage the consumers and local firms to consume locally manufactured goods instead of imports because it would create more jobs for the country.
In the case of Australia, the government had decided to regulate the apple industry by banning the competing apple imports from the neighboring New Zealand. However, the World Trade Organization does not allow restriction on the basis of competition. Australia had to introduce stiff measures on the apple industry in order to discourage entry of the apples from New Zealand. These measures were mostly to protect the local growers because they were greatly concerned about the competition soon after the ban was lifted (McGregor 2012).
The second article is about a campaign by an Anti-Coal group that aims at halting the important coal industry in the country. This article like the first one also discusses the political economy of the international trade. This is because coal, despite its effect on the environment, will continue to be mined because of government protection. This is a common practice in international trade because the government cannot agree to lose foreign income based on the environmental issues that are not restricted by the World Trade Organization.
The other international trade concept discussed in the two selected articles is the issue of ethics and corporate responsibility. According to Manakkalathil and Rudolf (1995), Corporate Social Responsibility is the duty of the organization to conduct their business in a manner that does not interfere with the rights of the local people. In the recent years, multinational corporations have been the center for debate concerning this international business issue.
Despite the Coal industry being very important to the Australian economy, some want its expansion stopped because of its effects on global warming. This is corporate social responsibility as discussed above. Failure to observe the corporate social responsibility may lead to lawsuits (Sharp 2006). Mahdavi (2006) noted that social responsibilities are very important to these multinational corporations. According to the first article, the Australian government had banned the importation of apples from New Zealand because they failed to meet the minimum requirements in terms of health. The second article is about ethical issue of global warming. Coal industry is known to contribute to global warming, but because of its position in the economy and also due to the foreign income it earns the country in exports, the government cannot stop the expansion in the industry as the campaign seeks to achieve.
In conclusion, the international business is affected by the political economy of the participating countries. In addition to the political economy in the country, other factors such as the ethics and corporate social responsibility of the multinational companies also affect the international business. In the case of Australia, political factors are seen to have influenced the ban on apples to protect the local apple industry. Also the government of Australia protects the Coal industry, despite the fact that it leads to global warming. This is because coal is an important mineral to the country, and its use in the international trade earns the country foreign income. These could also be viewed as ethical issues in international business.