政府干预自由贸易的方法以及相关成本与效益-The Ways in Which Government Interfere with Free Trade and The Associated
04-24, 2014
政府干预自由贸易的方法以及相关成本与效益-The Ways in Which Government Interfere with Free Trade and The Associated
1.0 Introduction 引言
1.1 Background introduction 背景介绍
The free trade process and government interfere are speeded up after 1980s and 1990s, the international and national free trade phenomenon has been developing so rapidly during the recent decades which has become a hot topic in the social research for governments and academies. The international and national free trade is beneficial for the effective and efficient distributions of production endowments and resources in the global contexts. It is also beneficial for boosting the economic development and openness of undeveloped areas. Under such situation, many national and international governments interfere the free trade processes which have produced some problems. In the field of both academy and policy making, some people argue that the free trade should be promoted with great efforts and any activities in relation to the interfering with free trade should be stopped, they supports the free trade who insist that free trade can bring about many benefits and the governments’ interfering may hurt such benefits.
20世纪80年代和90年代后自由贸易进程和政府干预开始加快，国际和国家自由贸易的现象在最近的几十年一直发展得非常迅速，在政府和院校的社会研究已经成为一个热门话题。国际和国家自由贸易有利于生产禀赋和资源在全球背景下的有效和高效的分配。这也有利于促进不发达地区的经济发展和开放性。在这种情况下，许多国家和国际政府干预已产生了一些问题，自由贸易的进程。在这两个学院和决策的领域，一些人认为，自由贸易应该促进自由贸易，应停止努力和任何宣传活动，他们支持自由贸易，坚持认为自由贸易可以带来很多好处和政府的干涉可能会破坏这样的好处。
While others argue that the governments’ interfering activities are quite necessary and important under many circumstances such as the current financial crisis, this is due to the fact that the free markets have many drawbacks which cannot be compensated without governments’ interfering activities, these people argue that the international and national trade activities can produced more benefits to a country with proper governments’ interfering activities and efforts (Hejazi and Safarian, 1999). It can be seen that the government’s interfering with free trade is just like a coin that has two separate sides, it brings about costs and benefits, in the meantime, it has brought about challenges, uncertainties and disputes in the international and national free trade. Therefore, the phenomenon of international and national’s interferes with free trade should be considered and evaluated critically.
而另一些人认为，政府的干预活动是相当必要和重要的，在很多情况下，例如在当前金融危机的情况下，由于这一事实，即自由市场有很多缺点，不能没有政府给予补偿“的干扰活动，这些人争辩，政府的有效干预活动和努力会给国际和国内贸易活动带来更多的好处（Hejazi和Safarian，1999）。由此可以看出，政府的干预与自由贸易就像一个硬币有两个面，它带来的成本和效益，同时它带来在国际和国内自由贸易的挑战，不确定性和争议。因此，自由贸易的国际和国内的现象，应审慎考虑和评估。
1.2 Research aims and objectives
This paper aims to investigate the government’s interferes with international and national free trade based on international free trade theories such as technological gap theory and product life cycle theory, and reviews of literatures on governments’ interfering activities will also be carried out, in the meantime, the costs and benefits associated with the above issue will also be discussed and analyzed. This paper also aims to specify the ways through which government interferes with international and national free trade. Moreover, this paper aims to offer recommendations on how national and international governments do to make the most use of international and national trade, and how to make trade regimes and regulations more helpful and effective. It can be expected that this paper can hopefully contribute something worthwhile to the current research field of free trade and governments’ interfering activities.
1.3 Structure of the paper
On the basis of the background introduction, the literature reviews and theoretical foundations will be introduced and discussed, international free trade theories such as technological gap theory and product life cycle theory and other issues, the theories and literatures on governments’ interfering with free trade will also be discussed and analyzed in this section. Then the ways in which governments interfere with free trade will be discussed and analyzed, followed by the critical evaluation on the costs and benefits of doing so. Recommendations will be offered on the basis of previous discussions, conclusions will be made at last.
2.0 Literature reviews and theoretical foundations 文学评论和理论基础
2.1 Trade theories
American scholar Michael V. Posner(1961) put forward TheTechnological Gap Theory which can also be called as the Technological Gap Model. Besides the factors of labour and capital, this theory recognize technique as the third factor of production and analyze the impact of technological gap on the national and international free trade. For example, researchers in this area use this theory to explain the occurrence of international businesses between countries with different technological capabilities. Japan exports technological products such as cameras and TVs to China because Japan is more advanced than China. The Technological Gap Theory shows that with the industrial development in different countries, the technological advancement can also be accelerated but in different degree and this could create the technological gap among different countries. This technological gap can help the nations obtain comparative advantages with higher degree of technologies and this could promote the export of technology-intensive products (Baier and Bergstrand, 2004). The possibility of trade among different countries can be used to explain the imitation lag. However, as the country of technologies could be gradually imitated by the imitation country, the technological gap between them will also decrease and even disappear gradually, therefore, the trade between the imitation country and innovation country will be ended. The Technological Gap Theory offers a fresh perspective which can explain national and international free trade and the industrial development through the concepts of technological gap and technological advancement. Furthermore, it strengthens the important role of technological advancement and national and international free trade in promoting the development of industries. This theory is put forward based on the discussion of technological gap by other theories such as the Non-equilibrium Development Theory proposed by Hirschman (1958).
The International Product Life Cycle theory (IPLC) which is proposed by Vernon (1966) is another significant theory of industry development. The life cycle of product means the marketing process and development of products that can be divided into four stages: new product stage, growth product stage, maturity product stage and obsolescence product stage (Baier and Bergstrand, 2002). For example, many scholars use this theory to explain the international trade between developing and developed countries, since the developed countries stay in a more advanced period in the product life cycle. This theory can reflect the process through which the industries transfer from developed countries to developing countries. On the basis of this theory, less competitive industries of the developed countries should be transferred to developing countries where these industries could be more competitive. This theory is partially oriented from the Technological Gap theory. The life cycle of product reflects different process and time in occurrence with different levels of technological development in different countries. In this process, there exists time lag which can be shown as the technological gap among countries which could reflect the differences in the competitive positions on the basis of the same type of products in different markets (Castells, 1996). It is the technological gap that decides the changes in the international investment and national and international free trade. The theories explain the occurrence of national and international free trade in a dynamic way and discuss that the path of development for one country's industries may follow the mode of 'Import-Import substitution-Export' which can illustrate the image of the transferring process of industry comparative advantages from one country to the other. While these two theories provide different explanations on the occurrence of foreign investment and international free trade. The International Life Cycle theory accounts for the national and international free trade and investment in different stages in the product life cycle which are oriented from the technological gap between nations (Doz & Hamel, 1998).
Some researchers also indicate that special elements such as restrictions, conditions and trade regime in one country may to a large degree affect the effects in relation to national and international free trade. For example, before the entering WTO, Chinese government quite often use tariff quotas and differentiated criteria to control its importing certain products, some of the most needed products will be favored and given priority, while others will not be treated equally. Kokko, et al. (2001), on the basis of a cross-sectional and firm-level dataset, did the research on the factors which facilitate national and international free trade activities conducted by indigenous companies in manufacturing sector of Uruguay in 1998. A simple measurement of the presence of MNEs in manufacturing sector of Uruguay was used. The presence of MNEs in import-substituting manufacturing sectors has been distinguished from MNEs in export-orientated manufacturing sectors. It is only in export-oriented MNEs that the spillover effects have been found. The investigation demonstrates that the trade regime in manufacturing sector of Uruguay may largely influence the potential of MNEs in generating spillovers from export activities.
Rivera-Baitsand Romer (1991)believe that international free tradeis playing an important role inpromoting the technological diffusioncreation as well as transfer in manufacturing sector. They also believe that if the international exploitation of growing returns to scale in R&D sector could be promoted, the long term growth could be boosted by the increase ininternational free trade (Gulati, 1998). On the basis of the effects of the restrictions on import and export, the authors try to do research on allocation, scale and redundancy effects. The study demonstrates that the positive spillovers from exports on the manufacturing development in one country could be slowed down by specific conditions and restrictions. On the other hand, the rate of positive spillovers from exports could be increased by a flexible and free international trade environment.
By means of providing various types of positive benefits to local manufacturing firms, such as achievement of scale economy effects, larger international markets, effectiveand efficient utilization of resources as well as the high degree utilization of capacity, national and international free tradecould largely increase the productivity of indigenous companiesin a large number of manufacturing sectors in several developing countries (Eaton and Kortum, 2002). In the aspect of many benefits related, it has been demonstrated in many researches that national and international free trade may positively have significant influence on the development of one country's manufacturing sector. For example, it is pointed out that when firms in developed countries buy products from firms in developing countries, the former group of firms can provide better ways which could improve the manufacturing process of indigenous firms in developing countries. It is due to the reason that buyers from developed countries require the products with lower costs and better quality. In the aims of realizing this target, the buyers in developed countries will transfer more managerial skills and advancedtechnologies about production, logistics and manufacturing to their suppliers in developing countries. Thereafter, by participating in national and international free trade markets,companies in developing countries could hopefully obtain the international best skills and practice that could promote productivitygrowth(Feenstra, 2003).
Comparative advantage theory
The competition is the key to success for a firm which determines the innovation, efficiency and effectiveness of implementing strategies. It is related to all sorts of activities. The competitive strategy requires a firm to find out the most advantaged and beneficial position in the industry and market place. Therefore, the aim of competitive strategy is to help firms achieve the core competence and set up the sustainable and profitable competitive position. The selection of competitive strategy concerns two areas. Firstly, it is something about the ways of achieving sustainable profit-making capability and conditions to meet this requirement. For different industries, the sustainable profit-making ability is different (Porter, 1985). Secondly, it is something about identification of determination for comparative competition positions. Even though firms have different profit-making ability in different industries, however, there are always some firms which make better profits than others in the same industry. While, the above two points are not enough to guide firms to a effective competition strategy. A firm may also have greatly limited profit-making ability even though it is in the high profit-making industry, if the competitive position it selects is not proper. On the contrary, a firm may also have bad performance and cannot make sustainable profits even if it selects proper competitive position (Porter, 1985). Therefore, it should be noticed that the industrial competitive status and competitive position for a firm are dynamic and changing as time goes, which must be analyzed and applied with care and critically in practice (Porter, 1991). In the aspect of many benefits related, it has been demonstrated in many researches that national and international free trade may positively have significant influence on the development of one country's manufacturing sector. For example, it is pointed out that when firms in developed countries buy products from firms in developing countries, the former group of firms can provide better ways which could improve the manufacturing process of indigenous firms in developing countries. It is due to the reason that buyers from developed countries require the products with lower costs and better quality.
2.2 New trade theory and strategic trade policies
In 1970s and 1980s, along with the research road of economies of scale and imperfect competition, many western economists put forward the strategic trade policy on the basis of new protectionism (non-tariff barriers) and thus generate the new trade theory which offers reasonable defense on government's intervention. New trade theory abandons the basic hypothesis of traditional trade theories but discuss the issues on the reasons of international trade, forms of the international specialization, effects of protective trade policy and the optimal trade policy under the condition of economies of scale and imperfect competition (Baier, et al., 2003). New trade theories believe that the reasons that cause international trade attributes not only in the differences of productivity, technology and factor endowment but also include economies of scale in production and the act of government in exchange. Under the condition of imperfect competition and economies of scale, suitable government's intervention may improve the operating outcome in the market. Therefore, the government in one country could assist the industrial growth and strengthen the competitive ability of world market by means of industrial policy, feed in tariff, economic diplomacy and domestic market protection (Wei, et al., 2008). There are two new trade theories which contain 'profit transition theory' and 'external economy theory.'
3.0 The ways in which governments interfere with free trade 政府干预与自由贸易的途径
Generally speaking, there are several ways through which governments can interfere with national and international free trade according to the past observations, among which the trade barriers take the main form. The following paragraphs will introduce and discuss various forms with which the governments interfere with free trade. In detail to make foundation for the further analysis on the associated costs and benefits in the next section.
3.1 Tariff barriers
Governments usually adopt the tariff barriers to interfere with national and international free trade. For example, in China, the imported auto mobiles will be charged high custom in order to control the amount of auto imports. In the respect, the tariff barriers can take several forms. First of all, it is issues about tariff reduction. Under certain circumstances, the related WTO member governments do not reduce the level of tariff according to their promised amount of tariff reduction. In the second place, it is related to the tariff classification. Under certain circumstances, the custom officers possess too much power in terms of classifying the categories of tariffs of imported goods, which makes the importers hard to predict the appropriate level of tariffs upon same imported goods in the future. In the third place, it takes the forms of tariff peaks. Under such circumstance, tariffs remain high upon specific fields of goods even though tariffs upon other goods have been reduced based on the tariff reduction form (Baie and Bergstrand, 2001). Last but not least, it takes the forms of tariff quotas. Under such circumstances, governments adopt relatively low tariff rates upon certain imported products as long as the amount does not exceed the stated quotas, while in the meantime, governments adopt the relatively higher rates of tariff upon those products exceeding the stated quotas. For example, in practice, issues like the making of amount of quotas, allocations and management process are involved with unfair treatments and discrimination (Hirst & Thompson, 1996). For example, before the entering WTO, Chinese government quite often use tariff quotas and differentiated criteria to control its importing certain products, some of the most needed products will be favored and given priority, while others will not be treated equally. New trade theories believe that the reasons that cause international trade attributes not only in the differences of productivity, technology and factor endowment but also include economies of scale in production and the act of government in exchange. Under the condition of imperfect competition and economies of scale, suitable government's intervention may improve the operating outcome in the market.
3.2 Non-tariff barriers
The following barriers are also used quite often by governments of several levels which may hurt the international and national free trade activities. The following free trade barriers are usually issued by the national governments or the various industrial associated which are manipulated by the government as a matter of fact under most circumstances.
Firstly, the import licensing refers to the fact that firms which want to import goods from other countries or regions need to get the importing permissions from the related government institutions in order to get the import right. Otherwise, they are not allowed to be involved with the direct importing activities. Secondly, the export licensing refers to the fact that firms which want to export goods to overseas or other special regions also need to get the exporting permissions in order to have the export right (Parkhe, 1993). Otherwise, they are not allowed to be involved with the direct exporting activities. Thirdly, the import quotas refer to the fact that goods only within certain amount of quotas are allowed to be imported by firms, those exceed this quota are not allowed to be imported. Fourthly, the import prohibition is one of the most direct and most serious free trade barriers upon firms which directly forbid firms to import certain products under regulate specific categories. Fifthly, the technological barrier upon free trade is one of the most significant and commonly used barriers upon the national and international free trade. In practice, the technological barriers upon free trade take several forms including the technological regulations, industrial standards, qualification evaluation procedures; product inspection mechanism; packing requirements and labeling requirements; information technology barriers and green barriers of environment protection upon free trade. Sixthly, the export restrictions refer to the fact that firms suffer certain specific restrictions issued by the national governments upon exporting products (Rivera-Baits and Romer, 1991b). Seventhly, the government procurement and subsidies refer to the fact that national governments of several levels offer unfair supports and backups, together with certain favorable, financial and political supports to certain firms over others in specific product markets. Last but not least, the anti-dumping, countervailing, safeguards and other trade remedy measures can also produce significant negative influence on the national and international free trade under certain circumstances. Other barriers upon free trade may include voluntary export restraints, domestic content regulations, the operations of import state trading enter prices, as well as the sanitary and phytosanitary measures. Under such circumstances, governments adopt relatively low tariff rates upon certain imported products as long as the amount does not exceed the stated quotas, while in the meantime, governments adopt the relatively higher rates of tariff upon those products exceeding the stated quotas.
3.3 Other barriers which hinder the national and international free trade
In the first place, it is the barriers which hinder the trade-related investments.
Such free trade barriers may include access restrictions which mean that foreign or indigenous investors suffer from certain restrictions made by governments or industrial regulations when requiring access to trade-related activities. Besides, it may also include the tax discrimination which refers to the fact that governments take discriminations in terms of various taxes upon different trade-related investors. What is more, it is the foreign ownership restrictions which mean that foreign investors’ ownership cannot exceed certain levels according to regulations issued by national governments. In the second place, it is the barriers which hinder the free trade of services which may also takes the forms of access restrictions and foreign ownership restrictions, the details of which are quite similar with the trade-related investment barriers. Last but not least, the different levels of intellectual property protection actions made by the national government can also be regarded as a type of trade-related barriers (Wei and Liu, 2006).
4.0 Discussions on the costs and benefits of doing so 这样做的成本和收益的讨论
On the basis of discussion on the ways through which national governments interfere with free trade, this section will further critically discuss the costs and benefits of doing so. The discussions will be supported by some examples in practice.
4.1 Advantages of government's intervention with trade
Completely free trade may result in several problems without necessary intervention of the government. There are many reflections of the disadvantages of completely free trade. Firstly, the supply or need of certain products or services may be insufficient in the market. Secondly, the market efficiency may not be high and monopoly enterprises cannot make the production with the lowest average cost which could not utilize the production factors effectively. Thirdly, the profit distribution is not fair for the monopoly enterprises can hold the monopoly profits and deprive consumer rights and interests (Doz & Hamel, 1998). Fourthly, in completely free trade markets, monopoly can be generated thus this could block technological progress and market competition. For example, in practice many governments will issue anti-monopoly laws and regulations to influence the degree of competition. In China’s automobile industry, Chinese government has issued several industrial regulations to influence the industrial structure after China joined WTO, which has helped many firms grow up and invest in the auto industry by distributing resources more efficiently. Therefore, suitable intervention of the government with free trade could be necessary for the government could make the market operate in a better and advanced way. Firstly, with suitable intervention of the government, supply and need of the market could be balanced to a large degree with the suitable distribution of production resources. Therefore, the national resources could be moved to the good direction. Secondly, suitable invention of the government could positively solve the problem that caused by monopoly enterprises. As the government agrees to introduce more enterprises in the industries, necessary competition would lead the former monopoly enterprises increase their efficiency as well as lower the cost greatly. Thirdly, the government can hold the macro-development of the country, therefore, the suitable intervention of the government could push the market develop in an up-graded way which is more helpful for the comprehensive development of the country (Doz & Hamel, 1998). For example, the above points can be justified by the developing route of Chinese’s high-tech industries as well, the intervention by government has helped high-tech firms in domestic market gain more fairness and competitive capabilities in competition.
4.2 Disadvantages of government's intervention with trade
Firstly, people who support the intervention of governments with trade believe that the market is imperfect which means there always exists market failure to some degree, therefore, it is necessary for the government to implement intervention with free trade so as to prevent the possible problems that may appear in free trade and markets. There are several disadvantages for government intervenes with free trade. One of the most important points is that the government is no less smart than the market. When market failure happens, compared with the government, market is much smarter than the government (Castells, 1996). The intervention of governments with free trade especially the direct intervention would usually make things worse. For example, in China, there exists local trade protectionism with various degrees among different provinces. In the aims of protecting main interests and profits of local enterprises, one province would have restrictions on the products from other provinces and areas in different degree. This in fact to a large degree intervene the free trade and makes local enterprise weaker and less competitive when facing with foreign direct competition (Castells, 1996). Therefore, in the aspect of the whole industry even the whole country, this is obvious not good for national enterprises competing with foreign rivals.
Secondly, the intervention of the government with free trade would easily form corruption and related community interest. For example, military industrial complex is one typical case for the government to intervene with free trade. Military industrial complex appears because the government requires to strengthen the defense capacity. The government purchase munitions from munitions merchant and the more the munitions, the more interest the munitions merchant can get (Baier and Bergstrand, 2002). Under such occasion, munitions merchant would search for the spokesperson from the parliament, the government and the armies so as to make the government accomplish more business. These people combine themselves with the munitions merchant and form an interest group. In order to maintain the interests of the group, the government must have strong and sufficient reasons to purchase the munitions. Thereafter, the government may possibly create some unnecessary disputes in international affairs so as to tense the international situation or even raise a war directly.
Thirdly, it would cause market distortion. Government's intervention with free trade would disrupt the normal economic order. It used to be easy and simple to do trade without the intervention of government. Market operates orderly in accordance with the needs, efficiency and cost. However, with the intervention of government, uncertainty increases greatly (Baier and Bergstrand, 2004). For example, no matter whether you have the right decision for the market, you'll make relevant plans for it. While you may get confused why your enterprise become the outdated capacity only because the intervention of the government. This could shows the great uncertainty if the government intervene with the market.
4.3 More thoughts on the advantages and disadvantages of government's intervention with trade
The theories believe that the establishment of the optimality of free trade is under certain conditions. They think that many hypothesis need to be built. Firstly, the country is relatively a 'small country' in the international market which means the business conduct of the country in international market could not affect the international market price of the import and export products from the country. In other words, the 'small country' does not stand in a monopoly position. Secondly, production function appears in constant scale economy instead of dynamic scale returns as well as other dynamic effects. This means that under the condition of production scale returns increasing progressively, free trade may not be the best policy choice. Thirdly, it is the factor of perfect competition domestic market. Due to perfect market mechanism, no anthropoid factor distorts domestic economic mechanism (Dunning & Lundan, 2008). In other words, it means that the distortion of economic mechanism or market failure can generate the necessity of government's intervention. Fourthly, the foreign trade opportunity of one country cannot be affected by trade policy which means tariff cannot be recognized as the way to trade their products to other countries. In the contrary, if one country uses tariff or non-tariff limit as the threat to push its competitors lower their barriers of trade protection, then single-free trade is not the perfect choice. The fifth hypothesis is that the uncertainty of international market and other non-economical policy targets are not being considered. Therefore, if the deviation is tiny from the above hypothesis, then the implementation of trade protection could bring possibly more disadvantages than advantages. By contrast, if domestic environment is seriously deviated from the above hypothesis, then the implementation of trade protection or government's intervention would bring more benefits than disadvantages.
5.0 Recommendations 建议
Based on the previous discussions on the ways through whichnational governments interfere with free trade and the costs and benefits of doing so, this section will make corresponding recommendations on how national and international governments do to make the most use of international and national trade, and how to make trade regimes and regulations more helpful and effective.
The presence of governments’ interfering is quite necessary sometimes under certain circumstances according to the previous discussions in the last section because it can help to eliminate certain problems associated with free trade, however, in the meantime, it has been noticed that the governments’ interfering sometimes can also bring about many problems to the functioning of economy, business and society. Therefore, it can be seen that the governments’ interfering have both benefits and drawbacks, the degree of which should be paid especially attention to by national governments and related institutions (Feenstra, 2003). As a matter of fact, it can be seen that the governments’ interfering with free trade should be stronger and tighter during special occasions such as financial and economic crisis recently, this is due to the fact that firms and markets cannot function normally and properly which requires the helps and supports from institutions and governments to get it back to normal positions and right places (Feenstra, 2003). While the governments’ interfering with free trade should be relatively weaker during economic upturn and improvement, this is due to the fact that firms and markets can well function and show the advantages and benefits of free market and free trade under such circumstances (Eaton and Kortum, 2002). It can be seen that the degree of the above governments’ interfering is hard to control sometimes, therefore, related government and industrial institutes should be set up in order to monitor the degree of governments’ interfering activities in a country and the evaluation should be made regularly to keep an eye on the progress made. Once again, one country cannot do all the things right no matter how powerful it is, therefore, the global and international efforts should be made and the worldwide cooperation should be especially encouraged in order to work together on the guaranteeing the right functioning of free market and free trade nationally and internationally, and helping each other to face with any rising issues in relation to the over control upon free trade and other risks associated (Eaton and Kortum, 2002).
Firstly, it is reasonable to argue that the competition is quite necessary and important for firms in the free trade markets, however, the presence of large monopoly firms may hurt the competition and free trade under certain circumstances, therefore, governments should keep a reasonable level of competition with various political and financial instruments such as taxes in order to get rid of the over-profit gained by monopoly firms. Moreover, corresponding industrial regulations and laws should be made to keep the free trade and fair trade environment and settings, eliminate the disorders brought about by market economy and achieve low cost of daily necessities and economy of scales for firms and residents (Hejazi and Safarian, 1999).
Secondly, on the macro and national level and perspective, the multi-lateral trading systems should be established in the globe in order to coordinate the efforts made by national governments in terms of eliminating the bad effects produced by over-control upon free trade from governments and associated negative effects of totally free trade. The regional economic cooperation organizations should be further developed in order to help national governments achieve more free trade activities and coordinate efforts to help firms with their free trades. In this respect, it can be found that the multilateral systems undertake the coordination of trade policies, balance of trade relationships, reduction of trade conflicts, promotion of global economic development and free trade, anti-regional protectionism and cooperation in fighting against financial crisis (Hejazi and Safarian, 1999). Therefore, the role of regional and international trade and economic organizations is very important and fundamental. What is more, the regional economic cooperation in terms of free trade and the establishment of free trade zones should be further promoted by national government and related international organizations.
6.0 Conclusions 结论
From the analysis, it has found several ways through which government normally interfere with free trade activities nationally and internationally, including tariff barriers, non-tariff barriers and other barriers which hinder the national and international free trade. Such barriers are used quite often by governments or the various industrial associated which are manipulated by the government of several levels which may hurt the international and national free trade activities.On the basis of literature reviews and discussions on the costs and benefits associated with the governments’ interfering with free trade activities, it has been found that countries are involved with national and international free trade activities because of the various benefits associated with them, the international and national free trade is beneficial for the effective and efficient distributions of production endowments and resources in the global contexts, it is also beneficial for boosting the economic development and openness of undeveloped areas. However, based on literatures, it also found that, many national and international governments interfere the free trade processes which have produced some problems. The people who support governments’ interfering argue that the governments’ interfering activities are quite necessary and important under many circumstances such as the current financial crisis, this is due to the fact that the free markets have many drawbacks which cannot be compensated without governments’ interfering activities, these people argue that the international and national trade activities can produced more benefits to a country with proper governments’ interfering activities and efforts. Overall, it has been found out that the presence of governments’ interfering is quite necessary sometimes under certain circumstances because it can help to eliminate certain problems associated with free trade, however, in the meantime, it has been noticed that the governments’ interfering sometimes can also bring about many problems to the functioning of economy, business and society. Therefore, it can be seen that the governments’ interfering have both benefits and drawbacks, the degree of which should be paid especially attention to by national governments and related institutions. As a matter of fact, it can be seen that the governments’ interfering with free trade should be stronger and tighter during special occasions such as financial and economic crisis recently, while the governments’ interfering with free trade should be relatively weaker during economic upturn and improvement.
References 参考文献
Baier, S. L. and Bergstrand, J. H. (2001). The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity. Journal of International Economics. 53 (1), 1-27.
Baier, S. L. and Bergstrand, J. H. (2002). On the Endogeneity of International Trade Flows and Free Trade Agreements. Journal of International Economics. 3 (1), 22-30.
Baier, S. L. and Bergstrand, J. H. (2004). Economic Determinants of Free Trade Agreements. Journal of International Economics. 64 (1), 29-63.
Baier, S. L., Dwyer, G. and Tamura, R. (2003). The Growth and Development of Nations. Journal of International Economics. 5 (2), 11-20.
Castells, M. (1996). The rise of network society. Cambridge, MA: Blackwell.
Doz, Y.L. & Hamel, G. (1998). Alliance advantage: the art of creating value through partnering. Boston, MA: Harvard Business School Press.
Dunning, J. H. & Lundan, S. M. (2008). Multinational enterprises and the global economy. Second Edition. Northampton: Edward Elgar.
Eaton, J. and Kortum, S. (2002). Technology, Geography, and Trade. Econometrica 70 (2), 1741-1779.
Feenstra, R. (2003). Advanced International Trade: Theory and Evidence. Princeton, NJ: Princeton University Press.
Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19, 293-317.
Hejazi, W. and Safarian, A.E. (1999). Trade, foreign directinvestment and R&D spillovers.Journal of InternationalBusiness Studies.30(3), 491–511.
Hirst, P. & Thompson, G. (1996). Globalization in question – the international
economy and the possibilities of governance. Cambridge: Polity Press.
Hirschman, A.O. (1958). The strategy of economic development. New Haven. Conn.: Yale University Press.
Kokko, A., Mario, Z. and Ruben, T. (2001). Trade Regimes and Spillover Effects of FDI: Evidence from Uruguay. Weltwirtschaftliches Archiv, 137, 124–49.
Parkhe, A. (1993). Strategic alliance structuring: a game theoretic and transaction cost examination of interfirm cooperation.
Academy of Management Journal, 36, 4, 794-829.
Porter, M.E. (1991). Towards a Dynamic Theory of Strategy. Strategic Management Journal, 12, 95–117.
Porter, M.E. (1985). Competitive Advantage, Free Press: New York
Rivera-Baits, L.A. and Romer, P.M. (1991b). International tradewith endogenous technological change.European EconomicReview.35(4), 971–1001.
Rivera-Baits, L. A. and Romer, P. M. (1991). Economic integration and endogenous growth. Quarterly Journal of Economics, 106(2), 531–555.
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80 (May), 190-207.
Wei, Y. and Liu, X. (2006). Productivity spillovers from R&D, exportsand FDI in China’s manufacturing sector. Journal of International Business Studies. 37, 544–557.
Wei, Y., Liu, X. and Wang, C. (2008). Mutual productivity spillovers between foreign and local firms in China. Cambridge Journal of Economics. 32(4), 609-631.
1.0 Introduction 引言
1.1 Background introduction 背景介绍
The free trade process and government interfere are speeded up after 1980s and 1990s, the international and national free trade phenomenon has been developing so rapidly during the recent decades which has become a hot topic in the social research for governments and academies. The international and national free trade is beneficial for the effective and efficient distributions of production endowments and resources in the global contexts. It is also beneficial for boosting the economic development and openness of undeveloped areas. Under such situation, many national and international governments interfere the free trade processes which have produced some problems. In the field of both academy and policy making, some people argue that the free trade should be promoted with great efforts and any activities in relation to the interfering with free trade should be stopped, they supports the free trade who insist that free trade can bring about many benefits and the governments’ interfering may hurt such benefits.
20世纪80年代和90年代后自由贸易进程和政府干预开始加快，国际和国家自由贸易的现象在最近的几十年一直发展得非常迅速，在政府和院校的社会研究已经成为一个热门话题。国际和国家自由贸易有利于生产禀赋和资源在全球背景下的有效和高效的分配。这也有利于促进不发达地区的经济发展和开放性。在这种情况下，许多国家和国际政府干预已产生了一些问题，自由贸易的进程。在这两个学院和决策的领域，一些人认为，自由贸易应该促进自由贸易，应停止努力和任何宣传活动，他们支持自由贸易，坚持认为自由贸易可以带来很多好处和政府的干涉可能会破坏这样的好处。
While others argue that the governments’ interfering activities are quite necessary and important under many circumstances such as the current financial crisis, this is due to the fact that the free markets have many drawbacks which cannot be compensated without governments’ interfering activities, these people argue that the international and national trade activities can produced more benefits to a country with proper governments’ interfering activities and efforts (Hejazi and Safarian, 1999). It can be seen that the government’s interfering with free trade is just like a coin that has two separate sides, it brings about costs and benefits, in the meantime, it has brought about challenges, uncertainties and disputes in the international and national free trade. Therefore, the phenomenon of international and national’s interferes with free trade should be considered and evaluated critically.
而另一些人认为，政府的干预活动是相当必要和重要的，在很多情况下，例如在当前金融危机的情况下，由于这一事实，即自由市场有很多缺点，不能没有政府给予补偿“的干扰活动，这些人争辩，政府的有效干预活动和努力会给国际和国内贸易活动带来更多的好处（Hejazi和Safarian，1999）。由此可以看出，政府的干预与自由贸易就像一个硬币有两个面，它带来的成本和效益，同时它带来在国际和国内自由贸易的挑战，不确定性和争议。因此，自由贸易的国际和国内的现象，应审慎考虑和评估。
1.2 Research aims and objectives
This paper aims to investigate the government’s interferes with international and national free trade based on international free trade theories such as technological gap theory and product life cycle theory, and reviews of literatures on governments’ interfering activities will also be carried out, in the meantime, the costs and benefits associated with the above issue will also be discussed and analyzed. This paper also aims to specify the ways through which government interferes with international and national free trade. Moreover, this paper aims to offer recommendations on how national and international governments do to make the most use of international and national trade, and how to make trade regimes and regulations more helpful and effective. It can be expected that this paper can hopefully contribute something worthwhile to the current research field of free trade and governments’ interfering activities.
1.3 Structure of the paper
On the basis of the background introduction, the literature reviews and theoretical foundations will be introduced and discussed, international free trade theories such as technological gap theory and product life cycle theory and other issues, the theories and literatures on governments’ interfering with free trade will also be discussed and analyzed in this section. Then the ways in which governments interfere with free trade will be discussed and analyzed, followed by the critical evaluation on the costs and benefits of doing so. Recommendations will be offered on the basis of previous discussions, conclusions will be made at last.
2.0 Literature reviews and theoretical foundations 文学评论和理论基础
2.1 Trade theories
American scholar Michael V. Posner(1961) put forward TheTechnological Gap Theory which can also be called as the Technological Gap Model. Besides the factors of labour and capital, this theory recognize technique as the third factor of production and analyze the impact of technological gap on the national and international free trade. For example, researchers in this area use this theory to explain the occurrence of international businesses between countries with different technological capabilities. Japan exports technological products such as cameras and TVs to China because Japan is more advanced than China. The Technological Gap Theory shows that with the industrial development in different countries, the technological advancement can also be accelerated but in different degree and this could create the technological gap among different countries. This technological gap can help the nations obtain comparative advantages with higher degree of technologies and this could promote the export of technology-intensive products (Baier and Bergstrand, 2004). The possibility of trade among different countries can be used to explain the imitation lag. However, as the country of technologies could be gradually imitated by the imitation country, the technological gap between them will also decrease and even disappear gradually, therefore, the trade between the imitation country and innovation country will be ended. The Technological Gap Theory offers a fresh perspective which can explain national and international free trade and the industrial development through the concepts of technological gap and technological advancement. Furthermore, it strengthens the important role of technological advancement and national and international free trade in promoting the development of industries. This theory is put forward based on the discussion of technological gap by other theories such as the Non-equilibrium Development Theory proposed by Hirschman (1958).
The International Product Life Cycle theory (IPLC) which is proposed by Vernon (1966) is another significant theory of industry development. The life cycle of product means the marketing process and development of products that can be divided into four stages: new product stage, growth product stage, maturity product stage and obsolescence product stage (Baier and Bergstrand, 2002). For example, many scholars use this theory to explain the international trade between developing and developed countries, since the developed countries stay in a more advanced period in the product life cycle. This theory can reflect the process through which the industries transfer from developed countries to developing countries. On the basis of this theory, less competitive industries of the developed countries should be transferred to developing countries where these industries could be more competitive. This theory is partially oriented from the Technological Gap theory. The life cycle of product reflects different process and time in occurrence with different levels of technological development in different countries. In this process, there exists time lag which can be shown as the technological gap among countries which could reflect the differences in the competitive positions on the basis of the same type of products in different markets (Castells, 1996). It is the technological gap that decides the changes in the international investment and national and international free trade. The theories explain the occurrence of national and international free trade in a dynamic way and discuss that the path of development for one country's industries may follow the mode of 'Import-Import substitution-Export' which can illustrate the image of the transferring process of industry comparative advantages from one country to the other. While these two theories provide different explanations on the occurrence of foreign investment and international free trade. The International Life Cycle theory accounts for the national and international free trade and investment in different stages in the product life cycle which are oriented from the technological gap between nations (Doz & Hamel, 1998).
Some researchers also indicate that special elements such as restrictions, conditions and trade regime in one country may to a large degree affect the effects in relation to national and international free trade. For example, before the entering WTO, Chinese government quite often use tariff quotas and differentiated criteria to control its importing certain products, some of the most needed products will be favored and given priority, while others will not be treated equally. Kokko, et al. (2001), on the basis of a cross-sectional and firm-level dataset, did the research on the factors which facilitate national and international free trade activities conducted by indigenous companies in manufacturing sector of Uruguay in 1998. A simple measurement of the presence of MNEs in manufacturing sector of Uruguay was used. The presence of MNEs in import-substituting manufacturing sectors has been distinguished from MNEs in export-orientated manufacturing sectors. It is only in export-oriented MNEs that the spillover effects have been found. The investigation demonstrates that the trade regime in manufacturing sector of Uruguay may largely influence the potential of MNEs in generating spillovers from export activities.
Rivera-Baitsand Romer (1991)believe that international free tradeis playing an important role inpromoting the technological diffusioncreation as well as transfer in manufacturing sector. They also believe that if the international exploitation of growing returns to scale in R&D sector could be promoted, the long term growth could be boosted by the increase ininternational free trade (Gulati, 1998). On the basis of the effects of the restrictions on import and export, the authors try to do research on allocation, scale and redundancy effects. The study demonstrates that the positive spillovers from exports on the manufacturing development in one country could be slowed down by specific conditions and restrictions. On the other hand, the rate of positive spillovers from exports could be increased by a flexible and free international trade environment.
By means of providing various types of positive benefits to local manufacturing firms, such as achievement of scale economy effects, larger international markets, effectiveand efficient utilization of resources as well as the high degree utilization of capacity, national and international free tradecould largely increase the productivity of indigenous companiesin a large number of manufacturing sectors in several developing countries (Eaton and Kortum, 2002). In the aspect of many benefits related, it has been demonstrated in many researches that national and international free trade may positively have significant influence on the development of one country's manufacturing sector. For example, it is pointed out that when firms in developed countries buy products from firms in developing countries, the former group of firms can provide better ways which could improve the manufacturing process of indigenous firms in developing countries. It is due to the reason that buyers from developed countries require the products with lower costs and better quality. In the aims of realizing this target, the buyers in developed countries will transfer more managerial skills and advancedtechnologies about production, logistics and manufacturing to their suppliers in developing countries. Thereafter, by participating in national and international free trade markets,companies in developing countries could hopefully obtain the international best skills and practice that could promote productivitygrowth(Feenstra, 2003).
Comparative advantage theory
The competition is the key to success for a firm which determines the innovation, efficiency and effectiveness of implementing strategies. It is related to all sorts of activities. The competitive strategy requires a firm to find out the most advantaged and beneficial position in the industry and market place. Therefore, the aim of competitive strategy is to help firms achieve the core competence and set up the sustainable and profitable competitive position. The selection of competitive strategy concerns two areas. Firstly, it is something about the ways of achieving sustainable profit-making capability and conditions to meet this requirement. For different industries, the sustainable profit-making ability is different (Porter, 1985). Secondly, it is something about identification of determination for comparative competition positions. Even though firms have different profit-making ability in different industries, however, there are always some firms which make better profits than others in the same industry. While, the above two points are not enough to guide firms to a effective competition strategy. A firm may also have greatly limited profit-making ability even though it is in the high profit-making industry, if the competitive position it selects is not proper. On the contrary, a firm may also have bad performance and cannot make sustainable profits even if it selects proper competitive position (Porter, 1985). Therefore, it should be noticed that the industrial competitive status and competitive position for a firm are dynamic and changing as time goes, which must be analyzed and applied with care and critically in practice (Porter, 1991). In the aspect of many benefits related, it has been demonstrated in many researches that national and international free trade may positively have significant influence on the development of one country's manufacturing sector. For example, it is pointed out that when firms in developed countries buy products from firms in developing countries, the former group of firms can provide better ways which could improve the manufacturing process of indigenous firms in developing countries. It is due to the reason that buyers from developed countries require the products with lower costs and better quality.
2.2 New trade theory and strategic trade policies
In 1970s and 1980s, along with the research road of economies of scale and imperfect competition, many western economists put forward the strategic trade policy on the basis of new protectionism (non-tariff barriers) and thus generate the new trade theory which offers reasonable defense on government's intervention. New trade theory abandons the basic hypothesis of traditional trade theories but discuss the issues on the reasons of international trade, forms of the international specialization, effects of protective trade policy and the optimal trade policy under the condition of economies of scale and imperfect competition (Baier, et al., 2003). New trade theories believe that the reasons that cause international trade attributes not only in the differences of productivity, technology and factor endowment but also include economies of scale in production and the act of government in exchange. Under the condition of imperfect competition and economies of scale, suitable government's intervention may improve the operating outcome in the market. Therefore, the government in one country could assist the industrial growth and strengthen the competitive ability of world market by means of industrial policy, feed in tariff, economic diplomacy and domestic market protection (Wei, et al., 2008). There are two new trade theories which contain 'profit transition theory' and 'external economy theory.'
3.0 The ways in which governments interfere with free trade 政府干预与自由贸易的途径
Generally speaking, there are several ways through which governments can interfere with national and international free trade according to the past observations, among which the trade barriers take the main form. The following paragraphs will introduce and discuss various forms with which the governments interfere with free trade. In detail to make foundation for the further analysis on the associated costs and benefits in the next section.
3.1 Tariff barriers
Governments usually adopt the tariff barriers to interfere with national and international free trade. For example, in China, the imported auto mobiles will be charged high custom in order to control the amount of auto imports. In the respect, the tariff barriers can take several forms. First of all, it is issues about tariff reduction. Under certain circumstances, the related WTO member governments do not reduce the level of tariff according to their promised amount of tariff reduction. In the second place, it is related to the tariff classification. Under certain circumstances, the custom officers possess too much power in terms of classifying the categories of tariffs of imported goods, which makes the importers hard to predict the appropriate level of tariffs upon same imported goods in the future. In the third place, it takes the forms of tariff peaks. Under such circumstance, tariffs remain high upon specific fields of goods even though tariffs upon other goods have been reduced based on the tariff reduction form (Baie and Bergstrand, 2001). Last but not least, it takes the forms of tariff quotas. Under such circumstances, governments adopt relatively low tariff rates upon certain imported products as long as the amount does not exceed the stated quotas, while in the meantime, governments adopt the relatively higher rates of tariff upon those products exceeding the stated quotas. For example, in practice, issues like the making of amount of quotas, allocations and management process are involved with unfair treatments and discrimination (Hirst & Thompson, 1996). For example, before the entering WTO, Chinese government quite often use tariff quotas and differentiated criteria to control its importing certain products, some of the most needed products will be favored and given priority, while others will not be treated equally. New trade theories believe that the reasons that cause international trade attributes not only in the differences of productivity, technology and factor endowment but also include economies of scale in production and the act of government in exchange. Under the condition of imperfect competition and economies of scale, suitable government's intervention may improve the operating outcome in the market.
3.2 Non-tariff barriers
The following barriers are also used quite often by governments of several levels which may hurt the international and national free trade activities. The following free trade barriers are usually issued by the national governments or the various industrial associated which are manipulated by the government as a matter of fact under most circumstances.
Firstly, the import licensing refers to the fact that firms which want to import goods from other countries or regions need to get the importing permissions from the related government institutions in order to get the import right. Otherwise, they are not allowed to be involved with the direct importing activities. Secondly, the export licensing refers to the fact that firms which want to export goods to overseas or other special regions also need to get the exporting permissions in order to have the export right (Parkhe, 1993). Otherwise, they are not allowed to be involved with the direct exporting activities. Thirdly, the import quotas refer to the fact that goods only within certain amount of quotas are allowed to be imported by firms, those exceed this quota are not allowed to be imported. Fourthly, the import prohibition is one of the most direct and most serious free trade barriers upon firms which directly forbid firms to import certain products under regulate specific categories. Fifthly, the technological barrier upon free trade is one of the most significant and commonly used barriers upon the national and international free trade. In practice, the technological barriers upon free trade take several forms including the technological regulations, industrial standards, qualification evaluation procedures; product inspection mechanism; packing requirements and labeling requirements; information technology barriers and green barriers of environment protection upon free trade. Sixthly, the export restrictions refer to the fact that firms suffer certain specific restrictions issued by the national governments upon exporting products (Rivera-Baits and Romer, 1991b). Seventhly, the government procurement and subsidies refer to the fact that national governments of several levels offer unfair supports and backups, together with certain favorable, financial and political supports to certain firms over others in specific product markets. Last but not least, the anti-dumping, countervailing, safeguards and other trade remedy measures can also produce significant negative influence on the national and international free trade under certain circumstances. Other barriers upon free trade may include voluntary export restraints, domestic content regulations, the operations of import state trading enter prices, as well as the sanitary and phytosanitary measures. Under such circumstances, governments adopt relatively low tariff rates upon certain imported products as long as the amount does not exceed the stated quotas, while in the meantime, governments adopt the relatively higher rates of tariff upon those products exceeding the stated quotas.
3.3 Other barriers which hinder the national and international free trade
In the first place, it is the barriers which hinder the trade-related investments.
Such free trade barriers may include access restrictions which mean that foreign or indigenous investors suffer from certain restrictions made by governments or industrial regulations when requiring access to trade-related activities. Besides, it may also include the tax discrimination which refers to the fact that governments take discriminations in terms of various taxes upon different trade-related investors. What is more, it is the foreign ownership restrictions which mean that foreign investors’ ownership cannot exceed certain levels according to regulations issued by national governments. In the second place, it is the barriers which hinder the free trade of services which may also takes the forms of access restrictions and foreign ownership restrictions, the details of which are quite similar with the trade-related investment barriers. Last but not least, the different levels of intellectual property protection actions made by the national government can also be regarded as a type of trade-related barriers (Wei and Liu, 2006).
4.0 Discussions on the costs and benefits of doing so 这样做的成本和收益的讨论
On the basis of discussion on the ways through which national governments interfere with free trade, this section will further critically discuss the costs and benefits of doing so. The discussions will be supported by some examples in practice.
4.1 Advantages of government's intervention with trade
Completely free trade may result in several problems without necessary intervention of the government. There are many reflections of the disadvantages of completely free trade. Firstly, the supply or need of certain products or services may be insufficient in the market. Secondly, the market efficiency may not be high and monopoly enterprises cannot make the production with the lowest average cost which could not utilize the production factors effectively. Thirdly, the profit distribution is not fair for the monopoly enterprises can hold the monopoly profits and deprive consumer rights and interests (Doz & Hamel, 1998). Fourthly, in completely free trade markets, monopoly can be generated thus this could block technological progress and market competition. For example, in practice many governments will issue anti-monopoly laws and regulations to influence the degree of competition. In China’s automobile industry, Chinese government has issued several industrial regulations to influence the industrial structure after China joined WTO, which has helped many firms grow up and invest in the auto industry by distributing resources more efficiently. Therefore, suitable intervention of the government with free trade could be necessary for the government could make the market operate in a better and advanced way. Firstly, with suitable intervention of the government, supply and need of the market could be balanced to a large degree with the suitable distribution of production resources. Therefore, the national resources could be moved to the good direction. Secondly, suitable invention of the government could positively solve the problem that caused by monopoly enterprises. As the government agrees to introduce more enterprises in the industries, necessary competition would lead the former monopoly enterprises increase their efficiency as well as lower the cost greatly. Thirdly, the government can hold the macro-development of the country, therefore, the suitable intervention of the government could push the market develop in an up-graded way which is more helpful for the comprehensive development of the country (Doz & Hamel, 1998). For example, the above points can be justified by the developing route of Chinese’s high-tech industries as well, the intervention by government has helped high-tech firms in domestic market gain more fairness and competitive capabilities in competition.
4.2 Disadvantages of government's intervention with trade
Firstly, people who support the intervention of governments with trade believe that the market is imperfect which means there always exists market failure to some degree, therefore, it is necessary for the government to implement intervention with free trade so as to prevent the possible problems that may appear in free trade and markets. There are several disadvantages for government intervenes with free trade. One of the most important points is that the government is no less smart than the market. When market failure happens, compared with the government, market is much smarter than the government (Castells, 1996). The intervention of governments with free trade especially the direct intervention would usually make things worse. For example, in China, there exists local trade protectionism with various degrees among different provinces. In the aims of protecting main interests and profits of local enterprises, one province would have restrictions on the products from other provinces and areas in different degree. This in fact to a large degree intervene the free trade and makes local enterprise weaker and less competitive when facing with foreign direct competition (Castells, 1996). Therefore, in the aspect of the whole industry even the whole country, this is obvious not good for national enterprises competing with foreign rivals.
Secondly, the intervention of the government with free trade would easily form corruption and related community interest. For example, military industrial complex is one typical case for the government to intervene with free trade. Military industrial complex appears because the government requires to strengthen the defense capacity. The government purchase munitions from munitions merchant and the more the munitions, the more interest the munitions merchant can get (Baier and Bergstrand, 2002). Under such occasion, munitions merchant would search for the spokesperson from the parliament, the government and the armies so as to make the government accomplish more business. These people combine themselves with the munitions merchant and form an interest group. In order to maintain the interests of the group, the government must have strong and sufficient reasons to purchase the munitions. Thereafter, the government may possibly create some unnecessary disputes in international affairs so as to tense the international situation or even raise a war directly.
Thirdly, it would cause market distortion. Government's intervention with free trade would disrupt the normal economic order. It used to be easy and simple to do trade without the intervention of government. Market operates orderly in accordance with the needs, efficiency and cost. However, with the intervention of government, uncertainty increases greatly (Baier and Bergstrand, 2004). For example, no matter whether you have the right decision for the market, you'll make relevant plans for it. While you may get confused why your enterprise become the outdated capacity only because the intervention of the government. This could shows the great uncertainty if the government intervene with the market.
4.3 More thoughts on the advantages and disadvantages of government's intervention with trade
The theories believe that the establishment of the optimality of free trade is under certain conditions. They think that many hypothesis need to be built. Firstly, the country is relatively a 'small country' in the international market which means the business conduct of the country in international market could not affect the international market price of the import and export products from the country. In other words, the 'small country' does not stand in a monopoly position. Secondly, production function appears in constant scale economy instead of dynamic scale returns as well as other dynamic effects. This means that under the condition of production scale returns increasing progressively, free trade may not be the best policy choice. Thirdly, it is the factor of perfect competition domestic market. Due to perfect market mechanism, no anthropoid factor distorts domestic economic mechanism (Dunning & Lundan, 2008). In other words, it means that the distortion of economic mechanism or market failure can generate the necessity of government's intervention. Fourthly, the foreign trade opportunity of one country cannot be affected by trade policy which means tariff cannot be recognized as the way to trade their products to other countries. In the contrary, if one country uses tariff or non-tariff limit as the threat to push its competitors lower their barriers of trade protection, then single-free trade is not the perfect choice. The fifth hypothesis is that the uncertainty of international market and other non-economical policy targets are not being considered. Therefore, if the deviation is tiny from the above hypothesis, then the implementation of trade protection could bring possibly more disadvantages than advantages. By contrast, if domestic environment is seriously deviated from the above hypothesis, then the implementation of trade protection or government's intervention would bring more benefits than disadvantages.
5.0 Recommendations 建议
Based on the previous discussions on the ways through whichnational governments interfere with free trade and the costs and benefits of doing so, this section will make corresponding recommendations on how national and international governments do to make the most use of international and national trade, and how to make trade regimes and regulations more helpful and effective.
The presence of governments’ interfering is quite necessary sometimes under certain circumstances according to the previous discussions in the last section because it can help to eliminate certain problems associated with free trade, however, in the meantime, it has been noticed that the governments’ interfering sometimes can also bring about many problems to the functioning of economy, business and society. Therefore, it can be seen that the governments’ interfering have both benefits and drawbacks, the degree of which should be paid especially attention to by national governments and related institutions (Feenstra, 2003). As a matter of fact, it can be seen that the governments’ interfering with free trade should be stronger and tighter during special occasions such as financial and economic crisis recently, this is due to the fact that firms and markets cannot function normally and properly which requires the helps and supports from institutions and governments to get it back to normal positions and right places (Feenstra, 2003). While the governments’ interfering with free trade should be relatively weaker during economic upturn and improvement, this is due to the fact that firms and markets can well function and show the advantages and benefits of free market and free trade under such circumstances (Eaton and Kortum, 2002). It can be seen that the degree of the above governments’ interfering is hard to control sometimes, therefore, related government and industrial institutes should be set up in order to monitor the degree of governments’ interfering activities in a country and the evaluation should be made regularly to keep an eye on the progress made. Once again, one country cannot do all the things right no matter how powerful it is, therefore, the global and international efforts should be made and the worldwide cooperation should be especially encouraged in order to work together on the guaranteeing the right functioning of free market and free trade nationally and internationally, and helping each other to face with any rising issues in relation to the over control upon free trade and other risks associated (Eaton and Kortum, 2002).
Firstly, it is reasonable to argue that the competition is quite necessary and important for firms in the free trade markets, however, the presence of large monopoly firms may hurt the competition and free trade under certain circumstances, therefore, governments should keep a reasonable level of competition with various political and financial instruments such as taxes in order to get rid of the over-profit gained by monopoly firms. Moreover, corresponding industrial regulations and laws should be made to keep the free trade and fair trade environment and settings, eliminate the disorders brought about by market economy and achieve low cost of daily necessities and economy of scales for firms and residents (Hejazi and Safarian, 1999).
Secondly, on the macro and national level and perspective, the multi-lateral trading systems should be established in the globe in order to coordinate the efforts made by national governments in terms of eliminating the bad effects produced by over-control upon free trade from governments and associated negative effects of totally free trade. The regional economic cooperation organizations should be further developed in order to help national governments achieve more free trade activities and coordinate efforts to help firms with their free trades. In this respect, it can be found that the multilateral systems undertake the coordination of trade policies, balance of trade relationships, reduction of trade conflicts, promotion of global economic development and free trade, anti-regional protectionism and cooperation in fighting against financial crisis (Hejazi and Safarian, 1999). Therefore, the role of regional and international trade and economic organizations is very important and fundamental. What is more, the regional economic cooperation in terms of free trade and the establishment of free trade zones should be further promoted by national government and related international organizations.
6.0 Conclusions 结论
From the analysis, it has found several ways through which government normally interfere with free trade activities nationally and internationally, including tariff barriers, non-tariff barriers and other barriers which hinder the national and international free trade. Such barriers are used quite often by governments or the various industrial associated which are manipulated by the government of several levels which may hurt the international and national free trade activities.On the basis of literature reviews and discussions on the costs and benefits associated with the governments’ interfering with free trade activities, it has been found that countries are involved with national and international free trade activities because of the various benefits associated with them, the international and national free trade is beneficial for the effective and efficient distributions of production endowments and resources in the global contexts, it is also beneficial for boosting the economic development and openness of undeveloped areas. However, based on literatures, it also found that, many national and international governments interfere the free trade processes which have produced some problems. The people who support governments’ interfering argue that the governments’ interfering activities are quite necessary and important under many circumstances such as the current financial crisis, this is due to the fact that the free markets have many drawbacks which cannot be compensated without governments’ interfering activities, these people argue that the international and national trade activities can produced more benefits to a country with proper governments’ interfering activities and efforts. Overall, it has been found out that the presence of governments’ interfering is quite necessary sometimes under certain circumstances because it can help to eliminate certain problems associated with free trade, however, in the meantime, it has been noticed that the governments’ interfering sometimes can also bring about many problems to the functioning of economy, business and society. Therefore, it can be seen that the governments’ interfering have both benefits and drawbacks, the degree of which should be paid especially attention to by national governments and related institutions. As a matter of fact, it can be seen that the governments’ interfering with free trade should be stronger and tighter during special occasions such as financial and economic crisis recently, while the governments’ interfering with free trade should be relatively weaker during economic upturn and improvement.
References 参考文献
Baier, S. L. and Bergstrand, J. H. (2001). The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity. Journal of International Economics. 53 (1), 1-27.
Baier, S. L. and Bergstrand, J. H. (2002). On the Endogeneity of International Trade Flows and Free Trade Agreements. Journal of International Economics. 3 (1), 22-30.
Baier, S. L. and Bergstrand, J. H. (2004). Economic Determinants of Free Trade Agreements. Journal of International Economics. 64 (1), 29-63.
Baier, S. L., Dwyer, G. and Tamura, R. (2003). The Growth and Development of Nations. Journal of International Economics. 5 (2), 11-20.
Castells, M. (1996). The rise of network society. Cambridge, MA: Blackwell.
Doz, Y.L. & Hamel, G. (1998). Alliance advantage: the art of creating value through partnering. Boston, MA: Harvard Business School Press.
Dunning, J. H. & Lundan, S. M. (2008). Multinational enterprises and the global economy. Second Edition. Northampton: Edward Elgar.
Eaton, J. and Kortum, S. (2002). Technology, Geography, and Trade. Econometrica 70 (2), 1741-1779.
Feenstra, R. (2003). Advanced International Trade: Theory and Evidence. Princeton, NJ: Princeton University Press.
Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19, 293-317.
Hejazi, W. and Safarian, A.E. (1999). Trade, foreign directinvestment and R&D spillovers.Journal of InternationalBusiness Studies.30(3), 491–511.
Hirst, P. & Thompson, G. (1996). Globalization in question – the international
economy and the possibilities of governance. Cambridge: Polity Press.
Hirschman, A.O. (1958). The strategy of economic development. New Haven. Conn.: Yale University Press.
Kokko, A., Mario, Z. and Ruben, T. (2001). Trade Regimes and Spillover Effects of FDI: Evidence from Uruguay. Weltwirtschaftliches Archiv, 137, 124–49.
Parkhe, A. (1993). Strategic alliance structuring: a game theoretic and transaction cost examination of interfirm cooperation.
Academy of Management Journal, 36, 4, 794-829.
Porter, M.E. (1991). Towards a Dynamic Theory of Strategy. Strategic Management Journal, 12, 95–117.
Porter, M.E. (1985). Competitive Advantage, Free Press: New York
Rivera-Baits, L.A. and Romer, P.M. (1991b). International tradewith endogenous technological change.European EconomicReview.35(4), 971–1001.
Rivera-Baits, L. A. and Romer, P. M. (1991). Economic integration and endogenous growth. Quarterly Journal of Economics, 106(2), 531–555.
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80 (May), 190-207.
Wei, Y. and Liu, X. (2006). Productivity spillovers from R&D, exportsand FDI in China’s manufacturing sector. Journal of International Business Studies. 37, 544–557.
Wei, Y., Liu, X. and Wang, C. (2008). Mutual productivity spillovers between foreign and local firms in China. Cambridge Journal of Economics. 32(4), 609-631.
Get expert help on all your writing
立即预定