Analyze and describe trade agreements and foreign trade zones. Indicate which ones would be more beneficial for your cotton industry. The next step is a detailed analysis of competitors in the cotton global market and industry. Use specific examples.
Introduction
Contemporary economies, which are based on Keynesian principles and strongly influenced by the Ricardian theory of competitive advantage, give great importance or relevance to trade. It is because it is believed that trade yield economic opportunities and it positively impacts the economy. When we study the size of the global trade, we learn that it has increased dramatically in volume, which suggests that the majority of the countries have acknowledged that trade can be used as an instrument to realize various political-economic and even strategic objectives. However, it is also the fact that each country has the unique (though similar) approach towards trade.
1-Trade Agreements and Foreign Trade Zones
A-Describe your country’s specific trade agreements and applicable foreign trade zones.
Countries, such as the United States and China, not only see trade as an economic component, but also a strategic instrument, which augments the relevance of trade for a country. From our study, we also learn that the US has not only entered into regional trade agreements but also in bilateral trade agreements. With around 20 countries, it has a bilateral Free Trade Agreement (FTA), and it is a signatory to trade agreements, such as NAFTA and WTO (Suwen, Mohamadou, Samarendu, & Mar, 2007).
Free Trade Zones are secure areas, which are constituted by invoking Foreign-Trade Zones Act of 1934 and they are under U.S. Customs and Border Protection. These Free Trade Zones are located within or near a commercial port; however, it may locate somewhere else too, but typically this is not the case. The true advantage of these Foreign Trade Zones is that good may be exported from these free zones free of any duty or without any excise tax being levied upon them (Nebehay, 2017).
B-Evaluate the advantages and disadvantages of the trade agreements on the specific international market. What is their impact on the industry in which your company operates?
These trade agreements and free trade zones work in tandem to provide an advantage to the country’s economy in general and particular industry in particular. United States has FTA signed with around 20 countries, and it is a signatory to various regional and international trade agreements. One of the advantages of free-trade agreements and free trade zones is that it makes a product of a country competitive. There are several Products, which US export; however, under the free-trade-agreement, of US, it is sophisticated machines (which include computers), electrical machinery, plastic gems, and articles, etc. are exported in large volumes. However, the focus of this study is agricultural products, which US exports under various trade agreements (USTR, 2017).
The United States export various kinds of agricultural products, which include Soybeans and cotton. In fact, the United States is the third largest exporter of Cotton.
Advantages and Disadvantages of Specific International Market
- The Free Trade Agreement has made the world cotton market more competitive and because of that small and large countries can compete in international markets.
- Free Trade Agreements, such as WTO, has given small and large countries equal access to the lucrative markets.
- Because of intense competition, industries, which use cotton as an in the input, benefit as overall cost reduces a final product.
Disadvantages
- As the competition intensifies, profits dwindle, as it has happened in the cotton industry, despite growing exports.
- De-industrialization occurs as some companies shift their operation to those countries, where the cost of production is low. These economies, in which these operations are a shift, are labor-intensive economies. It has not occurred in case cotton industry; however, in other industries, it occurs.
- Unemployment can be caused because of Free-Trade Agreements.
C-Evaluate the advantages and disadvantages of the foreign trade zones on the specific international market. What is their impact on the industry in which your company operates?
Advantages of Using Foreign-Trade Zone
- One of the advantages is CBP, and federal excise tax is applicable when goods and merchandise transfer from a particular zone of consumption.
- Most of the goods are exported from such free-zones without any duty or excise tax levied upon it. It implies that cotton goods can be imported into and exported out of the country, without any additional duty on them.
- Also, merchandise can remain in the free zone for an indefinite period. Allowing imports and exports (cotton) to remain at such ports/zones to wait-out any short economic uncertainties (CBP.Gov, 2018).
Disadvantages
- It reduces consumer surplus for the local producers.
2-Competitiveness
A-Evaluate the overall competitiveness of the cotton market based on the World Competitiveness Yearbook. For example, how attractive is this market to foreign direct investment?
From the study of international Cotton Market, we learn that not only large and developed economies are producing cotton in extremely large volumes, but also small and emerging economies, such as Vietnam and Pakistan, are top producers of cotton. We also learn that not only large exporters of cotton are exporting cotton, but also importing cotton. For instance, China, Vietnam, India, and Pakistan are large exporters of cotton; however, they also import cotton from the United States. In fact, Vietnam and China are top importers of United States’ cotton. It suggests that under the free trade agreement, countries are exporting and importing same products, after considering the competitive advantage (Shujaat & Abdul, 2017).
When we study the volume of the exports of cotton and cotton related products, we learn that because of the competitiveness the profit has dwindled somewhat; however, as the exports are growing; Foreign Direct Investment in the cotton industry will be considered a prudent investment.
Since the 2007 international financial crisis, which has been dubbed as The Great Recession, there has been a marked decline in global FDI. However, the global economy is resuscitating, size of global FDI is increasing, and prudent investors are investing in such sectors of the global economy, which exports are increasing, which include Cotton Industry.
B-Evaluate the overall competitiveness of the cotton industry in the specific market based on the World Competitiveness Yearbook. For example, the produce industry in Chile has restrictive accessibility and therefore a low competitiveness
It is apparent from the systematic study of various local cotton industries, of the world, that some cotton industries are more competitive than the others. For instance, Chinese, Pakistani, Indian and American industries are more competitive, as they allow cotton/cotton-products of others country to access local markets easily. In fact, China, which is the largest exporter of Cotton, is also the largest buyer of US cotton, which is the thirst largest exporter of cotton in the world. However, some countries, such as Chile, are highly protective of their cotton industry, which is because 1) Chile’s cotton industry is small, 2) it is an agrarian economy, 3) it has signed an FTA with the United States, which is the third largest exporter of cotton and 4) its economy is not very diverse (Hatab & Romstad, 2014).
We learn that the size of the economy has a direct correlation with the volume of trade and openness/competitiveness; however, there could be some exceptions.
Conclusion
International Trade Agreements and Free-trade Zones increase trade and thus economic activity. On particular industries and markets, it has a particular impact. The global cotton market is highly competitive and global exports of cotton are increasing, which is a good incentive to attract FDI.
References
CBP.Gov. (2018, January 1). About Foreign-Trade Zones and Contact Info: An Introduction to Foreign-Trade Zones. Retrieved from https://www.cbp.gov/border-security/ports-entry/cargo-security/cargo-control/foreign-trade-zones/about
Hatab, A. A., & Romstad, E. (2014). Competitiveness analysis of Egyptian cotton exports with special focus on the Chinese market. China Agricultural Economic Review, 6(2), 248-263.
Nebehay, S. (2017, April 12). World trade seen growing 2.4 percent in 2017, uncertainty weighs: WTO. Retrieved from Reuters: https://www.reuters.com/article/us-global-economy-trade/world-trade-seen-growing-2-4-percent-in-2017-uncertainty-weighs-wto-idUSKBN17E151
Shujaat, A., & Abdul, W. (2017). Trade competitiveness of Pakistan: evidence from the revealed comparative advantage approach. Competitiveness Review, 27(5), 462-475.
Suwen, P., Mohamadou, F., Samarendu, M., & Mar, W. (2007). Cotton in a Free Trade World. Economic Inquiry, 45(1), 188-197.
USTR. (2017, December 1). Trade Agreements. Retrieved from e: https://ustr.gov/trade-agreements
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