1) Is free trade fair? Discuss.

Free trade is the unrestricted purchase and sale of goods and services between countries without the imposition of constraints such as tariffs, duties and quotas. Free trade is FAIR since it is a win-win proposition because it enables nations to focus on their core competitive advantage(s), thereby maximizing economic output and fostering income growth for their citizens. Free trade means eliminating all restrictions in trading between two countries. Some of those restrictions are tariffs or quotas. Free trade increases sales and profits for U.S. businesses, thus strengthening the economy Free trade creates jobs in the U.S. middle-class market over the long-term. Free trade provides high-growth. Free trade provides low-inflation. Free trade provides high-wage. GDP of the countries will increase as there are increases in the revenue. Free trade is an opportunity for the U.S. to provide financial help to some of the world's poorest countries. The consumer benefits through buying products at lower prices, have many choices, and increase their overall quality of life. If developing nations want to get out of developing nation status, free trade is a great way to help them do that. Its great! that means cheaper things, more choices. But corporations will have to compete harder because of more competition, and for example if to get a pair of pants right now cost you $20, with free trade you might get pretty much the same pants for $10 but that is because in the manufacturing country, they pay only 50 cents per hour to their workers, where in the US is a lot more so it is not fair competition. With some laws it could be. For the customer is great though. Free trade is non-coerced trade. This implies naturally that it is good (or at least not bad) for both sides of the transaction. This does not imply that there won't be losers, just that the winners will make enough to compensate the losers for their losses. Overall free trade is great for consumers (lower prices and more choices available) and exporters (they won't face trade barriers from other nations, which will allow them to export more goods). It can be bad for domestic producers of domestically consumed goods because they will face more competition. It is like the teeth that protects the environment, eliminates sweat shops, child labor. In economics, comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.

All trade restriction have been mostly been managed via bilateral agreement between two countries. If countries were in good terms they would agree on lowering tariffs or removing them all completely. In the last half of 20th century multilateral trade agreements have started to become more prevalent. (one of the most important one is NAFTA). NAFTA model is now copied everywhere else in the world. WTO (World Trade Organization) which promotes free trade in the whole world.

Some argue that NAFTA has been positive for Mexico, which has seen its poverty rates fall and real income rise (in the form of lower prices, especially food), even after accounting the 199495 economic crisis. The agreement opened the door for open trade, ending tariffs on various goods and services, and implementing equality between Canada, USA, and Mexico. NAFTA has allowed agricultural goods such as eggs, corn, and meats to be tariff-free. This allowed corporations to trade freely and import and export various goods on a North American scale. The ASEANIndia Free Trade Area (AIFTA) The ASEAN-India FTA will see tariff liberalisation of over 90 percent of products traded between the two dynamic regions, including the so-called special products, such as palm oil (crude and refined), coffee, black tea and pepper. Tariffs on over 4,000 product lines will be eliminated by 2016, at the earliest. South Asia Free Trade Area (SAFTA) India, Pakistan, Sri Lanka Bangladesh, Bhutan, Maldives and Nepal David Ricardo The principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources Formerly insular (inward-looking) economies such as China and India have expanded at much faster growth rates since they adopted free trade principles in the 1980s and 1990s, respectively. The imposition of artificial constraints such as tariffs on imports or the provision of subsidies to exports will introduce distortions and impede free trade. Free enterprise market Free enterprise global market = 1 market borderless economy for the benefit of mankind Every human being across the world should be able to experience all kind of product and service from 1 country to other. No human being should be deprived of an opportunity. All of us should give equal opportunity to sustain the global market.

Let us have open market economies. Free trade would enhance international investment, encourage economic development in developing countries, bring cheaper products to consumers, and increase world trade and output in general. Indeed, the world's GDP has been on the increase for years. Obviously, with the absence of protectionism, imports and exports have increased. This means that trade has increased, and economists have been saying for centuries that trade is good for the economy. Another major argument for free trade is the concept of comparative advantage. When a county has the comparative advantage, it has low costs of production for a particular good. Free trade allows countries that specialize in a good that they have the comparative advantage in to trade it for other goods. Theoretically, this allows countries to acquire goods for cheap, and allow them to consume beyond their production possibility frontier.

Tourism Industry Generally-speaking, when countries enter into a free trade agreement, it facilitates travel and promotes cultural exchange between them. The reduction of tariffs increases the amount of travel and decreases the cost of imported goods that are commonly used in the tourism industry, such as motor boats and snow-making equipment.Businesses such as restaurants and bars will benefit from free trade because there will be no tariffs on goods such as wine and food. As more people travel, more jobs will be available in the tourism industry, which will help the economy. Another positive point is that free trade makes it easier for businesses to be transnational, which means that business travel would increase as well as pleasure travel. The tourism industry does not really suffer any drawbacks from free trade, as it becomes easier to travel into, and out of a country. Clearly there are many economic benefits from free trade, such as cheaper prices, economic development, and jobs for developing countries.

2) Drawing the new trade theory and Porters theory for the competitive advantage, outline the case for the government policies designed to build a national competitive advantage in biotechnology. What kind of policies would you recommend the government to adopt? Are there policies at variance with the basic free trade philosophy? The New Trade theory argues that due to the presence of substantial scale economies, world demand will support only a few firms in many industries. Porter goes on to argue that firms are most likely to succeed in industries in which the diamond (which are the four attributes collectively) is favourable. Renewable energy Recyclable energy cost reduced bio fuel bio gas do not look at bio technology. if Malaysia going to build national competitive advantage using Michael porters national competitive advantage 4 pillars. Michael Porter's Theory of Competitive Advantage of Nations against the Theory of Competitive advantage sought to examine the issue of why some nation's business firms succeeded high in international/global competition.

list 4 pillars and discuss in terms of context to country economic policy. The theory of competitive advantage probes into three major aspects of trade phenomenon: i. Why does a nation succeed international in a particular industry? ii. What influence does a nation carry on competition in specific industries and their segments? iii. Why do a nation's firms choose particular strategies of business? Every country should study its strength and weakness. what can do and cannot do. Strength and weakness look strategic to resource areas. key competence. skill available R&D, training for minimizes cost and gain competitive advantage.

Discuss about it. Kind of policies? Protective over the policy. Unique selling proposition. Porter's model includes 4 determinants of national advantage, which are shortly described below: Factor Endowment Factor Endowment can be categorized into two forms: 1) "Home-Grown" resources 2) natural endowments 2 Types of Factors are:Basic factors climate, natural resources Advanced factors skilled labour, technology, infrastructure Factor conditions include those factors that can be exploited by companies in a given nation. Factor conditions can be seen as advantageous factors found within a country that are subsequently build upon by companies to more advanced factors of competition. Factors not normally seen as advantageous, such as workforce shortage, can also be seen as a factor potentially strengthening competitiveness, because this factor may heighten companies' focus on automation and zero defects. A country's factor endowments or supply of factors of production such as human resources, physical resources, knowledge resources, location, capital resources and infrastructure play a significant role in determining its national competitive advantage. Besides basic factors (e.g., natural resources, climate, etc.,) advanced factors (e.g., skilled labour, communications infrastructure, technology) are the crucial determinants of the capabilities and competitiveness of a nation. Advanced factors are declined by the efforts of the individuals, firms, institution and government in a country. Some examples of factor conditions:

Highly skilled workforce Linguistic abilities of workforce Rich amount of raw materials Workforce shortage

Related and Supporting Industries For many firms, the presence of related and supporting industries is of critical importance to the growth of that particular industry. A critical concept here is that national competitive strengths tend to be associated with "clusters" of industries. For example, Silicon Valley in the USA and Silicon Glen in the UK are techno clusters of high-technology industries which

includes individual computer software & semi-conductor firms. In Germany, a similar cluster exists around chemicals, synthetic dyes, textiles and textile machinery. Japan's success may largely be attributed to its advanced factors creation rather than basic factors arability. A nation can overcome its deficiency or comparative disadvantage of basic factors endowment by focussing on creation of advanced factors to improve its competitive advantage. Demand Conditions Germany Demand conditions in the domestic market provide the primary driver of growth, innovation and quality improvement. The premise is that a strong domestic market stimulates the firm from being a start up to a slightly expanded and bigger organization. As an illustration, we can take the case of Germany which has some of the world's premier automobile companies like Mercedes, BMW, and Porsche. German auto companies have dominated the world when it comes to the high-performance segment of the world automobile industry. However, their position in the market of cheaper, mass-produced autos is much weaker. This can be linked to a domestic market which has traditionally demanded a high level of engineering performance. Also, the transport infrastructure of Germany, with its Autobahns (expressway) does tend to favour high-performance automobiles. The demand conditions in home market are important in stimulating domestic firms to undertake innovation and improve quality of products. When domestic buyers are sophisticated, a pressure in the market is created for the domestic firms to meet high standards of quality demanded. Sony Ericsson For example, Japanese knowledge buyers have induced the Japanese camera manufacturers to produce innovative models first in the home market and then for the exports. Similarly, local customers in Sweden have stimulated Ericsson to invest in cellular phone equipment industry much before the rising global demand. Strategy, Structure and Rivalry National performance in particular sectors is inevitably related to the strategies and the structure of the firms in that sector. Competition plays a big role in driving innovation and the subsequent up gradation of competitive advantage. Since domestic competition is more direct and impacts earlier than steps taken by foreign competitors, the stimulus provided by them is higher in terms of innovation and efficiency. As an example, the Japanese automobile industry with 8 major competitors (Honda, Toyota, Suzuki, Isuzu, Nissan, Mazda, Mitsubishi, and Subaru) provide intense competition in the domestic market, as well as the foreign markets in which they compete.

Consequence is that the US has lost its competitive advantage in the automobile and such other manufacturing goods whereas Japan has built up its strength in this sector. The role of government The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage - or even push - companies to raise their aspirations and move to higher levels of competitive performance . Kind of policies Policies at variance against free trade Yes of course the policy are very protective since technology is to protect and hence variance between the free trade technology Japan, Korea etc. One could argue that it is, because the government intervention is creating the basis for comparative advantage. what are the Unique selling propositions? Different variations in the plasma technology they have. Gain sustainable advantage. Jatropha palm oil plantation. Porter adds two factors to the list of attributes described above: chance and government policy. When the manufacturers of that product have experienced some chance events that have provided them first-mover advantages, the governmental policies of that nation should promote the building of national competitive advantage in that particular area. The government must encourage companies to raise their performance, stimulate early demand for advanced products, and focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations. This could be accomplished through government policies like:R&D grants, policies that favour the industry in capital markets, policies towards education, the creation of a favourable regulatory atmosphere, tax abatements, and the like. Tariff, government nationalizes an investment project or an industry export of people and hence income for India,

Ask your students whether they think this policy is at variance with the basic free trade philosophy.

3) Whose interest should be paramount concern of government trade policy the interest of producers (business and its employees) or those of consumers? Government trade policy = Import + Export Export > Import Both capital markets service markets Business markets Grants and availability of funds manufacturing tax incentives interest rate low for sustaining economic growth GDP growth rate annually 5 to 6 % - the output to sustain the GDP, should achieve the GDP GDP output comes from the businesses lucrative (profitable) trade policy, domestic market people do internalization for the export purpose. Consumer production output doing should be in the best interest of the consumers. else they are not satisfied and misbalance in the trade theory export and import consumer market domestic and international consumer. marketing perspective consumer then company Steel industry different trade policy different levels export and import. import 1 policy export 1 policy it should be country specific relate international trade policy. I would hope that the policies that are in place by the government would help not only the producers but in the long run would also help the consumers. The government has a responsibility to ensure that businesses will get that competitive advantage in the global business world. That said, if governments place were to place too much of its interest in businesses, the consumers would definitely suffer immensely. The trade policy hurts the individual consumer more than the producers of businesses. American trade policies have regulations that limit the percentage of a product that must be made or portion of the product has to be made in the United States. This limits the competition of foreign countries which cause the price of products to increase on imported

goods or parts. Now, these foreign components create higher prices and the result is consumers will have to pay more for the products. Businesses win when it comes to trade because the government speaks for the producer and not as much for the consumer. Trade policies are implemented to help the producers or businesses by establishing tariffs to protect the competition from foreign companies. This causes prices to increase from these tariff restrictions. Goods produced in a foreign country have a reverse effect on producing goods efficiently by a domestic business when tariffs are involved. Imported items will cost more to the country receiving the goods and will cost less to the country exporting the goods. As the world is closing in due to computers and technology, it should lessen the tariff barriers in order to reduce prices consumers pay. An example would be if tariffs between Japan and the United States were lowered for automobiles, the cost to consumers in the U.S. would be more affordable. The interest of trade policy should be more balanced between businesses and consumers. The economy is changing and the small businesses should be recognized as a growing segment while producing goods and services and helping the economys increasing revenue. The government should continue to enforce policies that will protect businesses so that worldwide firms are not taken advantage of but help the consumer with pricing goods so they are more inexpensive. This is just a personal opinion, however I believe the policy must incorporate the interests of all parties concerned. If most of the interest is placed on producers, and the organizations and their employees, the customer may suffer. If most of the interests is placed on the customer, then the producers, business organizations, and their employees may suffer which would have a negative impact on all parties in the long run. All concerned parties cannot work in separate silos and realize successful outcomes. They must work as integral parts of a greater whole. This is where the development of "learning teams" becomes critical to the stability and longterm survivability of each. It is the development of a common purpose, common cause mentality, instead of self-interests. It is not easy, but it can be done, and is being accomplished in many fortune 500 companies today. These teams are made up of representatives from each area. These representatives are individuals each having an expertise all their own. The teams are multilevel, multicultural (in terms of organizational culture), and cross-functional, and work on the basis of an overall common goal or objective for the benefit of the greater whole, for as it has been stated, "the whole is greater than the sum of its parts." However, in order for that whole to benefit, all parts must be working together in sync, and in harmony, for successful outcomes to be realized.

4) Given the argument relating to the new trade theory and strategic trade policy, what kind of trade policy should the business be pressuring the government to adopt? New trade theory It is a solution to the large differences between the predictions of free trade theory and realworld trade flows. the fact that trade grows fast between industrial countries with similar economies and endowments of the factors of production. It is noted that free trade expands market size beyond the national borders. New trade theory (NTT) is a collection of economic models in international trade which focuses on the role of increasing returns to scale and network effects, which were developed in the late 1970s and early 1980s. The model developed by these economists suggested that it might benefit countries with an advantage in producing certain goods to initially protect the trade of such goods. By doing so, the economic advantage for the producing company might be more greatly realized, especially in the future. In this way, the theory suggests that monopolies or oligopolies aren't necessarily a bad thing on the world market, either for businesses or consumers.
New trade theory (NTT) suggests that a critical factor in determining international patterns of trade are the very substantial return of scale and network effects that can occur in key industries. But, if one countries specialises in a particular industry then it may gain economies of scale and other network benefits from its specialisation. New trade theory suggests that governments might have a role to play in promoting new industries and supporting the growth of key industries. Some point to the Japanese car industry in the 1950s, which received substantial government support. Other S.E. Asian economies also had some government protection and support.

New Trade Theory emphasizes: 1) increasing returns, i.e., f (tx1 , tx2) > t f (x1,x2)

2) imperfect competition 3) differentiated products

One of the founding principles of the free trade model is the perfect competition principle, which suggests that multiple producers of goods competing with each other ultimately reduce prices for consumers and that this situation is the most beneficial for the society at large. New trade theory flies in the face of this to some extent by accepting the fact that some countries

have specific advantages in producing certain goods. It also takes into consideration some of the difficulties of the globalization of trade. New trade theorists relaxed the assumption of constant returns to scale, and some argue that using protectionist measures to build up a huge industrial base in certain industries will then allow those sectors to dominate the world market.

Strategic Trade Policy ETP Economic transformation Process in Malaysia

5) Compare and contrast these explanations of FDI. - internalization theory - Vernons product life cycle theory and - Knickerbockers theory of FDI. Which theory do you think offers the best explanation of the historical pattern of FDI? Why? Knickerbocker theory on FDI Knickerbocker's theory suggests that firms imitate other firms in oligopolistic (ownership) industries, and will "follow the leader" in undertaking FDI in certain countries, as sort of strategic defensive moves. This theory does not explain why the first firm undertakes FDI, and why it chooses to do this rather than to export or license. Examples: Toyota and Nissan imitated Honda by undertaking their own FDI in US and Europe

However, this theory does not address the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. Vernon's product life-cycle theory The product life cycle theory suggests that firms invest in foreign countries when demand in that country will support local production or when cost pressures make it necessary to locate

production in low cost locations. While this theory does explain why some FDI takes place, it also does not explain why FDI is preferred over licensing or exporting. The theory suggests that early in a product's life-cycle all the parts and labor associated with that product come from the area in which it was invented. After the product becomes adopted and used in the world markets, production gradually moves away from the point of origin. In some situations, the product becomes an item that is imported by its original country of invention. A commonly used example of this is the invention, growth and production of the personal computer with respect to the United States.

The product goes through four stages: introduction, growth, maturity and decline. The duration of these stages is not fixed. The duration of the product phases depend largely on the demand for the product in the market and, to some extent, the costs of production and the revenues that the product generates. If the product remains in demand for a long period of time and the costs of production steadily decline, the life of the product will be longer. On the other hand, if the costs of production are too high and the demand is largely limited, then the product will die sooner. Hence, it is not possible to predict the cycle's duration. While this theory does explain why some FDI takes place, it also does not explain why FDI is preferred over licensing or exporting.

Internationalization theory Market imperfections provide a major explanation of why firms may prefer FDI to either exporting or licensing for the business development. They are factors that inhibit markets from working perfectly. In the international business literature, the marketing imperfection approach to FDI is typically referred to as internalization theory. According to the internalization theory, firms that have indefinite and intangible assets with a public good property, tend to undertake FDI to take advantage of the assets on a large scale and, at the same time, prevent misappropriation of returns from the assets in foreign countries. The theory can be effective in explaining greenfield (from the scratch) investments.

It is an extension of the market imperfection theory. By investing in a foreign subsidiary rather than licensing, the company is able to send the knowledge across borders while maintaining it within the firm, where it presumably yields a better return on the investment made to produce it. With regard to horizontal FDI, market imperfections arise in two circumstances: when there are impediments (hindrance) to the free flow of products between nations, and when there are impediments to the sale of know-how

Impediments to Exporting Governments are the main source of impediments to the free flow of products between nations. By placing tariffs on imported goods, governments can increase the cost of exporting relative to FDI and licensing. Similarly, by limiting imports through the imposition of quotas, governments increase the attractiveness of FDI and licensing. Impediments to the Sale of Know-How (knowledge). The competitive advantage that many firms enjoy comes from their technological, marketing, or management know-how. Technological know-how can enable accompany to build a better product; for example, Xerox's technological know-how enabled it to build the first photocopier, and Motorola's technological know-how has given it a strong competitive position in the global market for cellular telephone equipment. Alternatively, technological know-how can improve a company's production process vis--vis competitors. If we view know-how (expertise) as a competitive asset, it follows that the larger the market in which that asset is applied, the greater the profits that can be earned from the asset.