There are many different types of trade restrictions some of the most common types of trade blocks are Tariffs, quotas, embargoes, local content requirements, administrative delays and currency controls.Tariffs
are taxes placed on a product by the government as it enters or leaves a country. Quotas
are the restriction of the amount of a good or product that is allowed to enter or leave a country. Embargoes
are the ban on all trade in one or more products within a country (for example the ban of Cuban cigars
and other products within the US). Local content requirements
are laws that state, companies in the domestic market must supply a pre arrange amount of goods or services in that particular country. Administrative delays
are controls or government rules that placed in order hinder the flow of imports into a country. Currency controls
are restrictions put in place on the conversion of other currencies.
Now when it comes to smaller companies one of the harder types of trade restrictions to overcome are Regional Trade blocs. Regional trade Blocs are defined as “(A group of nations in a geographic region undergoing integration-International Business, Wild, Wild, and Han, 2005)”. Some of the biggest set backs with this type of restriction are Trade diversion, Shifts in employment and Loss of National Sovereignty. Trade diversion is considered to be trade that is diverted away from nation that do not belong to trade blocs and member nations. Trade diversions can result in the increase of trade with less efficient producers as well as a smaller amount of trade with far more efficient producers. What this basically means is that poorer quality producers are actually rewarded while better quality producers are penalized. Trade diversion can also be associated with shift of imports from low-cost outsiders to higher-cost FTA partners. This can lead to a very major problem for smaller companies mainly because it can lead to them having to pay larger prices for goods unless there are other companies within the trading bloc. One other downside of Trading Blocs is Shifts in Employment. Due to the formation of trading blocs the barriers that are set in place for trading among member is greatly reduced or even eliminated. This can in turn cause industries that require mainly un-skilled labor to switch production to low wage nations, which means fewer jobs in higher wage nations. The final down side of trade blocs is The Loss of National Sovereignty; basically what this is the surrendering of a nation’s sovereignty (Sovereignty- a government free from external control). What this does is dramatically reduce the level of control a government has over the interference of outside countries and producers.
Now with all this being said there are still some very positive benefits of Trading Blocs. One of the first benefits is Trade Creation; trade creation is the increase in the number of trade between nations that are the product of trading blocs. One of the major advantages of trade creation is that is it allows consumers and industrial buyers to have a much wider selection of goods and services to choose from. This in turn can create a happier market place and more economically sound climate. One other benefit of trading blocs is Greater Consensus, Political Cooperation and Employment Opportunities.
Greater Consensus happen when trade barriers are eliminated within smaller groups as opposed to larger groups like the World Trade Organization. Political Cooperation is also beneficial because it allows for groups of nations to have a larger amount of political weight than a nation would have individually, this means that a group as a whole can have even more influence when it comes to negotiating with other countries. Finally we have Employment Opportunities. Trading blocs help to expand employment opportunities by allowing people to move from one country to another to work, or to earn higher wages. This is helpful because it enable individuals to choose where they work and how much they would like to make.
Now although there are many benefits to Regional Trade Blocking it is still often times very hard for smaller companies to compete with larger multinational companies. But there are several steps that can be taken that will aid in the transition and help them to compete in any market. One of the first steps that can be done is to build relationships with highly influential people in that region or market. If you know the right people and establish a positive relationship with them it will be a lot easier to compete with larger companies especially those that may not have the same connections. One other step that cab be taken is to plan for the worse, you must weigh all of the possibilities and prepare for them. If you are prepared for hardships in advance you will be more likely to overcome them when and if the arrive. Smaller companies must also hire local professionals that are aware of that countries infrastructure and are able to maneuver through it. Finally you must make sure that you have a responsible and knowledgeable person in charge of all major operation in that region if you hire someone you can trust that you know is capable of handling whatever is thrown there way it will be a lot easier for the company to focus on ways to compete with the larger companies. Smaller companies could also, slightly lower there prices, or raise there wages to entice more qualified employees. There are many steps that can be taken these are just the tip of the iceberg.