Trade Barriers That Are Made By European Union Economics Essay

Trade Barrier is defined as any government policy or regulation that restricts international trade. It is the way which is used to protect the domestic market from foreign competitors in terms of government policies, regional trade agreements, legitimacy, growth and protectionism e.g. it is used to help local firms export and thus build worldwide market share by doing such things as providing them with subsidies in the form of tax breaks and low interest loans. Other common reasons include:

Protect local jobs by shielding home-country business from foreign competition.

Encourage local production to replace imports

Protect infant industries that are just getting started.

Reduce reliance on foreign suppliers.

Encourage local and foreign direct investment

Reduce balance of payments problems.

Promote export activity

Prevent foreign firms from dumping (selling goods below in order to achieve market share)

Promote political objectives such as refusing to trade with countries that practice apartheid or deny civil liberties to their citizens.

(Rugman and Collinson 2006) In my proposal, it will be examined how European Union use its Trade Barriers Regulation to protect its market against competitors. Turkish market is the one of the competitors in terms of Trade Barriers Regulation and European Union governmental policies in trade region. To protect its domestic market and to keep up labour those barriers are used effectively to gain success against foreign competitors.

3. BACKGROUND

Dealing with trade barriers to trade in the international trading system does not have a long history. Until recently it was largely underweighted compare to other more visible trade barriers such as tariffs and quotas. Liberalization efforts in the context of the General Agreement on Tariffs and Trade (GATT) for example, epitomize this path. Technical Barriers to trade issue was brought into GATT agenda in 1973. Agreement on Technical Barriers to Trade (TBT), which was concluded, and a part of the World Trade Organization (WTO) package signed by all WTO members. (http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm)

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Importers have massive difficulties in obtaining required technical legislation of the importing countries. Responsible authorities for tariffs and quotas are generally national ministries of foreign trades, and sometimes custom agencies. Technical regulations, however, may be formulated, implemented and supervised by different national authorities, including local governments, such as National Health, Environment, Agriculture, Industry and Labour Agencies. Technical requirements are also broader, they may include, environment, public safety, health, labor related issues as well as product standards. They can be discriminatory: compliance of standards and regulation is typically more costly for foreign producers and importers than that for domestic producers. (Baldwin 2001)

The European Union has always been an important trading partner of Turkey. Trade relations with the EU has accounted for roughly half of Turkey’s imports and exports. Its exports to the EU countries in 2001 accounted for $16 billion, which was approximately 51 percent of its total exports of $31.5 billon. In the same year, the value of Turkey’s import from the EU was $26 billon, 44 percent of its total import. [i] As of 1999, Turkey is the EU’s 7th biggest export destination and 13th biggest exporter to the EU. A Customs Union covering industrial products was officially established between Turkey and the EU in 1995. Turkey is among the countries where the union has the highest trade surplus. The customs union would further open and consolidate the Turkish market for Community producers. All tariff and non-tariff barriers might be eliminated. Community exporters will thus earn preferential and free access to this young and mostly non saturated market of nearly 70 million consumers (Allen2000).

Most obvious dynamic gain for the Turkish producers will be generated from economies of scale due to two aspects of the elimination of technical barriers. First, as Maskus and Wilson (2001) indicate, “common standards and regulations can promote economies of scale by permitting producers to settle on a limited range of product characteristics or processes. Sector that had been segmented by variable standards can be rationalized by greater output scale.”Second, as noted above, technical harmonization will promote integration of the Turkish products not only with the Community markets but also global ones. As market gets bigger, fixed costs of production get smaller. Exploiting the economies of scale will facilitate Turkish products to achieve international competitiveness.

Recognizing this, the ultimate objective of this study is set as to explore implications of trade barriers in Turkish Company which is known Eczacibasi Corporation. Founded in 1942 by Dr. Nejat F. Eczacıbaşı, the Eczacıbaşı Group takes its name from the honorary title “chief pharmacist”, conferred on the father of Dr. Eczacıbaşı at the turn of the last century. Eczacıbaşı is a prominent Turkish industrial group with 39 companies, 9,200 employees and a combined net turnover of $3 billion in 2008.

Eczacıbaşı’s core sectors are building products, healthcare and consumer products. Additionally, the Group is active in finance, information technology, welding technology and land development. In Turkey, Eczacıbaşı is the leader in most of its businesses and has distribution networks for building products, agricultural products, pharmaceuticals and fast-moving consumer goods that are among the strongest in their sectors. Internationally, Eczacıbaşı is best known for its flagship VitrA brand, a powerful contender in global bathroom and tile markets. It is also a major exporter of tissue paper, welding electrodes, electronic smart cards and industrial raw materials such as clay and feldspar. International partnership is a central component of the Eczacıbaşı Group’s growth strategy. Eczacıbaşı has nine international joint ventures and numerous cooperation agreements with leading international companies. All of these are grounded on the principle of long-term mutual benefit, based on firm business criteria and ethical business practices.

The Eczacıbaşı Group’s mission is to be a pioneer of modern, high quality and healthy lifestyles. Accordingly, the Group encourages each of its companies to surpass established standards in their sectors and raise consumer benchmarks of product and service quality. Through sponsorship and responsible corporate practices, it also promotes social and economic development that nurtures cultural and scientific activity, protects the environment and preserves scarce natural resources ( http://www.eczacibasi.com/channels/1.asp?id=141). Eczacibasi Corporation is one of the biggest pharmaceutical products and agricultural products provider in Turkey. According to European Union Trade Barriers Regulation, this group and some other companies from turkey, have got exporting problems to the European Union countries due to lack of quality, using cheap raw materials which are exported from third countries to Turkey, lack of certifications, using wrong data whilst distributing products to the European Countries and so on. After signing Customs Union agreement; Turkey saw some improvements in those areas and will be moving on to improve to catch European Union standards in terms of European Union Trade Barriers Regulation. (Arvius 2005)

4. AREA OF RESEARCH

This chapter is intended to indicate the aims and objectives of the dissertation

4.1 Aim

The aim of the dissertation is to determine what are the barriers that made by European Union to protect its market.

4.2 Objectives

To define trade barriers on a commercial sense

To understand the mounting importance of the governments’ policies on trade barriers

To determine the key role played by an appropriate management of trade barriers in companies

To shed light on the importance of the trade barriers in international trade, redefining the term of barriers on industrial base

To provide an insight into examining the prevailing government and international policies

To assess to what extent the corporations have been impacted by the barriers facing across the world

To discuss over whether the trade barriers might be attributable to export and import

So as to emphasize on the importance of trade barriers, to evaluate the key role played by regulations and legislations

Determine the appropriate trade barrier techniques applied by the governments that seem to have succeeded in riding out the recession by means of robust manage

To determine of inappropriate trade barrier techniques embraced by the E.U governments that have failed to struggle with dealing with the third countries.

5. JUSTIFICATION

The core reasons why I focus on the matter of what are the barriers in the European Union are followed:

In order to secure knowledge of trade barriers which affected trade between Turkey and European markets, I desire to analysis the issue comprehensively. I believe that I will reap the benefit from this work in my future career. Thus I believe that I will be able to cope with the dissertation requirements. Equally, I might be provided with accurate information as to the topic, since I have contacts within company that are likely to assist me in securing more reliable information.

Hence, I would like to study over this issue. Meanwhile, as I strive to secure accurate and unbiased information, I am planning to have interviews with individuals that are likely to contribute to the furtherance of the dissertation, having interviews with me. Needles to say, these interviews will be unprecedented experience for me.

6. LITERATURE REVIEW

Trade Barriers

International trade increases the number of goods that domestic consumers can choose from, decreases the cost of those goods through increased competition, and allows domestic industries to ship their products abroad. While all of these seem beneficial, free trade isn’t widely accepted as completely beneficial to all parties. Trade barriers are used to protect domestic employment, consumers, infant industries, national security and for retaliation (Countries may also set tariffs as a retaliation technique if they think that a trading partner has not played by the rule). (Mcdermott and Taggart 1993)

Government imposed restriction on the free international exchange of goods or services. Trade barriers are generally classified as import policies reflected in tariffs and other import charges, quotas, import licensing, customs practices, standards, direct procurement by government, subsidies for local exporters, lack of copyright protection, restrictions on franchising, licensing, technology transfer, restrictions on foreign direct investment, etc. http://www.businessdictionary.com/definition/trade-barrier.htm at 10.37 14.12.2009.

Commonly used barriers are: Price-based barriers; it is based on the value of the goods. Tariffs raise revenues for the government, discourage imports, and make local goods more attractive. The most common is the import tariff, which is levied on goods shipped into a country. Less common is the export tariff, for goods sent out of the country, or transit tariff for goods passing through the country. Secondly, quantity limits, often known as quotas, restrict the number of units that can be imported or the market share that is permitted. For example European Union limits Japanese auto imports to 10% of the total market.

Thirdly, sometimes a host of international firms will fix prices or quantities sold in an effort to control price and it’s known as cartel. A well-known example is OPEC. By controlling the supply of oil it provides, OPEC seeks to control both price and profit. Fourthly, non-tariff barriers are rules, regulations, and bureaucratic red tape that delay or preclude the purchase of foreign goods. These barriers limit imports and protect domestic sales. (Collinson and Rugman 2006).

Tariffs are transparent and are typically based on the value of the product or service. Generally, tariff rates are relatively low today, especially among developed countries. With overall tariffs low, governments often attempt to shift a product into higher tariff category while firms develop strategies to benefit from the lower tariff category. For example, The European Union imposes a 288% tariff on imported vegetables, which is geared toward protecting the farm lobby in the Union. Quotas are quantitative limitations on the importation of goods typically spelled in terms of units or value. Non-tariff barriers are obstacles to trade, not anchored in laws and official regulations and therefore are not transparent. Since, they are not transparent, they may be much more difficult to respond to and offer an advantage to domestic businesses. (Luo and Shenkar 2004)

Tariffs are implemented for two clear economic purposes. First, they provide revenue for

the government. Second, they improve economic returns to firms and suppliers of resources to domestic industry that face competition from foreign imports. Tariffs are widely used to protect domestic producers’ incomes from foreign competition. This protection comes at an economic cost to domestic consumers who pay higher prices for import competing goods, and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. (Gandelfo 1998)

Non-tariff barriers to trade are considered as government laws, regulations, policies or practices that either protect domestic industry or products from foreign competition or artificially stimulate export of particular domestic products. Quantitative restrictions, tariff quotas, voluntary export restraints, orderly marketing arrangements, export subsidies, government procurements, import licensing, antidumping/countervailing duties and technical barriers to trade are some examples of such non-tariff barriers. Non-tariff barriers also include a wide variety of operating practices ranging from bureaucratic delays in processing request for permits, political squabbles, “buy national” campaigns, infrastructure headaches and unethical business practices. Such measures constitute non-tariff barriers and are often justified from the perspective of public policy, i.e., the need to protect human health and safety, to protect infant (domestic) industries and the environment. (Low et al 1999)

On the other hand, Czinkota and et al (1996) indicate that there are literally hundreds of ways to build a barrier. A few of the trade barriers that exporters face, restrictive licensing, special import authorization, temporary prohibitions, advance import deposits, excise duties, consumption taxes, country quotas, health and sanitary prohibitions, foreign exchange licensing, service charges, turnover and internal taxes an etc.

7. Methodology

7.1. Overall Approach

In this chapter, it is intended set out my approaches to accomplishing the goals of my dissertation. The chief work- streams associated with data collection consist of an extensive literature review and primary data collection provided by interviews and questionnaires.

Methodology moves on to look at the data analysis, being followed the likely risks that might hinder the dissertation in progressing will be stated.

Research can be categorized three different ways on the basis of purpose. These are:

Descriptive

Casual

Exploratory (Zikmund, 2000)

Descriptive research

Generally speaking, the purpose of descriptive research is to define characteristic of a phenomenon. Descriptive research is concerned with providing the answers to who, what, when, where and how questions,

Casual research

The major aim of casual research is determine cause and effect between variables. Therefore, it is common to have an expectation of the relationship to be described.

Exploratory research

The central goal of the exploratory research engages in narrowing the extent of the research topic and transforming the discovered issues into defined ones. Simultaneously, the researches that are keen on shaping the concepts can examine existing studies associated with the topic, and also talk to distinguished and knowledgeable individuals.

Moreover, the researchers might be informally analysis the situation, exploratory research is aimed to allow the researcher to discover a phenomenon.

This dissertation is aimed to provide understanding of barriers to trade and its remarkable aspects. With respect to the research purpose, I regard my study as exploratory. This dissertation intends to investigate the concept through providing the research question.

In the literature, there are two accepted methods to carry out a research. These are named as qualitative and quantitative methods. Disparities between the methods can be defined as the table shows below.

Source: Yin , 1994, Case Study Research , Design and Methods , P.6

So long as the researcher want to collect and investigate detailed data. They mostly apply qualitative method. In other words, the goal of qualitative method is predominantly to obtain more comprehensive understanding of a phenomenon. Since the nature of the research implies a deeper analysis so as to provide sufficient data, qualitative method will be exploited.

With respect to primary research strategies are classified as experiments, survey, archival analysis, histories and case studies.

Taking research strategies into account are by reason of remarkable abilities of case study and archival analysis to generate answers to the question “why”, “what”, and “how”. These mentioned strategies ensure the researcher to gain underlying understanding of the context of the contemporary events; I will therefore exploit these strategies for my dissertation.

7.2 Data Collection Methods:

Data collection is conducted by two ways. These are secondary and primary data collection. Primary data is defined as the data that is provided by the researcher so as to obtain a specific data, whereas secondary data asserts the data that have already been provided.

After determining research strategy the second step is select a sample, so as to gain an all- embracing understand of the concept of trade barriers how used in the trade between Turkey and European Union countries. The first stage of my methodology will therefore be to carry out an extensive review of all the relevant literature. Similarly, at this stage the key literature will engage with the following areas:

Review of publications relating to trade barriers, for instance, articles, journals and books that are concerned with international trade barriers.

So as to investigate the concept accurately and sufficiently, it is wise to obtain an in- depth understanding of the issue. In other words, the prevailing legislations and regulations in international trade and the companies that have been dealing with the impacts of these legislations and regulations will be examined. Moreover in order to enrich the research, the recent events will be analyzed related international trade regulations and legislations. Simultaneously, the financial times websites and relevant trade parts of BBC, Yahoo and CNN website will be exploited to underpin the issue.

Furthermore, for means of providing an insight into the approaches of the Turkey government and European Union Commission policies will be examined. In addition, whereas the policies have continued to affect fiercely export and import between European Union and Turkey. Hence, to secure more reliable further information as to the recent circumstances, government publications on websites will be followed.

So as to obtain primary data, I will attempt to hold interviews with a number of managers that work in the company. Therefore, prior to interviews, I will create a short series of questions to ask. However, even though I would prefer to have one-to-one interviews, the managers might tend to avoid holding interviews. Hence, it is likely that I might have interviews on the phone, or most likely through the e- mails.

7.3 Data analysis

The dissertation will employ two different analyses. Firstly, it will debate over a number of interviews with department managers of the company in Turkey. Secondly, it will examine documentations associated with the prevailing trade conditions. Afterwards, I will compare the collected data provided by the interview and documentations with my conceptual framework and the current theories relating to the topic. Prior to presenting the findings, both similarities and discrepancies between theory and the retrieved data will be examined.

7.4 Resource Requirements

The review of literature and documentation associated with the topic of my dissertation will be gained from library and electronic journals facilities.

By means of telephone and the internet, the interviews which I will make with international trade experts who works within the Eczabasi Corporation in Turkey will be held or they will be asked to respond questionnaires one-to-one or via e-mails.

7.5 The likely risks

The risks identified:

It may be difficult to obtain the accurate and appropriate information, making an interview with the department managers. Hence, I will attempt to make some interviews with acknowledgeable individuals who are capable of ensuring me to obtain the appropriate information my dissertation necessitates.

Due to obstacles to obtaining data, my proposed timetable might slip. So as to deter any delay in providing data, I will try to properly manage time I have been given.