International Business

Protectionism in the global economy

The global economy has seen a dramatic increase in services trade between countries. The regulation and monitoring of service trade between countries has become much harder. As highlighted by Johnson, trading in services was the fastest growing constituent of global trade during the 80’s and 90’s. Cross border transactions include anything from banking to software. When services are offered to another country, the provider has to interact with the customer through either, cross border communications, movement of the provider or the consumer moving to the supplier’s state of residence. Technology has made international trade much easier and more feasible; this has lead countries to boost services being exported to other countries. IT has decreased the cost of communication between countries. As a result it has made it more feasible for businesses to introduce new products and modify services abroad. This spark in global trade of services has its downfalls. The liberalization of services goes against certain countries’ development strategies. Areas like health and education needs the provisional planning of governments. The interference from abroad has hindered the governments’ strategic planning with respect to these services. This takes us to the importance of regulating services coming in from abroad through protectionism. Regulations on services can be a burden on service providers which can consequently weaken the liberalization of trade. Misunderstandings between states on the basis of protectionism range from cultural justification to the preservation of the states’ protection to its own public services. A good example can be telecommunication services, which are regulated by some governments. This has been a burden on the service market, and organizations like the WTO has tried to interfere with some countries’ policies in order to reform domestic telecommunications and lift protection efforts. On the other hand, when we speak of services in general, there are several ways of implementing forms of protection on services coming in, such as,

Quotas and Prohibitions:

This form of protectionism imposes a quota on the service provider. Protection methods like this are most likely put on service monopolies which can affect the domestic economy. There are also prohibitions in some countries’ because some service providers may provide services harmful to the countries moral and cultural values. Such services like the internet need to be regulated by the government because of the pornographic content which can be found online.

Price Based Instruments:

Some monopolies may charge or implement unfair prices to consumers, this can also affect the country when there are unfair prices. The state can then interfere and control high prices set by companies. The state will try to ensure that services can be used by most people at an affordable price.

Standards and Licensing:

Service providers looking to set up at some countries’ may need to present a certain level of standards. This highlights the importance of high image and good services which are going to be given to the general public. Companies must also meet minimum legal requirements issued by the government. Some forms of licensing can be very controversial and discriminatory. A good example would be the restriction of entry to professional services like tourism, which favours domestic service providers. These regulations can stop service providers from coming in due to the nature of the service.