1. What do you understand by liberalization of foreign trade?
Answer:
There are two restrictions on foreign trade (i.e., trade of goods and
services between two sovereign nations) which are removed by
liberalization of foreign trade. (a) Entry Tax or Customs Duty This is
levied on goods being imported into a country to protect the local
producer of similar goods. This makes the foreign goods costlier, so that
the local goods can compete with it on price. Under liberalization, ideally
there will be no customs duty on any imported product. (b) Quotas or
Restrictions on the Quantity being Imported in a Specified Period This
will prevent cheap foreign goods being 'dumped' or 'flooding' the market
of another country. Under liberalization, there will be no restrictions on
the quantity of goods being imported from any country.
2. Tax on imports is one type of trade barrier. The government could
also place a limit on the number of goods that can be imported. This is
known as quotas. Can you explain, using the example of Chinese toys,
how quotas can be used as trade barriers? Do you think this should be
used? Discuss.
Answer:
In the case of Chinese toys, quotas should be used as trade barriers to a
limited extent to protect the Indian producers of a similar nature of toys
which are being imported. This should be done so that both Indian and
Chinese toys compete on an equal footing in the Indian market. This will
lead to a healthy competition so that the quality of toys will improve.
Also, Indian manufacturers will need to earn only reasonable profits. If
Chinese toys were totally restricted, Indian manufacturers will be
tempted to lower their quality and increase prices, thus harming the
customers. On the other hand, if there are no quota restrictions on
Chinese toys, China will 'dump' toys in the market, reducing the sales of
the Indian producer and also harming the customer, as then the
customer will not have a free choice at a competitive price.
3. What do you think can be done so that trade between countries is
more fair?
Answer:
Trade between countries would be more fair if both the countries
removed trade barriers and allowed the free flow of goods and services,
and let the market forces of demand and supply decide the volume of
goods that will be transacted between countries.
[Link] the above example, we saw that the US Government gives massive
sums of money to farmers for production. At times, governments also
give support to promote production of certain types of goods, such as
those which are environmentally friendly. Discuss whether these are fair
or not.
Answer:
These support measures are not justified when they cover those goods
which enter international market. With each support measure, different
goods acquire unmerited competitive strength which has a ruinous
impact on producers of these commodities in the countries which import
these goods, irrespective of whether they are environmentally friendly or
not. Developing countries would be justified in raising trade barriers
against such measure that hurt their market.
How has competition benefitted people in India?
Answer:
Competition from imported goods has benefitted people in India in the
following ways (a) Indian producers have improved their technology
and quality to compete with foreign goods. This has benefitted the
buyers of the goods as well as the producers, who can now compete in
the world market. (b) Prices of Indian goods have reduced to match
those of foreign goods and so buyers of these items have benefitted.
(c) Some Indian companies have entered into collaboration with the
foreign companies and some MNCs have invested in Indian companies,
thus benefiting both.
Should more Indian companies emerge as MNCs? How would it benefit
the people in the country?
Answer:
Yes they should, because this wit) benefit Indian people as follows (a)
The Indian MNCs will make profits in foreign countries, which will
improve the foreign exchange position of India. (b) More Indian people
will get an opportunity to work in foreign locations, thus improving their
outlook as well as financial position. (c) Employment in India will
increase due to the increased requirement of persons in these Indian
MNCs.
Why do governments try to attract more foreign investment?
Answer:
Governments try to attract more foreign investment for the following
reasons (a) It helps in improving the financial condition of the people
by accelerating growth of the economy. (b) Foreign investments create
new job opportunities in the country, directly as well as indirectly in
support services like transportation. (c) The government gains
additional taxes by taxing the profits made from foreign investments.
n Chapter 1, we saw what may be development for one may be
destructive for others. The setting of SEZs has been opposed by some
people in India. Find out who are these people and why are they
opposing it.
Answer:
The persons who are opposing the setting up of the SEZs are of two
kinds (a) The rural people or the tribals who live where the SEZs are
being established. They are afraid that they will lose their livelihoods,
which depend on the land which is being acquired for setting up the
SEZs. (b) The persons who are producing goods and services outside
the SEZs similar to those proposed inside the SEZs. They are not
getting the benefits and concessions being given to the producers
inside the SEZs and so will lose out in competition with them.