There are several main objectives that the chapter was to achieve. It was made to give its reader some knowledge about trade and investment policies that have always been one of the most interesting parts of domestic policies. The chapter gives a possibility to examine how attitudes to trade and investment are changing, to see how global environment influenced policymakers and how they can focus on domestic issues in terms of globalization, and to gain understanding that every nation should cooperate closely to maintain global trade and investment environment.

In modern Europe, certain governments believe that state control will only help in the development of the Internet. Cross-border relationships of the country are much promoted by the Internet and it is a relevant part of the international trade. State regulation is thought to be a protector of the consumer rights and guarantee of not being fraud. The EU commission proposed a system which establishes the enforcement of the laws in the country where transactions will be made. Throughout the world, there are many governments that support levels of regulations but there are also groups that oppose the Internet taxes and various regulations on exports. Therefore, this question is still not completely solved.

Additionally, the policy actions can be kept in secret or can be publicly revealed, united or disjointed. It is a choice of state to decide what type of actions to take. Policy actions on trade become obvious when it affects the flow of investments and trade flows outside of national borders. The chapter states that initially government policies are devised to stimulate, direct, and protect trade national activities.

Anyway, policy actions establish purposes for domestic economy. Though they also have some restrictions on other countries, firms, and companies abroad, they are components of state’s trade and investment policy.

Policy objectives can be expressed with the help of different means. For example, in order to begin a new business abroad and increase its influence there, nations may be assisted by a certain state. Such occasion took place when the United States had generously funded Marshall Plan for reconstruction of Europe. Any government may also feel the need to restrict or encourage trade flows, and to save or increase the capabilities of the industry, which are very important for the national security.

Each country develops its own internal policies, and therefore, policy objectives vary from nations to nations. Inevitably, conflicts arise. For example, policies about employment in one country can affect the employment policies in the other. Additionally, the objectives of development of one country can reduce the possibility for development of other. Even when regulations relate to health care, disputes may arise. One nation may argue that their regulations should protect the citizens while the other nations can interpret their adjustment as the market barriers.

Nations also came to an agreement about the fact that they must be able to provide enough exports to receive incoming investment. Those investments will be to compensate flow of imports. In the short term and the long term, the balance must be maintained. For short periods of time, gold or transfer of the capital can be used for financing the budget deficit. However, such funding can continue only at the time when gold or foreign assets are available. This ability will be different from country to country. Anyway, such country as the United States uses such tactics while being unable to cope with the deficit in the hundreds of billions dollars. It can use such a method because of the political stability, acceptable rates of return, and established economic security. However, in the long term, all the nations are subjects to the same economic rules.

Three major changes happened in the global policy:

  • Reducing the impact of internal policies;
  • Weakening of traditional international institutions;
  • Escalation of conflict between the industrialized and the developing countries.

These three changes, in turn, have had a significant impact on the policies in the area of international trade and investment.

The growing global influence on the domestic economy is growing each day. Executives and businessmen recognize that it is very difficult to isolate the internal economic activity from the economic activities of the international market. Again and again, policy measures are constrained by the activities of global market forces. Decisions that were once clearly taken within the internal competence must now be revised due to the influence from abroad.

Local businessmen may not be the most appropriate for addressing these problems. At the same time, transnational or even global organizations are obliged to think about the outcomes of the major issues such as the global economy and the trade environment. Most aspects of foreign direct investment should be applied to internal policy.

Foreign direct investment means supplement to the gross domestic product with the income of the international firm, royalties, and costs from the subsidiaries. In many cases, countries see in direct investment a certain stimulation of the economic growth. In some countries such as Japan, it has been attempted to gain access to raw materials through the acquisition of firms which had deposits.

The main negative problems lie in the employment issues. Many trade unions experience a great loss of work. The most contradictory investments were into the factories of developing countries, which export back to the home country. Another important issue can be technical benefits. Some critics say that through the establishment of nuclear-power plants abroad or joint ventures with foreign organizations, the country loses its competitiveness on the world market.


International Law

Chapter 4 intended to reveal the topic of international law and influence of international regulations on businesses. It included examples and statements about the importance of political and legal environments in home and host countries for business executives. It describes how governments can affect business through legislation and regulations, how the political actions of countries expose companies to international risks, and examines how different laws regulate international trade in different countries.

Culture, laws, and policies are familiar concepts in the civilized world, and therefore, the trade conflicts can be quickly resolved. However, the global economy means that companies do business in those countries where political and legal conditions are often unstable. It is becoming clear that some developing countries are not sufficient of certain conditions that would ensure effective investment. It is difficult, if not impossible, for international corporations to support production trade relations in terms of corruption, lawlessness, and political upheavals.

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The policies and laws play a critical role in the field of international business. Even the best plans can go awry as a result of unexpected political and legal factors, and the failure to anticipate these factors. Most likely, it would lead to the destruction of a successful enterprise.

Of course, integral international, political, and legal environment does not exist. Business managers must be aware of political and legal factors on a variety of levels. For example, it is useful to understand the complexity of legal system in the host country. Nevertheless, that knowledge not always can protect a firm from sanctions imposed in the country. Therefore, firms must be made aware of the contradictory expectations and requirements in the international arena.

Managers cannot afford ignoring rules and regulations by which they conduct international business transactions. Many of the laws and norms do not relate to international business but nevertheless, they can have a serious impact on the abilities of a firm abroad. For example, legislation on the minimum level of wages is of importance to international firms which use production with hired labor.

Another important aspect of international law impact is sanctions. Sanctions and the embargo, which are used in the context of government action, distort free flows of goods, services, ideas for political rather than economic goals. As a rule, sanctions are composed of specific coercive trade measures such as ban on high technology. For example, the United States imposed sanctions in relation to some countries prohibiting the export of weapons from them. The U.S. has begun to implement the embargo against Cuba. All trade was banned. For the better understanding of sanctions and the embargo, it would seem appropriate to consider the legal justification according to which they were imposed.

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The economic sanctions and the embargo have become the main instruments of foreign policy for many countries. They are often imposed in the hope of changing the current government of the country or at least to change its policy. The reasons for changes were different from the observance of human rights to attempts to contribute to the promotion of nuclear disarmament. Idea of economic sanctions has once been included in the international law in accordance with the Charter of the United Nations but a greater emphasis was placed on ensuring the implementation process. Sanctions are mandatory in spite of the fact that each permanent member of the Security Council can put a veto on their implementation. The Charter also allows sanctions as the action of regional institutions such as the Organization of American States, the Arab League, and the Organization of African Unity. Thus, it can only be made with the authorization of the Security Council.

Sanctions usually mean significant loss for the firms. Scientists state that economic sanctions in the United States will cost up to $20 billion each year. Loss of money in this industry is the question of compensation for domestic firms and industries. However, now sanctions are slowly introduced or are made less expensive for firms businesses and their further chances for success.

Countries may issue special laws and regulations to ensure that the international business behavior of firms was in the moral and ethical boundaries.

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One of the main areas in which the nations try to regulate the international business involves boycotts. Thus, for example, the Arab nations have developed “black list” companies, which were working with Israel. In addition, the Arab customers often require guarantees that products which they will acquire are not manufactured in Israel. Furthermore, a supplier company should not have any business relationship with Israel. The purpose of these actions is to impose a boycott on the business with Israel.

The United States of America and Israel have their trade relations. Thus, the United States adopted laws against boycott to prevent the possibility of firms to make such boycotts. Under the law, the government of the United States must be informed if the firm had announced the boycott, large fines, and denial of export privileges.

Final issue is a problem of rules of conduct and ethics. Public concern grows about such things as the protection of the environment, global warming, pollution of the environment, and moral behavior. However, these issues have a different value in each country. Generally, firms prefer to conduct business in the country with a stable and friendly government but such government is not always easy to find.

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