There is an intimate relationship between politics and economics. Though Politics is of great importance in governance, it has been observed that economic issues function autonomously and contradict political doctrine.
International trade laws reveal how some of the countries circumvent political restrictions to benefit their economic and monetary goals. Normally no country imposes tax on exports; but the US can impose value-added tax on exports, if it suits it.
As a country becomes more politically developed, it wants a higher standard of living, which brings in new rights and conditions that raise the cost of living, which leads to rise in cost of labour and trade.
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Trade agreements allow countries to continue trade more autonomously. But multilateralism, being not able to fulfil aspirations, is overshadowed by regionalism. These multi-country agreements (like NAFTA) impact upon the way the limits on volume, value, tariff and country specific protection against market dumping and flooding are implemented and administered.
But, it has also been observed that economic integration efforts have not been successful to harmonise differences as every nation may be morally offensive to another. The EU controversy of “jam versus marmalade” is an evidence of it.
Today, nation-states are in competition with each other to attract more and more of FDI. The MNEs while deciding about their location decision do take in account of the direct and indirect taxation of the host country. If other factors are attractive at a particular place, they can avoid higher tax through tax heavens – Hong Kong has individual income tax at 2 to 20% or 16% of gross income and corporate tax at 17.5%.
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The US granted ‘Most Favoured Country’ status to China since 1980. Because of China’s veto power in the UNO, increasing N-power and its growing economic power have deterred the US to withdraw MFN status despite human rights abuse because it will threaten expatriates living therein and the adverse impact on the US economy.
Joint ventures have been very popular due to globalisation. But not all the JVs have been successful. They had to be wound up through a buy-out, shoot-out or a complete dissolution. Carlsberg of Denmark and Heineken of Germany had to withdraw from Myanmar due to protests from human rights activists and a threat by consumers of other markets to boycott.
Often joint ventures have noncompetition clause. Many of the joint ventures have been in dispute over patent rights. Danone of France had a bitter taste with its JV with Britannia of India and Wahaha group of China. Host country favoured its own companies.
With regard to employment laws, in South Africa it is said that “if the law fails to produce the desired outcome, it should be set aside, manipulated or ignored. The rights and obligations of workers and employers depend upon the local laws.
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Now there is an increasing appreciation of equal pay for women and many women are occupying higher management positions. In countries being ruled by military junta, law takes a rapid shift due to whims and fancies of the rulers.
Environmental protection has become a buzz word for all the states. However, a foreign company often seeks out lax environmental policies and laws of a less developed country.
Due to distribution of economic activities, now smaller countries do not depend on larger countries for trade and stimulation but are seeking to establish themselves as emerging markets in world trade. It has been observed that doing what is ethically correct and socially desirable gives MNEs a better chance of succeeding in the long-term.
With the advent of WTO, it is said that international trade is free from protectionism. But the reality is that protectionism is not over. In the garb of protecting national defence, to help infant industry and providing a level-playing field often protectionism is practiced. But IT has blurred the geographical barriers and diminished profit margins.
Politics of expropriation and confiscation has now become a thing of the past. Cuba had confiscated US and UK refineries when they refused to process Soviet oil. But the sanctions are still used to advance foreign policy objectives.