Many areas politics and law are not immutable. Viewpoints can be modified or even reversed, and new laws can supersede old ones. To achieve change, however, some impetus for it – such as the clamors of a constituency – must occur.
The international manager has various options if rules are disliked.
One high-risk option is to simply ignore prevailing rules and expect to get away with doing so. A second option is to provide input to trade negotiators and expect any problem areas to be resolved in multilateral negotiations. Drawbacks are that this is a time-consuming process, and issues remain outside the control of the firm.
A third option involves the development of coalitions and constituencies that can motivate legislators and politicians to implement change. Even simple changes, such as the way key terms are defined, can positively influence the business environment. Consider, for example, the change in terminology used in the United States to describe trade relations between two nations. For years, attempts to normalize relations with China by granting “most – favored nation” (MFN) status drew the ire of objectors who questioned why China deserved to be treated in a “most favored” way. Lost in the debate was the fact that the term “most favored nation” was taken from WTO terminology and indicated only that China would be treated like any other nation for the purpose of trade. When the term was changed to “normal trade relations,” tension eased.
Beyond the recasting of definitions, firms can effect change in other ways. A manager may, for example, explain the employment and economic effects of certain laws and regulations and demonstrates the benefits of change. The firm might also enlist the supporting help of local suppliers, customers, and distributors to influence decision makers. The public at large can even be involved through public statements or advertisements calling for action. Developing coalitions is not easy task. Companies often turn to lobbyists for help, particularly when addressing narrow economic objective or single-issue campaigns. Lobbyists are usually well-connected individuals and firms who can provide access to policymakers and legislators in order to communicate new and pertinent information. Brazilian citrus exporters and computer manufacturers, for example, use U.S. legal and public relations firms to provide them with information about relevant U.S. legislative activity. The Banco do Brasil has used lobbyists to successfully restructure Brazilian debt and establish U.S. banking regulations favorable to Brazil.
Although representation of the firm’s interests to government decision makers and legislators is entirely appropriate, the international manager must also consider any potential side effects. Major questions can be raised if such representation becomes very impactful and overt. Short-term gains may be far outweighed by longer-term negative repercussions if the international firm is perceived as bullying or exerting too much political influence.
Based on Fundamentals of International Business, 3rd. by Michael R. Czinkota, Ilkka A. Ronkainen, and Michael H. Moffett.
Michael Czinkota (email@example.com) teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent. His latest book, forthcoming in October 2018, is “In Search for the Soul of International Business”.
My latest book is Fifth in my “As I…” series, “(Such as ‘As I was thinking,’ As I see it’..) this latest title is: .As I Search for the Good Soul of International Business and Trade”. I address the need to consider and focus on the good soul and how such consideration needs to reflect the spiritual and emotional links to core issues of international business and trade. I propose that a responsible focus on the soul plays a key international role in strengthening freedom, progress and quality of life.
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Offsets: One answer to International Trade Imbalances
Michael R. Czinkota
When foreign governments shop for defense supplies, they are not solely motivated by price and quality. In light of the trade balance effects of major acquisitions such as aircraft or defense products, international customers often require U.S. vendors to purchase goods from them in order to “offset” the trade balance effects large purchases have on their trade flows. In light of enormous U.S. trade deficits, it is time for the United States to reciprocate with offset demands of our trading partners. Frequently we find ourselves in conditions where foreign sales to us are major and our sales to importers and their nations are minor. This leads to trade relations which are out of kilter. U.S. firms have accommodated foreign offset demands for decades. Now is the time when some give-back by our trading partners is the right medicine to improve world trade imbalances.
Offsets are industrial compensation arrangements demanded (so far only) by foreign governments as a condition for making major purchases, such as military hardware. Sometimes, these arrangements are directly related to the goods being traded. For instance, the Spanish air force’s planes – American-made McDonnell Douglass F/A-18 Hornets – use rudders, fuselage components, and speed brakes made by Spanish companies. U.S. sellers of the planes have provided the relevant technology information so that Spanish firms are now successful new producers in the industry. Under offset conditions, U.S. companies also often help export a client country’s goods go international, or even support the performance of tourism services. For example, the ‘Cleopatra Scheme’ allowed foreign suppliers to Egypt to meet their agreed upon offset obligations through package tours for international tourists.
In 2015, U.S. firms entered into 38 new offset agreements where they agreed to cause purchases with 15 countries valued at $3.1 billion. In 2017, the total U.S. trade deficit was $566 billion after it imported $2.895 trillion of goods and services while exporting $2.329 trillion. No country has a bigger trade surplus with the United States than China. In 2017, the U.S. deficit with China climbed to its highest level on record, amounting to a gap of $375 billion.
Eliminating imbalances is a core component of the Trump administration’s international economic policy. One policy approach has been the threat of tariffs against China,. One effective supplemental strategy could be the instigation of offset agreements with major trade surplus nations.
For instance, many American imports that contribute to the trade deficit are capital goods, such as computers and telecom equipment. An offset agreement between China and the United States could require China to use American-made components, perhaps even from Chinese owned plants. An example could be the export of Smithfield ham from the U.S. to be served in company cafeterias in China. Then there are excellent opportunities for Chinese tourists, particularly if equipped with high-spend budgets.
The American trade deficit is not easily resolved. Government would be well served to explore non-traditional options in order to develop more than one fulcrum for leverage. New use of offset agreements – which have provided our trading partners with past success at our expense – could help revitalize American industries and bring a new sense of balance to trade relationships. Our government should encourage offset commitments by foreign firms and countries who sell a lot to us. America deserves to reap the benefits!
Michael Czinkota (firstname.lastname@example.org) teaches international business and trade at Georgetown University’s McDonough School of Business and the University of Kent, U.K. His key book (with Ilkka Ronkainen) is “International Marketing” (10th ed., CENGAGE). Lisa Burgoa contributed to this commentary.
My colleague and former student Dr. Valbona Zeneli, recently, published her book IN MY OPINION. The book presents 39 short articles about the core issues of European security, international trade, and the Western Balkans. She also uses cartoons with each topic. All of which have been drawn by her 12 year old son.
I had the pleasure to write the Foreword of the book as follows:
I like this book. The many articles of Dr. Zeneli provide a 360 degree view of the world. This collection of articles offers new decisions and policies that impact current events in our turbulent times. Equally important, Dr. Zeneli recognizes the fact that even those interested in a topic may not have the time to read and reflect on many lengthy academic treatises. The subsequent risk for the world are decisions made by policy makers, business executives, and researchers themselves, which are based on very limited information, fragmented insights, and very limited overall comprehension.
With the work presented here, Dr. Zeneli provides an answer to this problematic. She identifies core international policy and trade issues and addresses them with depth and parsimony, thus helping to create a new bedrock of understanding. Her answer is the new use of short and pertinent commentary.
Her background provides unique strength and capabilities to Dr. Zeneli. She was born and raised in Albania, and educated at leading global institutions. Combined with her exposure to practice, she is able to bring to her analysis and writing a rare combination of academic expertise and “real world experience”. Her training in economics and security studies took her from Italy, to the United States, and to Germany at the famous George C. Marshall European Center for Security Studie.
I have known Valbona for 15 years, since she was my students. in International Marketing class at Georgetown University in Washington D.C. she excelled then and ever since I have enjoyed working with her in researching and writing on current important in the fields of global trade, international marketing, trade agreements, corruption, and international terrorism. Her extensive exposure to and participation in policy, business, and academic research allows her to glide easily between the three worlds, and to understand different perspectives. Her international experience at the Marshall Center, where she works with leaders from all continents to discuss current security issues and future trends, is clearly demonstrated in her comparative comments, which allows readers to look at different perspectives.
Valbona Zeneli has written numerous research papers in her academic life, and has been a contributor of editorial commentary in the international business and security field. Her work has been published in well-known outlets such as The Diplomat, The Globalist, The National Interest, Atlantic Community, The Japan Times, SriLanka Guardian, Affari Internazionali among others.
Dr. Zeneli’s focus on economics, governance, and the interlocking aspects of world trade matter in these turbulent times. Her ability to capture current events and connect them to the foundation and requirements of governing and responsible decision making is truly special. This is where her skill shine best. Her ability to make sense of what makes societies successful, or causes them to fail, is both subtle and effective. By examining her thinking and it’s development over time, we are treated to key insights into the ongoing rapidity of change and the consequences of bad decision making. There articles provide us with key lessons.
She is a strong supporter of European integration of the Western Balkans, and a believer oin open trade and strong transatlantic bonds. A Europeanist and internationalist at heart, these feeling are evident throughout her writings.
Of equal importance is the fact that the articles presented here illuminate the mistakes to be avoided in a period of our history where decisions made with rapid reaction but often based on poor and even deceptive information are becoming the norm. Zeneli argues with a constant key take-away in mind. We live in a globalized world and we are highlyinterconnected.. Policy decisions are seldom exclusively national but have regional and global repercussions. Zeneli’s collection is a reminder of the butterfly effect where seemingly local actions can lead to major shifts even far away. Events such as poor governance, corruption,
migration, and the like in the Balkans can have a far reaching impact in Europe and beyond. Trade policies need to be separated from emotions with a heightened sense of clinical rigor and honesty and honor. Already today, but even more in the future, will these concerns be the bane of society. They therefore require our concentrated attention.
Dr. Zeneli’s articles are accompanied by a cartoon. With the artistic support of her eleven-year old son this book offers drawings reflecting both simplicity and understanding of her commentaries, appealing to the reader with words and sights, and and adding the dimension of humor to complicated security issues.
Valbona Zeneli’s articles capture what are still current events but she tells a story that will endure. I therefore encourage you to go to your nearest book store and buy this book. It is worth your effort to do so, since a systematic reading of the material presented, your reflection of the ongoing implications and your review of the cartoons, will likely make you the smartest person in the room when it comes to discussions of security, regionalism and trade. My congratulations go to Dr, Valbona Zeneli for the fine work she has conducted.
Michael R. Czinkota
Washington D.C., January 2018