Kenneth R. Szulczyk
exports as a means of control or as a bargaining chip. Moreover, a government restricts control
over energy, communication, and agricultural industries. For example, Europe and the United
States heavily protect its agricultural markets because the political leaders are afraid a foreign
country could withhold food exports as a means of control.
A government could prevent international investment or stop foreign companies from
entering and operating within the country. A government could use the Infant Industries
argument to protect its new, young domestic industries. For instance, the United States protected
its manufacturing industries during the 18th century, allowing them to thrive and grow until they
could compete with Europe. Consequently, a government hinders foreign investment or restricts
foreign enterprises from operating within its borders as a government protects its own industries
and companies.
A government might impose tariffs on its imports. A tariff boosts the product’s market price
while it reduces its imports. In some cases, governments in developing countries impose high
tariffs because the governments need the tax revenue. Governments in developing countries
usually have tax evasion problems, but they retain tight controls over their air and seaports.
Thus, they can collect tariff revenue as products move through the ports. Some foreign
companies might invest within a country to circumvent the trade barriers.
A country could join a trade bloc with other countries, forming a free trade zone.
Accordingly, members of a trade bloc allow free trade between members while non-members
face trade protection. Hence, a foreign company invests within a country to not only circumvent
a trade barrier, but also gain more access to consumers who live within the trade bloc. For
example, the North American Free Trade Association (NAFTA), a free trade zone between
Canada, Mexico, and the United States, allows free trade among members, but each country
erects its own customs to the outside world. The European Union (EU) is a common market,
allowing the free flow of labor, products, services, capital, and money between members, but the
EU government erects a single customs to the non-EU members. Consequently, foreign
companies have an incentive to invest inside the trade bloc gaining more consumers.
A government can impose many conditions on foreign companies, which are:
Condition 1: A government forces foreign firms to use local companies, purchase local
resources and supplies, and hire local labor. Furthermore, a government could restrict or limit
the number of expatriates a foreign firm can hire. Usually, the foreign company hires expatriates
from its home country for upper management and highly technical positions at the firm.
Condition 2: A government could be in a position where a foreign company has a pipeline,
highway, or electrical wires pass through the government’s territory. Consequently, a
government bargains for control by threatening to shut down operations. For example, Sudan
split into two countries. South Sudan possesses and extracts petroleum while the petroleum
pipelines pass through North Sudan to the seaports. Thus, North Sudan can threaten to shut
down the pipeline and bargain for a portion of profits from South Sudan.
Condition 3: A firm or government strives for control over the international markets. For
instance, the members of the Organization of Petroleum Exporting Countries (OPEC)
nationalized and seized the petroleum companies that operated within their country. Then OPEC