International Market Integration Barriers

Background of financial markets

From the academic perspective of Anderson (2017), the international financial markets could be identified as five in number. These are the market of foreign exchanges, the currency market including the Eurocurrency segment, the credit market, the bond market including the Eurobond market and the International stock markets. In this context, the regional financial markets are influenced by various external aspects such as tax differentials, quotas, immobility of labour, trade tariffs, costs of communication and differences in the financial reporting processes, concerning the prospects of integration of these into the global market format. Such factors are generally viewed, as has been outlined by Antras and Foley (2015), to be the barriers which prevent the local or regional markets from achievement of integration. The leniency or conduciveness in such aspects could lead to the facilitation of such integration efforts. This could be viewed from the perspective that such barriers could as well facilitate unique opportunities for markets related to particular geographic regions, such as that of China, which could lead to greater foreign direct investment attraction. In this context, it is always of foremost significance to outline the motives behind the investment processes in the global financial market scenario. These are as the following:

1: The primary objective of investment of growth finance capital in the global financial as well as in foreign markets is to gain the advantage of the favourable and conducive conditions related to investments.

2: The expectation of foreign currencies becoming of greater value in comparison to the investment currency is another of such reasons.

3: The reaping of the benefits related to the capital investment opportunity diversification scenario in the international financial markets is also significant in this respect.

4: Another reason for the creditors to providing credits to the emerging segments of the global markets is the capitalisation prospects on the greater foreign interest rates.

According to Baldwin (2016), the relative comparison of the flow of foreign cash and credit flow relating to Multinational Corporations could be segmented into four different classifications, each of which has the necessity to utilise financial exchange markets. The initial one is the classification of foreign trade which involves the generation of foreign cash inflows while undertaking of imports which initiates outflow of cash. The second one could be identified as the Foreign Direct Investment which involves the outflow of cash for the acquisition of the foreign assets to sustain and further generate the future inflows of capital and business revenue returns. The third classification is the short-term investment ventures which could be alternatively understood to be the financing of the foreign securities markets. Such a market could be generally reflective of the utilisation of the Eurocurrency market segments. Finally, the fourth classification could be acknowledged as the longer term based financing involving the Eurocredit, Eurobond and stock venture markets.

Standards set by WTO and regional trade agreements

The standards set by the WTO are mostly reflected in the agreements with the regional and international trade entities and such standards of financial operations consequentially cover a large scope of activities. Such a range involves the agricultural sector, textile and weaving sector, the telecommunications and banking sectors, purchases undertaken by the different governments from the international markets or from other governments, the industrial standards relating to product safety management, regulations concerning quality and sanitation, intellectual property rights etc. Out of this varied range of aspects, Blecker (2016), has outlined certain fundamental principles which could be observed to be similar concerning the various agreements relating to differential sectors. Such principles, as has been noted by Busch, Bauer and Orlitzky (2016),could be understood to be the foundation on which the multilateral system of trading and exchange has been based. Furthermore, the core objectives of WTO, which could be precipitated through the regional trade agreements, could be understood to be the following:

1: Perpetuating the trading practices without discrimination

This standard involves the practice of the establishment of the Most Favoured Nation (MFN) status on particular national economies of choice. This prospect involves the principle of treating all the economies in an equal manner. According to Chittoor, Kale and Puranam (2015), it is not possible for the actively trading countries to discriminate in between their different trading partners. The focus is on formulation of accessibility of the MFN status to all of the trading partners of any particular economy. This involves the granting of special favours, such as lesser customs duty, to all of the trading partners who could be members of the WTO if such status could be granted to one of the trading partners. According to Cohn (2017), the significance of this MFN status related equanimity of practices could be determined from the fact that the General Agreement on Tariffs and Trade (GATT) first article outlines the necessity to equally ascribe the MFN status to all of the trading partners. GATT governs the trade through goods and services internationally. Cottier (2015) has also outlined that the MFN status and the related conditionalities are considered as priorities in the Article 2 of the General Agreement on Trade in Services (GATS) as well as in the Article 4 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is notable to take into consideration that in both of the agreements, the principle has been evaluated and determined in a considerably differentiated manner, however, the core approach is similar. According to Foley and Manova (2015), these three agreements, involving GATT, GATS and TRIPS, provide coverage of all of the primary trade sectors controlled by the WTO.

2: Negotiating free trade through gradual means of removal of trade barriers

According to Gadbaw (2017), the most effective and obvious method of either lowering or complete removal of trade barriers is through encouragement of free trade. In this context, the barriers to trade could be identified as the tariffs and customs duties, quotas and import bans which contribute towards the restriction of the goods quantities in selective manners. Apart from these, the variations of exchange rates could be considered to be effective barriers to free trade. Goldstein (2017) has stated that there have been eight different rounds of trade negotiations since the stipulation of GATT in 1947-48. The ninth round of negotiations also was held at Doha under the presiding authority of the Doha Development Agenda. The initial considerations had been on the reduction of tariffs and customs duties on the various imported merchandises. As a direct outcome of such negotiations, the reduction of the tariff rates on the industrial goods could be observed to have brought such tariff rates down to 4% in the industrially developed countries since the mid-1990s.

3: Infusing predictability through transparency and biding processes

This process, as per the observations of Hazari (2016),involves the prevention of raising of tax or trade barriers since this could provide the businesses with a much clarified approach to the realisation of the opportunities which could be accessed in future. The elements of predictability as well as stability are key in this context since these ensure that no such trade barrier could be erected in future and also could attest to the administrative and financial commitment to the facilitation of global free trade on part of the individual nations. () has outlined three specific outcomes of such predictability and stability in the manner of encouragement of investments, the creation of greater job opportunities and the enabling of the consumers to completely access the benefits associated with fair competition amongst different business organisations. Such benefits are acknowledged to be greater options of purchasing choice and lowering of prices further. Ultimately, the trading mechanism which involves multilateral operations, could be comprehended to be a system through which the governments generally attempt to ensure predictability through stabilisation of the existing business environment.

4: Promoting of fair competition

According to Howse (2016), WTO is often identified as an institution which instigates the application of free trade policies. However, this claim could not be considered to be a completely accurate claim. This has been stressed upon by the research perspectives of Johns and Pelc (2018), with the suggestion that WTO permits some measure of tariff imposition albeit in the most limited of circumstances and this entails the institutionalisation of various measures of protection as well. Finally, the promotion of fair compensation could be outlined to be nothing but an attempt, on part of the WTO to perpetuate a series of different rules and regulations which could be dedicated to ensure the most open, fair and unadulterated measure of competitiveness within any national economic structure.

Capital allocation within domestic economy

According to Leamer and Stern (2017), capital allocation could be understood to be distribution and allocation of the surplus profits in an appropriate manner which could produce the best and most effective outcomes in terms of trade and business prospects. Such process involves the issuing of the special dividends and increment of the budget for different management purposes. Ma, Tian and Andrew (2016), has stated that generation of positive flow of cash is definitely a satisfactory objective development, however, the challenges remain so as to determine the best methods of capital resource allocation. The primary objective in this regard is to maximise the equity of shareholder and yielding of the most coveted benefits. The domestic capital allocation instruments are mostly the retuning the capital to the shareholders through dividends and the repurchase of the stock shares. Another instrument is the growth initiative investment through incurrence of the organic growth expenditures. The underlying rationale in this regard is the expansion of the product and service lines into new market horizons as well as acquisition of the latest technology based instruments for the purpose of such business expansion. Involving the research perspectives of MacLaren (2016),obtaining the domestic economic capital stock measurers is related to the determination of capital formation through methods utilised by WTO. Such methods require the application of the equation of structural investment on production based theoretical constructs. Matsushita et al (2015) has implied that optimal investment could imply increment of investment in the industrial sectors which could be expanding and declining investment could categorise the decline in the investment sector based industries. The allocation of capital in the domestic economy, from the standardised WTO approaches, is primarily conceived to be the measurement of growth in the value added industry to signify the growth in the GDP. The accuracy of this method is incumbent on the measuring of the gross capital formation so that the growth in the investment and capital flow could be determined through accurate means as well. Since this study could not take into account the data statistics concerning depreciation since the availability of such estimation is constrained from the perspective of the research scope, the following equation has been utilised to demonstrate the WTO standardised process of internal capital allocation for the purpose of growth estimation.

In this equation, gross capital formation is represented as I, V has indicated the added value, ‘i’ has represented the index of the domestic industries, the index of the countries has been represented by ‘c’ and the time or year has been indexed as ‘t’. From a statistical perspective, this equation is representative of the format of slope estimation of the internal capital allocation requirements and the associated trends through the measurement of elasticity of such a process. More definitively, as per the standardised procedures practiced at WTO, the evaluation process measures the extent to which the ‘I’ of the domestic market or economy of the respective countries or ‘c’s could have either increased in terms of growing resource allocation in the form of investment within the domestic market or the other way round.

Capital allocation within international markets

In the context to the investments in the international markets, including the private equity fund based market investments, the business ventures generally contribute their capital to the funds which could hold promise of diversification on a global scale and not simply get confined within the local investment scenarios. Melvin and Norrbin (2017) has suggested that capital allocation in the international markets involves investment in the emerging as well as in the developed markets. The three crucial elements in this regard are the costs, risks and return on investment prospects which determine the extent and measure of allocation of capital of any fund on the global business scenario. Regarding investment and capital allocation in the emerging industries and economies, it is always crucial to utilise various methods of investment. Some of these are direct purchase of financial assets from the domestic market stocks, utilisation of country funds in the manner of setting up of deposit institutions to hold the mobilised capital and financial assets of which one example could be global depository receipt and the purchasing of the financial assets of particular emerging countries such as China directly from the international markets. The lesser institutionalisation of the emerging markets could assist in the mobilisation of international investment funds. Another aspect, which, the WTO stresses upon is the management of the return risk trade off which further dictates the merits of investing in any emerging market economy. The problem lies in the equal investment of capital throughout the global market regions and this leads to greater heterogeneity in the overall scenario of capital mobilisation. This attests to the noticeable differences which could arise from the comparison of regional market based data concerning the domestic capital markets. In this context, Robinson (2018) has noted that amongst the emerging markets, the capital markets of East Asia, predominantly that of China, have been developing swiftly.

Evaluation of the emerging economy of choice

Stewart and Shadikhodjaev (2017) have stated that accession of China to the WTO has extensive and fundamental influence on the domestic and the international capital investment markets. Global opportunities of export and investment in China have increased considerably. In case of the developed economies such as the United States of America, the application of tariffs to the Chinese exports has been consistent since the 1980s and annual renewals have been absent from such practices. China has also been exempted from the quota based restrictions under the Multi-Fibre Arrangement since such an arrangement has been progressively phased out by the WTO Agreement on Clothing and Textiles so that emerging market economies such as China could be enabled to compete freely within the global markets involving apparels and clothing. The progressive reformation process, on part of the provisional commitment of the Chinese towards maintaining the free trade agreements within the working framework of the WTO arrangements, as has been stated by Vernon (2017), has contributed in the consistent reduction of the tariff and non-tariff barriers within the domestic Chinese market. This has culminated in the induced increment of the goods and services exports from China which has been estimated to be worth $ 21.3 billion. This could be better explained through the utilisation of a Partial Equilibrium Model (PEM). This model had been also utilised in the report named measuring the Costs of Protection In China which had been compiled by the Institute for International Economics. The PEM has been utilised by the institute to outline the future prospect that China would be continuing to consecutively reduce the barriers of import as a consequence to WTO accession. The objective is the promotion of domestic restricting of industries and growth of the internal markets.

Critical evaluation of hurdles and challenges faced by China regarding trade policies and industrialisation

According to Wolfe (2018), commitments to the WTO have deepened and accelerated the economic liberalisation process of China. This has been achieved through formalisation of the Chinese commitments within WTO. However, resistance has also emerged from the domestic sectors which have been affected. The evolution of the Chinese internal market under the aegis of WTO directed policies has provided the foreign direct investors with greater predictability of the commercial barriers of the Chinese economy. For the identification of the hurdles and challenges encountered by the Chinese economy under WTO regulations, the GATS could be studied to have outlined three specific elements. These are the general disciplines and obligations, the rules and regulations involving particular sectors and the specific commitments of WTO individual members concerning the promotion of unfettered access to the domestic markets. Thus, according to Vernon (2017), the challenges and hurdles for China are as the following:

1: Determination, both on the temporary as well as on the permanent terms, of appointing of MFN status on particular trading partner states. This involves the considerations of WTO dictates of non-discrimination.

2: Mobilisation of internal savings to develop the limited number of outlets of export progression, especially while having to compete with bigger economies in the foreign capital markets.

3: Having to consistently balance the capital adequacy measures with those of the allocation criteria management so that productive investments of generated finances could be diversified.

4: Monitoring of dimensions of the internal capital intensive markets so as to ensure that envisaged productivity could be realised.

5: Transformation of the risk management mechanisms through which the aggregation process could be utilised to mitigate risk propensities.

6: Maintaining transparency through setting up of the points of enquiry within the Chinese bureaucracy to provide access to the regulatory mechanism which governs the internal economic policies of China. This would have to involve the notification to the WTO regarding any change of the existing governance mechanisms.

Conclusion

The preceding study report has deliberated on the management of international trade and finance through the organisational perspective of WTO. The emphasis has been on the evaluation of the working of financial markets in allocation of capital within the domestic as well as on the international trading markets for the purpose of investment and trade development. The emerging economy of China has been also focused upon to determine the challenges such an economy could be encountering in this regard.

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