TUNNEL EFFECT IN TREATIES

Trades have undergone a sea-change in their characteristics and variety over the years. The consumer’s demands today are no longer the same what they used to be yesterday. Even the markets have adapted themselves accordingly. Moreover, the change itself is not at all constant. It changes its pace depending upon the circumstances. Amid so much vulnerability and instability, it will be worthy enough to discuss constructive role of trades in promoting development of an economy in particular and of the world in aggregate.

BACKGROUND

“Need” had been a prime and sole cause for buying and selling on the basis of barter system for centuries. But with evolution of kingdoms, desires and luxury items also took place in the list. Unfortunately, after industrial revolution in London and before the end of World war – II, even the laborers (human beings) were added to such lists. Nevertheless, trades have always been a subject of debate and have faced protest at most of the times. Now – a – days, these are divided into three categories by nature. First is the system of buying and selling of goods which had been in place for several centuries. With establishment of stock exchanges, buying and selling of financial products began. Third is rendering of services in exchange of a particular fee for a particular period. These trades can significantly increase the productivity of an economy if executed in the right manner. Tunnel effect – a scientific phenomenon studied by Burke in the year 1952 is an apt concept in understanding and simplifying underlying criticalities of trades and issues related with them.

SIGNIFICANCE OF IMPORTS AND EXPORTS

  • Competition: As the number of trades increase, competition for harvesting its benefits also increases provided entry and exit in the market are not restricted.
  • Friendship: Trades promote peace. Any kind of exchange between two countries opens the gates for talks.
  • Cultural Exchange: Public of the countries involved in trades need to understand each other’s culture in order to communicate effectively. This kind of mutual interaction indirectly enriches their cultures.
  • Opportunities: Opportunities of business are directly proportional to trades. As the number of trades increase, more and more people tend to be a part of economic productivity and as a result, employment is bound to increase.
  • Equalization: Trades act as a stabilizing agent by reducing “Demand – Supply” gap.

Increased competition, friendship, cultural exchange, opportunities and meeting of demand and supply in totality promote development.

CHALLENGES

Firstly, formations of Cartels like OPEC, Swiss banking cartels etc. empowers them to regulate prices of a specific commodity irrespective of actual demand and supply. Secondly, protectionism policies adopted by many countries like France and USA in an order to safeguard their domestic jobs from foreigners tends to overlook their indirect contribution. Thirdly, deadlock on issues of global importance like agricultural subsidies, environment etc. between developed and developing nations in Doha round are a great cause of concern. Lastly, other than tariff; dumping and currency pegging are the next two most serious challenges in the front of WTO as they promote unfair practices and cause damage to other economies.

UNDERSTANDING THE ROOT CAUSE

The scenario resembles exactly with an interesting yet controversial phenomenon of physics called ‘Tunnel Effect’ which advocates wave nature of light. According to it, if a wave of light is projected on an object then some of its part crosses that object and the rest of it gets reflected back. Similar is the case of an economy. Some of the trades projected towards the barrier of laws and regulations of an economy could enter through it in the form of import and the rest are sent back. The imports which could not take place due to barrier cause opportunity cost particularly to the exporting country as represented in the diagram below:

Figure 1: Three Dimensional Barriers

 

The 3-D barrier here represents rules and regulations applied by the government of a country on its economy. One of its dimensions is the government’s (ruling party) agenda itself, second belongs to the public which empowers the government to rule and third is the middlemen or businessmen whose growth indicates success of co-ordination, co-operation and collaboration between the other two dimensions.

SOLUTION

Figure 2: Power hierarchy in an economy

It is to accept that formulation of a universal solution for all issues may not be possible. Still, the study of 3D barrier as described above can assist us to handle major challenges. As shown in Fig. 2, government holds highest power within its few members. However, it is politically dependent on public desires in the form of their votes. Hence, it needs to follow the public indirectly (at least in democracy) if it wants to retain its chair.

It is the opportunity cost which if reduced can promote development. This can be done if WTO spreads awareness among middlemen or businessmen of various countries about how they are incurring silent losses in the form of opportunity cost. The need is to shift focus from the helpless governments to the major GDP contributors because a government cannot afford to neglect their demand. No doubt it is difficult to talk with so many middlemen but handful corporate giants can easily be persuaded.

It is to conclude that WTO plays a dual role of promoting free and fair trades and restricting unhealthy competition. Countries do take undue advantage of the loopholes arising out of the bifurcation of these two powers. Hence, it is the voting methodology by which all the members of WTO can arrive at a consensus on whether an act is morally right or not.

REFERENCES

  1. Dr. Thomas Zettler – “The Tunnel Effect” (http://curvebank.calstatela.edu/tunnel/The%20Tunnel%20Effect.pdf)
  2. Raymond V. McNally – Problems of Cartel Policy, American Journal of Economics and Sociology Volume 8, Issue 2, pages 107–115, January 1949
  3. Aradhna Aggarwala – Trade Effects of Anti-dumping in India: Who Benefits? The International Trade Journal, Volume 25, Issue 1, 2010
  4. UNDERSTANDING THE WTO: THE DOHA AGENDA – The Doha agenda (http://www.wto.org/english/thewto_e/whatis_e/tif_e/doha1_e.htm)

Contributed by Manish Gupta(Batch 2010, IBS Jaipur)

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