Anton Kerkenezov Economists argue that the operation of markets across borders improves wellbeing.

Give three examples of ways that Governments have acted in the last five years to limit free trade or restrict foreign investment. Analyse the motivation behind these actions. The operation of markets across borders gives consumers access to efficient services and high quality goods at competitive prices. This gives consumers more choices which increase living standards and wellbeing. I chose this title as I have a keen interest in international trade, big nations reluctance to remove trade barriers and the recent protectionist trend due to the economic crisis. I will examine 3 examples of Governments; France, Russia and the U.S, acting to limit free trade and restrict foreign investment for the benefit of Government officials and policy. Protectionism is the policy of protecting domestic industries against foreign competition by means of tariffs, import quotas, or other restrictions on foreign competitors. (www.brittanica.com). Jo Evans (2009) defines a tariff as an additional charge per unit of production when the good is sold. and a quota as a quantity restriction on imports. The main focus of the essay will be to show what motivated France, Russia and U.S. to limit free trade and restrict foreign investment rather than to improve wellbeing.

In January of 2007, the Russian cabinet approved a draft bill on restricting foreign investment in strategic sectors such as aerospace, military, oil, gas and nuclear power industries. On the 21st of March 2008 the Duma passed the legislation. Russia is a very nationalist country and the passing of this bill only put what was already in practice into writing. The significance here is that Russia is actively restricting foreign investment and preventing operation of markets across borders in these strategic sectors. Foreign

Anton Kerkenezov investment is a key feature of globalisation and therefore to restrict it would ultimately limit wellbeing as it as one of many reasons why economies grow.

Nikolai Petrov (2008), a scholar at Carnegie Moscow Centre, tells that the bill reflects a dramatic change from 10 years ago when Russia actively sought foreign investment (McCullough [2008]). With on going concerns about the sustainability of natural resources it would serve Russia best to control its strategic sectors. By keeping these sectors Russian owned, all the profits made from exports remain in Russia which gives the nation a better chance to achieve its macroeconomic objectives of a trade surplus and a balance of payments surplus. The 2007 Russian Economic report showed 64% of the countrys export revenue was generated from its oil and gas sectors (World Bank Russian Federation [2007]). Although this is not for the wellbeing of the world, it will increases the economic wellbeing of Russian citizens as there will be more money available for improving infrastructure, education and health services.

These laws were passed a couple of months before the inauguration of President-elect Medvedev on the 7th of May 2007. With a new president coming into power, especially in Russia where policy makers tried to adapt the constitution to allow Vladimir Putin to run for another 7 year term, Yevgeny Volk (2008) says the Putin administration were using these laws to solidify their influence before the May transition (McCullough [2008]). This would allow the Kremlin to strengthen its power before Medvedevs arrival therefore making in difficult to change the Kremlin. The bill therefore imbeds the Putin Administration in future foreign policy which will influence how Russia is governed.

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With huge decreases in trade tariffs and quotas, shipping industries have become an important function for globalisation. With the volume of trade increasing, countries such as Dubai entered the shipping industry. Dubai Ports World (DP World) grew very rapidly and approached the Peninsular and Oriental Steam Navigation Company (P&O) in October 2005. P&O operate a number of U.S. ports and thus presented a threat to U.S. national security when an Arab owned shipping company tried to acquire P&O.

At the time of the proposed deal with P&O and DP World most lawmakers were back in their home districts facing upcoming mid-term elections. With much of the U.S. population engulfed with paranoia due to several acts of terrorism in late 2001, Randall Beisecker (2006) argued many citizens saw an opportunity to stop U.S. ports being sold to a hostile government Most lawmakers responded on the spot to public pressure as they wanted to keep their seat in congress. For trade to be efficient, well operated ports and shipping companies are needed. By not allowing the deal with DP World and P&O to go ahead, the U.S. rejected an efficient shipping industry that would increase wellbeing by making the flow of goods into cross border markets more efficient.

If the deal was to go ahead, a United Arab Emirates (UAE) state-owned business would control key national infrastructure such as ports. P&O operates 13 out of 45 terminals at 8 U.S. ports (P&O Ports North America). With much of the news focusing on Dubai and UAEs questionable role in the war on terror, much attention was guided at threats to U.S. national security. However, this should have been seen as a lack of confidence in

Anton Kerkenezov U.S. security at ports. It was misguided due to the presence of a protectionist lobby in the U.S. because of past terrorist acts. By not allowing the deal to go through the U.S. were effectively restricting foreign investment which would have brought foreign expertise to an industry that links cross border markets.

When governments cut tariffs and quotas it generally allows cheaper foreign products to flood their markets making it harder for domestic businesses to compete. In 2005 when under pressure by the U.S. to cut its agricultural tariff, France refused. By not reducing the tariff, France limited free trade with cross border markets as foreign products would be sold at higher prices than domestic products. This will decrease the demand of French agricultural goods due to their high price but leave supply unchanged in the short run. A decrease in demand will cause the equilibrium price of French goods to decrease thus making it harder for French farmers to compete as well as decreasing the willingness to supply. This is shown in figure 1.

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In 2005 when under pressure by the U.S. to cut its agricultural tariff, France refused. By not reducing the tariff, France limited free trade with cross border markets as foreign products would be sold at higher prices than domestic products.

Philip H Gordon (2005) wrote The Common Agricultural Policy (CAP) allowed France to protect its farms from global market forces. The CAP allowed Europe to become self sufficient and a major exporter of food products. If France were to cut the agricultural tariff it would make French produced food more expensive when compared to foreign goods in the market. The subsidy given to farmers can be seen as trade protection by limiting imports. This will benefit France in terms of its balance of payments as their will be a trade surplus and increase public spending and therefore make a compelling argument against the tariff cut.

With French farms receiving subsidies, Jacques Chirac was not willing to reform the CAP and lose 9 million Euros a year which funds the agricultural subsidies stated by David Loyn (2005). The French government is therefore limiting free trade between itself and other developing nations which Gordon Brown (2005) says could create new capacity that empowers poor countries to participate on equal terms in the new economy (Loyn [2005]). By not cutting the tariff France is allowing poverty to continue but still receives 9 billion Euros a years. From a financial perspective France is keeping foreign exchange from developing countries and ploughing it into the nations infrastructure and farms.

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Another tough stand on farming is that traditional high quality food is a big part of French culture. Globalisation of the agricultural market has not only made France susceptible to bad tasting food but also to unsafe food, mad cow disease, hormone treated beef, genetically modified organisms and preservatives. commented by Jose Bov (2005) (P.H Gordon [2005]). This generates great sympathy for French farmers and gives France incentive to protect its agricultural sector.

The actions of the 3 governments have made great impacts to free trade and foreign investment. The arguments of culture and the CAP for France and her reluctance to cut agricultural tariffs are not enough to justify a diversion from the poverty question. The simple fact is that if the cuts were made, the operation of cross border markets would have allowed much progression with poverty and global economic well being. Russias laws restricting foreign investment only served to keep trade revenue in Russia and keep foreign expertise out. At a time where the environment and energy are becoming key global issues and an important determinant of wellbeing, Russias actions were selfish and isolated from what the planet and future generations need. The U.S and its hostility towards the DP World deal highlighted concerns amongst the U.S population with the strength of U.S. security systems. The prevention of the deal was not the best economic solution but a way to fill a chink in U.S border security and the war on terror policy.

In conclusion, all 3 governments acted for the wellbeing of their population and to secure future roles in government. By appeasing their populations wants the U.S and Frances

Anton Kerkenezov politicians would have generated great support especially for the U.S. mid-term and French senate elections. Russian was able to solidify the power of the Putin administration and instil its influence in the Kremlin even at a time of the inauguration of the president elect. The world needs energy, food and a way to get these two goods to where they are needed. Russia, the U.S and France have restrained wellbeing by limiting free trade and restricting foreign investment in these sectors. By doing so they have limited the growth of these sectors in other nations as well as there own. Word count: 1616

Anton Kerkenezov References: Britannica (consulted January 2009), http://www.britannica.com/EBchecked/topic / 479643/protectionism. Jo Evans (2009) European Integration: Why join the Union? University of Surrey. Lecture Notes. World Bank Russian Federation (consulted January 2009), Russian Economic Report #14 ,http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/RUSSIANFE DERATIONEXTN/0,,contentMDK:20888536~menuPK:2445695~pagePK:1497618~piP K:217854~theSitePK:305600,00.html#14 Randall Beisecker (2006) DP World and U.S. Port Security, Nuclear Threat Initiative (NTI), URL, (consulted January 2009), http://www.nti.org/e_research/e3_75.html. P&O Ports North America (consulted January 2009) Ports America Capabilities Chart, http://www.portsamerica.com/capabilities.htm. Philip H Gordon (2005) Why the French love their farmers. Yale Global, 15 November 2005 David Loyn (2005) Brown targets subsidy hypocrisy, BBC News, URL, (consulted January 2009), http://news.bbc.co.uk/1/hi/uk_politics/ 4632597.stm. Colin McCullough (2008) Russia drafts law limiting foreign investment. Voice of America News, URL (consulted January 2009), http://www.voanews.com/english /archive/2008-03/2008-03-24-voa14.cfm?CFID=98188110&CFTOKEN=72 334591&jsessionid=84301285f2ea523683c56431416f58d92f1e.