Balance of Trade: Role of World Trade Organization Essay

Introduction

The main industry in Thailand is automobiles and automotive parts which deal with production of automotive products such as vehicles and vehicle parts. The production of automobiles and automotive parts has a strong market both domestically and internationally, which is shown by the number of domestic productions, sales and foreign exports. Through Foreign Direct Investment (FDI), the industry of automobiles and automotive parts will grow due to the increase in capital and technology, low production costs and healthy competition from foreign markets. The industrial policies put in place also play a key role in the development of automotive industry in Thailand (Natsuda & Thoburn, 2013). Thailand relies on exports as it accounts for more than two thirds of its Gross Domestic Products (GDP). So, it is important to determine the balance of trade or payments and how it affects its production.

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The balance of trade or payments is a record of transactions between trading countries, and it deals with the imports and exports of a country, in this case, automobiles and automotive parts in Thailand in terms of dollars (Frenkel & Johnson, 2013). The balance of trade or payments also includes foreign investment and investment by foreigners (McCombie & Thirlwall, 2016). Positive balance of trade or payment reflects good foreign investments and the national currency of a country is appreciated (Frenkel & Johnson, 2013). The balance of trade or payment is affected by; the cost of manufacturing a product between the exporting country and the importing country, restrictions of trade, exchange rates and the availability of subsidiary products.

The balance of trade is adjusted by the country's internal price and demand and through exchange rates (McCombie & Thirlwall, 2016). An exchange rate determines the relative price of two national monies in terms of dollars and is always quoted as either buying rate, flat rate or selling rate. When there's an increase in the value of the currency, for instance, the increase of Thailand's currency in terms of dollars, it will make imports cheaper and exports expensive which will discourage foreign investment. Conversely, demand and value of the currency in terms of dollars will increase if Thailand exports more automobiles and automotive parts than it imports.

Role of World Trade Organization

World Trade Organization (WTO) regulates trading between nations. The key principles of WTO are; most favored nation (MFN) where all countries are treated equally; treating foreigners and locals equally, predictability and fair competition (Matsushita et al., 2015). It is important for a nation to understand the economies and markets of other trading nations before it starts trading with it. Thai automotive industry should be conversant with the trading systems, policies and markets of a nation before it trades with it (Natsuda & Thoburn,2013). It should perform due diligence and establish what laws are in place that affects the export and import policies (Matsushita et al., 2015). The prohibitions and restrictions put in place affects the outcome of a trade. After determining whether the conditions are favorable, then it is safe to enter into legal binding agreements of trade.

In as much as WTO regulates international trades, WTO legal principle deals with regulatory reforms of a country (Matsushita et al., 2015). For instance, WTO has a say to whatever policies and regulations set by Thailand on Thai automotive industry. Its role is to confirm whether the policies set meet the international standards of trading. The standards of international trading include production of quality products that meets the needs of the market (Matsushita et al., 2015). WTO also determines whether the export and import tariffs are favorable for Thailand's economy. The tariffs set by Thai automotive industry will determine the balance of payment during trade. High tariffs discourage foreign investors from buying goods.

Many businesses, such as the Thai automotive industry has gone beyond the boundaries of a nation to international markets.

It is essential to understand international trade and the implications that an international organization as WTO has on trade systems. The roles of WTO organization are stipulated in Article three of the Agreement establishing it (Matsushita et al., 2015). Its main objective is to ensure that the marketplace between nations is fairly competitive, gives room for future negotiations, is free and gives rules and regulations on how to settle disputes (World Trade Organization, 2017).

Member countries of the WTO have low related barriers when trading as compared to nations that independently set their trading agreements. For instance, if Thai automotive industry enters into a trade with another member state of WTO, it will follow some laid down rules and regulations that guide on how to enter into legally binding agreements. On the other hand, if Thai automotive industry was to enter into a trade with a country that is not a member state to WTO, it will be forced to enter into entirely new agreements, and this may take a lot of time before they both agree on something.

Members of World Trade Organization commit themselves to a multilateral system of settling disputes set by the organization as opposed to unilateral systems. Unilateral actions are bias to the less powerful countries and so the need for multilateral system is encouraged for fair trade (World Trade Organization, 2017). The fact that many nations have turned to WTO for dispute resolutions represents how much confidence the nations have in WTO dispute resolutions. WTO achieves it goals through; administering trade agreements between trading nations, acting as moderator during trade negotiations, settling disputes and formation and review of trade policies among other things. WTO cooperates with other international organizations such as International Monetary Fund (IMF) on economic issues. Disputes between Thai automotive industry and other member state will be handled by WTO that always acts as a negotiator between two nations in conflict.

The principles of WTO are founded on the principles of open trade which involves transparency, amicable and binding agreements, fair competition and economic reforms (Matsushita et al., 2015). WTO enables fair trade by allowing industries such as the Thai automotive industry to exercise freedom in the market by allowing them to express their bargaining powers. In the light of fair trade and trade competitions, Thai automotive industry ensures production of consumer-friendly goods that meet the needs of consumers and are of high quality.

WTO discourages economic barriers such as the tariffs imposed on goods and services (Matsushita et al., 2015). Economic barriers in the Thai automotive industry may lead to overcapacity production which has a negative impact on the industry's capital and production costs. It, however, seeks an international agreement on the rules governing and controlling foreign investment. WTO also encourages member states to join regional groupings such as ASEAN for Thailand, to come up with favorable trade agreements in the region. WTO regulates both the domestic and international trade of Thailand since it has been a member since 1 January 1995.

Business Challenges

Thailand is considered the big brother in ASEAN region for the manufacturing of automobiles and automotive. The success for Thai automotive industry is associated with the huge support from the government, good infrastructure, the strategic location and the quality of human resource. The government ensures the principles of fair trade as emphasized by the regional groupings such as ASEAN and international organizations as World Trade Organization (WTO). Thailand boasts of good infrastructure such as the national highways, expressway and motorways. It also has six deep sea ports, single, double and third track rails that facilitate the exports of automotive products. Just like any business, the automobiles and automotive parts business of Thailand faces challenges both domestically and globally.

One of the major challenges facing the Thai automotive business is the increase in the world technology and the diversity of energy (Wells, 2013). Diversity of energy has evolved from petroleum, biofuel, electricity to use of hydrogen. Need for improved technology is necessary to do away with petroleum emissions and deal with the increase in fuel prices (Wells, 2013). Thailand produces global green automotive and faces stiff competition from the international markets such as Malaysia that majors on the production of energy efficient vehicles (EEV), and Indonesia that produce low carbon emission vehicles. Another challenge is the need for the automotive parts to align with the vehicle paradigm shift.

The government regulations imposed on automotive business is another challenge that Thailand faces. Manufacturers of automotive expect changes in the regulation policies as Thailand strives to shift from carbon emission vehicles to energy efficient energy. With the introduction of energy efficient vehicles, the industry will produce cheaper vehicles to consumers and high-quality life. However, the introduction of energy efficient vehicles still faces strict regulations on investment plans.

The demand and supply of automotive business also prove to be a big challenge. Demand and supply involve the production, technology, research and development and workforce skill and flexibility (Wells, 2013). Production of automotive from other countries calls for the need for improved production strategy. The Thai automotive industry should try and level up the production of other countries to be able to compete favorably in the market. The growing demand for energy efficient vehicles in the market proves to be a challenge for a country that boasts of green automotive.

There is need for skilled labor and workforce that can cope with the fast-improving technology (Wells, 2013). Workers should have multiple skills with integrated knowledge to handle the modern needs of automotive consumers. The workers should be thoroughly trained to handle the advanced technology and the market needs. The Thai automotive industry should invest in long-term training and development of its workers to enable them keep up with the fast changing technology and the market needs of consumers. The skilled labor should be able to deal with the growing demand of well-designed automotive such as engine improvement, design engineering and replacement of old metal parts with advanced parts (Wells, 2013). Thai market for automotive products is full of consumers who are price conscious who choose to buy low priced imports.

The availability of cheap automobiles and automotive parts in the market always leads to over-supply and consumers tend to go for the low priced products (Wells, 2013). Another challenge facing Thai automotive industry is overcapacity production by the emerging and surging competitors. Some of the competitors pose stiff competition as they are producing advanced products such as the energy efficient cars while others bring low quality products into the market. Many consumers always go for low quality products because they are not as expensive as quality products. A lot of money is used for marketing and branding as Thai industry strives to strike a balance between short-term sales and the production. However, it is another huddle to convince the market that the product is sustainable from the image described in the advertisement to substance. Overcapacity production by the Thai automotive industry leads to lack of favorable market, and eventually leads to big loses as the industry is unable to recover capital invested in prod...