Friday, November 02, 2007

Why do we put up with this?

The number of onerous laws the US imposes on its trading parties is increasing every year in my opinion (eye ball estimates). Why are exporters from other countries putting up with such laws that restrict trade and also increase the landed price of the products they are exporting? I am sure there are many missed trades because the cost of trading with the US is too high for some exporters. They just find other markets. It is one thing for the market to impose restrictions through competitiveness, it is an entirely different game for governments to impose such restrictions just because they have certain quality standards. Lets do a thought experiment, and assume that there was no regulation and that this market was allowed to function freely. There would emerge some system of quality control on its own. The argument of activists is to prevent something bad from happening. This assumes that the law makers know better than markets and that they have complete knowledge. This completely assumes away the knowledge problem. Restrictive practices prevent more than just a certain kind of harm. They also prevent innovations in the market. The imposed restrictions may not be the most efficient form of quality control in the market. Back to the question in the title. Why do we put up with this? Well!! If there are trades despite such restrictive policies, it implies that the benefits from trade outweigh these costs. No one, including the US is forcing these traders to export to the US . The exporters are free to exit the market or not enter it if they believe that these laws impose terrible costs on them. Here I am making an assumption that there is relatively free exit options. If there is a high degree of uncertainty they will make shorter contracts that will give them the option to exit quickly if they start losing money.

1 comment:

lvprasad said...

I totally disagree with your argument. Accreditation systems are necessary,Whether they are performing to the expected level in India are (or) not is altogether a different question. I always believe Government should take the role of Regulator in all forms including education. Functioning of AICTE might be questionable but still an institution of similar purpose is required.