International Trade Theory and the Role of Law and Politics

International Trade Theory and the Role of Law and Politics
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International Trade Theory and the Role of Law and Politics
Types of Country Risks generated by Political and Legal Systems
Political Systems
The first type of country risk due to the political system is the government seizure of corporate assets. The pharmaceutical firms can be at the risk of governments taking over their company assets. These seizures can be conducted without any compensation for the industry. For instance, the Zimbabwean Government can decide to confiscate the assets of the foreign pharmaceutical firms in the country. Again, in some cases, the governments can take over the whole industry with or with no compensation. This has been seen in Bolivia, where the governments nationalize the pharmaceutical industry. Another country risk involves embargoes and sanctions. Sanctions are typically the types of trade barriers, tariffs, import or export quotas, and import duties (Yarbrough & Yarbrough, 2014). The governments can impose the sanctions on the pharmaceutical industries of other countries in the cases of policy or trade dispute that has not been resolved in the international trade. Similarly, the industry is exposed to the risk of embargoes, the official ban on imports from or exports to a given nation, so as to isolate the country’s government and its industry. It is a form of a political punishment for some disapproved acts of policies.

Terrorism is another country risk. Terrorism can sometimes be sponsored by governments to achieve a political goal via intimidation, fear, or coercion. The act of terrorism can cause disruption in the pharmaceutical industry business operations and damage the infrastructures that facilitate their business (Griffin & Pustay, 2012). Customers are fearful, reducing their buying frequencies, which possibly resulting in economic recession in the economy.
Legal Systems
On the other hand, the country risks are also associated with the legal systems. The first risk involves foreign investment laws. The pharmaceutical industry is affected by the foreign investment laws in regards to the entry strategy companies select, together with their performance and operations. The firms can be exposed to the restrictions imposed on inward FDI. For instance, the pharmaceutical firms can be subjected to the requirement that they have to get the permission from the host-country government. Likewise, the investors in this industry can be prevented from placing their money in the firms, thereby inhibiting the growth of the industry (Habermas, 2015). Also, the industry is exposed to controls on operating practices and forms. Governments impose regulations and laws on how companies can conduct marketing, production, and distribution processes within their boundaries (Cavusgil et al., 2014). These types of laws and restrictions can inhibit the organizations’ performance in the overseas. They also affect the types of drugs manufactured and how they are promoted in the marketplace. Ultimately, the pharmaceutical industry is exposed to the country risk involving the environmental laws. Governments enforce laws to protect the natural resources, prevent pollution and misuse of water, earth, and air resource, and ensure safety and health of the population. The pharmaceutical industry can be at risk of losing a key natural resource, such as the plants used in the production of drugs, when the government wants the forest to be preserved. The environmental laws also have an impact on the entrepreneurship, economic advancement, and employment in this industry (Griffin & Pustay, 2012).
Impacts of the Legal and Political Systems on the Pharmaceutical Industry
The various forms of the political systems, such as socialism, totalitarianism, and democracy offer contexts within which regulations and laws are set and countries are administered. Thus, each type of the political system affects the way the firms in this industry will operate in the business environment in regards to the government involvement, ownership of the company assets, and the role of the general public, including the customers (Cavusgil et al., 2014). Conversely, the legal systems also include the religion law, common law, civil law, and mixed systems. The laws, such as the religion law, will affect the types of drugs produced and their consumption in different regions across the world (Habermas, 2015). Hence, the pharmaceutical industry products and values are shaped by the different religious laws and civil laws found in different regions across the globe.
Addressing the Dilemmas
The national governments have imposed certain rules that ensure that the pharmaceutical industries operate in an ethical way to the customers. This involves ensuring that the prices charged on the branded drugs are fair and reasonable for all types of customers. The national governments also enact certain healthcare policies that offer subsidies for medications and healthcare. For example, in the United States, the government has enforced the Affordable Care Act that would ensure that the health care services are affordable to all (Cavusgil et al., 2014). In some cases, the national government may decide to set or fix specific prices for the drugs sold to the customers. The strict rules can be imposed on the pharmaceutical firms to follow the prices set by the concerned government institutions. Also, the branded pharmaceutical companies can also intensify their R&D activities to develop the generic compounds from the generic manufacturers so as to produce new drugs that are efficient and affordable to the customers (Griffin & Pustay, 2012). The R&D processes can also ensure that the production technique and processes are efficient and effective in generating new drugs. Through the innovation processes, the branded pharmaceutical firms can produce drugs and medications efficiently, thereby increasing their returns and offering the drugs and services to customers affordably. On the other hand, the generic manufacturers can also address the problem of the affordability of the medications and health care services. The generic manufacturers should focus their drugs and compounds that are affordable to all types of customers in different regions. They should avoid the problem of patent infringement so as to maintain a continuous production and supply of products. The focus of their production should be the efficiency of the processes, as well as the affordability of the drugs and effectiveness as per the customers’ needs (Cavusgil et al., 2014).
Pharmaceutical Research and Manufacturers of America
The branded industry has taken several policy steps to address the ethical dilemmas it faces. The first step is to modernize drug discovery, development, and sanction. The industry aims at modernizing the FDA to maintain speed with scientific revelation and to enhance a more innovative, competitive, and sustainable business environment (Nye Jr & Welch, 2016). The second step is to promote value-driven health care, in which it encourages value-oriented payment frameworks and eliminates the obstacles making it hard for sound and innovative client/manufacturer plans to rise. Another step is to involve and empower clients by making more information on medical care low costs and high-quality accessible to clients. The last step that is taken by the industry involves addressing the market alterations, by handling the rapidly increasing 340B project and remove the unnecessary costs that do not contribute to the treatment drug costs (Yarbrough & Yarbrough, 2014).
TRIPS Agreements
The TRIPS Agreements has developed several issues that are currently being addressed by different government officials. The latest developments include the amendment to ease emerging nations’ access to affordable drugs and medications. The Trade-Related Aspects Intellectual Property Rights also highlights the way WTO can assist in address the issue of antimicrobial resistance. Another latest development is that a workshop of 30 developing and five developed economies push the implementation of a holistic view of public health and trade (Matsushita, Schoenbaum, Mavroidis & Hahn, 2015). The TRIPS treaty offers different types of intellectual protection to the pharmaceutical companies. The protections include the control of anti-competitive acts in contractual licenses, protection of undisclosed information like the trade secrets or capabilities, protection of the layout-designs of incorporated circuits, industrial design protection, patent rights for invention of products or processes, trademarks of the firms, geographical indications, and the copyrights (Matsushita, Schoenbaum, Mavroidis & Hahn, 2015). Ultimately, the enforcement mechanisms of TRIP concerning the protection of the firms include the prevention of piracy levels, administering the criminal penalties, inflicting comparatively stiff incarceration and high charges for commercial piracy, and the establishment of criminal and administrative procedures.
Managing the Political and Legal Risks
The likelihood and exposure to the political and legal risks can be reduced via several ways. The management of these firms should take the responsibilities of ensuring that these types of risks they are exposed to are addressed. The managers can use the following strategies. The first recommendation is to conduct a proactive environmental screening to understand the legal and political surrounding in the target nations or markets (Nye Jr & Welch, 2016). The second strategy is to enhance stringent compliance to the ethical standards so as to protect the companies from a portion of the country risks and to ensure that the firms operate within the set laws. Another strategy is to seek protection via legal contracts. Adherence to the contract laws at the local and international levels will enable the firms to avoid the occurrence of the country risks (Cavusgil et al., 2014). Lastly, the likelihood and exposure to the risks can be reduced or avoided via the creation of partnerships with qualified local allies. Entering the target country or market in partnership with a dependable and well-informed local ally will enhance the minimization of the country risk and its exposure (Yarbrough & Yarbrough, 2014). The partners understand the local circumstances and can develop a stable association with the local government, thereby avoiding the country risks.

References
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International Business. Pearson Australia.Griffin, R. W., & Pustay, M. W. (2012). International Business. Pearson Higher Ed.Habermas, J. (2015). Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy. John Wiley & Sons
Matsushita, M., Schoenbaum, T. J., Mavroidis, P. C., & Hahn, M. (2015). The World Trade Organization: Law, Practice, and Policy. Oxford University Press.Nye Jr, J. S., & Welch, D. A. (2016). Understanding Global Conflict and Cooperation: An Introduction to Theory and History. Pearson.
Yarbrough, B. V., & Yarbrough, R. M. (2014). Cooperation and Governance in International Trade: The Strategic Organizational Approach. Princeton University Press.