A multinational company is a corporation business enterprise with manufacturing, sales, or service subsidiaries in one or more foreign countries. Multinational companies reflect the strengths and weaknesses of their own country, so that sometimes government authorities spend public money supporting local industries or individual companies. It brings both opportunities and pitfalls for national firms in engaging their governments on their behalf. It is the WTO’s job to prevent downsides, allowing government support only if it is genuinely in the wider public interest – if it aims to benefit society or the economy as a whole. This essay provides some examples and data to explain what are the merits and demerits of government facilitating business through WTO, and in which ways the local administration support their industries and how effectively do the governments’ support work.
Many governments help businesses make the most of global trading opportunities. Local industries supported by the localhost administration in different ways. For instant, governments offer various forms of grants, interest and tax relief, guarantees, holdings in companies, goods and services provided on preferential terms, etc. Firstly, the government can help the unemployed and disadvantaged start-up businesses of their own through special schemes, such as grants and financial funding. In 2004, the government recognised the need to encourage start-ups in disadvantaged companies so the Phoenix Fund was set up (Open Forum, 2012). The major objective of this scheme was to encourage investment in new and growing businesses. However, the unemployed population is still being ignored and some of them genuinely want to work but have met with one difficulty or another (Open Forum, 2012). The government can help by creating enabling opportunities for people to set up their own businesses at home. They can also set up Enterprise Allowance Schemes which will serve as incentives to these entrepreneurs. Furthermore, the government can interfere with the free market and save failing businesses. However, there are two sides to this coin. On one hand, government’s intervention through policies would result in a better controlled trading environment and can stabilise faltering economies. An example of this is the 2008 financial crises when the UK government stepped in to help the large banks and struggling automakers. On the other hand, government’s interventions may result in inefficiency such as price floors e.g. EU's Common Agriculture Policy which created huge surpluses (excess butter to make a cube of butter with 125m sides) (Debate Org., 2012). Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members; therefore, support for companies worth less than € 200 000 in a 3-year period is reckoned not to affect WTO members’ trades. Another way the government can support business growth is to lighten the burden of taxation and administrative processes required to start up and run a business. The WTO suggested that taxation policies should reflect the government’s encouragement of entrepreneurial activity and improve the marketability of small businesses i.e. improving the degree to which an asset can be traded in the market without affecting its price (Stokes and Wilson, 2006). The government responded to this suggestion by giving small firms the advantage of benefitting from lower corporation tax rates. For example, a company with profits from £50,000 to £300,000 has a tax rate of 19%. However, once profits increase above this range, they are liable to the full 30% tax rate (UK Legislation, 2012). Moreover, General tax measures and employment legislation, for instance, are not selective because they apply to everyone. It does not confer an advantage on specific...
References: * Debate org., (2012) Should the government intervene with the free market and save failing businesses? [Online]. Available at: http://www.debate.org/opinions (Accessed on 1st April 2013)
* Open Forum, (2011) Why the Government should help Young Entrepreneurs start business [Online]. Available at: http://goo.gl/uYwiZ (Accessed on 1st April 2013)
* Office for National Statistics, (2008) UK Business Statistics [Online]. Available at: http://nationalstatistics.gov.uk (Accessed on 1st April 2013)
* Stokes, D. and Wilson, N. (2006) Small Business Management & Entrepreneurship. London: Thomson Learning
* UK Legislation, (2012) Employment and Tax-related Laws [Online]. Available at: http://www.legislation.gov.uk (Accessed on 1st April 2013)
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