HomeProductsAccountingImportant! Know What an Embargo is in International Trade

Important! Know What an Embargo is in International Trade

Have you ever heard of an embargo? Some people may have heard the term “embargo” when looking at the news or newspapers. Usually, the term is used to describe a country’s policies. An embargo is a government policy that restricts the export or import of goods from a specific country. Companies can use the union area’s IT inventory software to assist export and import activities. The application can help you in accelerating the creation of customs documents. Furthermore, it can help you to centralize data-related customs. 

So why does a country impose an embargo? Typically, policy-making embargoes of political or economic interest exist between the two or several countries involved in the embargo. This is certainly very closely related to international trade activities. So, if you want to export imports, you need to understand the reasons for the embargo. To understand more, check out the following article.

All-in-One Solution for Your Business

What is Embargo?

An embargo is a type of business and commerce prohibition in countries related to the export and import of certain goods. It protects the country from external threats and maintains its reliance on imports. Because every country is dependent on supply, embargoes are actions taken to exert influence over a country. Supply chain management software can help you manage products accurately.

With the implementation of embargo policies and decisions, sanctioned countries will face shortages or scarcity of certain commodity supplies. The difference is that if a country can produce substituted goods, the embargo policy will not affect its supply. The supply of substitute goods must be sufficient to meet demand without lifting the import ban or imposing an embargo.

Types and Impacts of Embargo

Despite its goals, the embargo policy also has a negative impact. Because the application of an embargo against a country can cause economic instability, especially in countries that accept embargo sanctions. Moreover, the target country’s embargo policy can affect the people’s welfare. Notably, the embargo may be affecting the two “conflicting” countries’ deteriorating relations. As a result, it will disrupt the dream of global peace shared by all humans.

Also read: CIF and FOB: What are their Differences in International Trade?

In addition, there are two types of embargo. Namely:

Economic embargo

An economic embargo is a type of prohibition relating to imports or exports from one country to another. This policy is usually imposed on countries that face sanctions or penalties. Examples of economic embargoes include embargoes on the sale or purchase of major defense system equipment alutsista or oil.

In order to avoid production shocks, certain goods will almost certainly require the import of raw materials from other countries with higher costs and different qualities. In essence, imposing an embargo will harm the sanctioned countries, especially if they rely heavily on imported goods.

This will cause significant harm to the countries affected by the sanctions. This policy can also make the economic condition of a country unstable. Massive layoffs are the most significant losses, as well as the most severe impacts. Furthermore, both countries will experience a cold war as a result of negative consequences. As a result, many countries imposed PBB and WTO negotiations to implement the embargo action plan’s best measures. This is for the sake of peace between the two countries, as well as the safety of citizens.

Embargo policy also has a deadline that has been previously adjusted by the country enforcing the embargo. However, if they want to lift the embargo policy, the two countries must first reach an agreement. To be able to lift the embargo policy is a difficult task. Lifting the embargo policy will require difficult negotiations and a long period.

Information embargo

An information embargo is a temporary ban on the public release of news or other information. An information embargo prevents the public from receiving news or information. It is also a legal requirement that must follow or companies will face severe sanctions or fines.

A simple example: when a company announces profits to the media, its publicist will only provide necessary data and information. In other words, the information embargo is legally binding on all parties involved. Without ruling out the possibility, the continued effect of the embargo is to materially harm the company in question.

Also read: International Trade: Definitions, Benefits, Negative Impact, Type and Policy

Effect of this Prohibition on Countries Involved

As previously stated, the embargo’s main purpose is to bind the target country to the wishes of the embargo-holding state. The move is a powerful enough weapon to cripple the economy of a country hit by embargo sanctions. A country’s economy and stability will be shaken if it lacks products or basic necessities. This insecurity will have an impact on the level of the welfare of the country. Our own country is not spared from the embargo imposed by other countries. As we mentioned before, the United States imposed a military embargo on Indonesia in 1999.

At that time, Uncle Sam’s country prohibited the sale of equipment or equipment in Indonesia. At the time, the United States accused Indonesia of violating human rights in East Timor. The planned purchase of Sukhoi fighters was then highlighting again in 2018 by the U.S. House of Congress. The reason is that the warplanes came from Russia, which was hesitant to be embargoed by the US. This policy, which the U.S. often makes a weapon of very harsh diplomacy.

Examples of the Iran Economic Embargo by the U.S.

In addition to previous examples, the United States has imposed economic sanctions on Iran in the form of a ban on crude oil exports announced by President Barack Obama. At the same time, Iran is losing several potential markets for oil exports. Even after the sanctions took effect, the country’s oil exports fell by 1.5 million barrels per day. Thus, Iran can only rely on exports to a few European and Middle Eastern countries. The United States lifted its embargo policy in 2015 on the condition that Iran is willing to reduce its nuclear weapons production capacity.

With the lifting of the embargo, Iran’s crude exports have surged back to 1 million barrels per day (BPD), and Iran wants to join the Comprehensive Plan of Action (JCPOA) as part of its commitment to a nuclear arms control program. The U.S reinstated their embargo in 2018. These economic sanctions have an impact not only on the two countries but also on the global economy. For example, the lack of world crude oil supply will make the world economy unstable and have an impact on developing countries such as Indonesia.

Conclusion

However, the policy will inevitably harm the country or company in the affected country as a result of the embargo sanctions that apply from the designated country. Of course, one of the most significant effects is the weakening of the economy in the target country, as companies in that country may go bankrupt due to a lack of imported goods or raw materials from other countries.

How does it feel to be in a situation where your company can’t operate due to a lack of raw materials? If you are the owner of the affected company, you should be able to manage it well. Where this management must be done so that the embargo policy’s negative effects do not bankrupt your company. Financial management is one of the things you should pay attention to.

A company should have good financial management, not just an embargo policy, especially in the event of an embargo, because financial management will be more complicated in regulating it. You can also use HashMicro’s Accounting Software to make it easier for businesses to undertake financial management and other complex accounting activities.

With this software, you can create accurate, simple, and fast financial statements. Starting with recording buying and selling transactions, asset calculations, automatic bank reconciliation, and providing financial statements in real-time, you can customize it according to your business needs.

embargo

Interest in getting savvy tips for improving your business efficiency?

Thamia Farisatuddiniyah
I hope readers get value and enjoy what I write.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Looking for software system to improve your business efficiency?

Get a free consultation with our business expert by filling in this form!

Rachel-Panjaitan

Rachel Panjaitan
Typically replies within an hour

Rachel Panjaitan
Looking for a Free Demo?

Contact us via WhatsApp and let us know the software you are looking for.

Claim up to 80% Productivity Solution Grant for various HashMicro Software!
1:40
+6587776207
×
Book a Demo by WhatsApp