International Trade Policy Issues - Essay Example

1. Trade is a driving force for economic growth in developed and undeveloping counties. The role of trade in economic development when we discuss we discuss international trade. The role of International trade is argued both affirmative and negative. The negative argument is that rich nations exploit the poor countries extracting economic surplus. The affirmative argument is that it will help the poor, developing and underdeveloped countries to improve the economic growth by marketing their products at international level. History shows that England and the Asian Countries such as Japan, Taiwan, and South Korea have achieved their economic growth with the extensive international trade. Trade is the driving force for the economic development of theses countries. Countries connected by common currencies, policies and institutions could converge their incomes to the richer countries by improving the trade between the countries. Faster economic growth is largely depended on trade openness. Many countries adopted the trade liberalization policy and joined in the world trade for achieving the economic growth all most all the countries have achieved their goals of through liberalized trade policy. World bank studies show that during 1946 and 1986 strong and sustained liberalization led to the rapid growth of exports, which further led to economic growth (Jagdish N. Bhagwati, 1978, Annatomy and Consequences of Exchage control Regimes) 1. 1994 study reveals that poorest countries also grew and develop between 1960 and 1986 due to openness of the trade, which led to higher productivity (Alberto F. Ades and Edward L. Glaeser, 1999, evidence on Growth, Increasing Returns, and Extent of the Market) 2 When we study the history of economic development we witness that trade is a driving force for economic growth in developed and under developing countries. Since World War II the expansion of trade has played a dynamic role in global economic growth. Till 1994 before the World Trade Organization came into existence multilateral trade was limited to industrial countries. From 1994 the multilateral trade has expanded, to many countries of developed and underdeveloped including the countries of agricultural base due to liberalization. As a result of multinational liberalization all countries are benefited in their economic growth by unveiling their unexploited potentials. Since early 1970s world economy is in the midst of strongest period of sustained global growth duly maintaining the inflation at low levels, same trend is continued into 2007. We witness an unexpected and robust growth in India and China including other developing countries. Strong performance is also witnessed in low-income countries, such as sub-Saharan Africa (Rodrigo de Rato, Managing Director, IMF, Sustaining Global Growth, March 30, 2007)1 The main cause of this prodigious performance is attributed to solid growth in productivity, which led to growth in profits and real wages and also absorbing the sharp increase in prices to maintain the inflation at low levels. This global economic growth is made possible not merely on solid growth in productivity but rapid growth in international trade especially the developed and underdeveloped countries joining the global market. Entry of India, China and Eastern Bloc of Europe in the multilateral trade has made a substantial contribution to global economic growth. Besides other factors such as introduction of new technologies in manufacturing and service activities, increasing international mobility of capital, large-scale movements of underemployed labor out of agriculture into manufacturing and service in many developing counties and migration flow of poor counties towards the advanced economies, global integration of trade and financial market has produced tremendous benefits and trade is the driving force for this global economic growth (Rodrigo de Rato, Managing Director, IMF, Sustaining Global Growth, March 30, 2007)1 If we examine the development of economic growth of individual member countries taking China as an example, China's exports and imports during first quarter of 2005 have grown up to 35% and 15% respectively. The estimated foreign surplus during the period was 13.5 billion US dollars. During 2004 also China registered a rapid growth in foreign trade with trade volume of 1.1 trillion US dollars, and foreign investment of 60 billion dollars. China's share in global trade is steadily rising since 1978 capturing third position of world foreign trade with exports more than 30% of country's GDP. This signifies that foreign trade becomes the major driving force for China's economic development2. In a similar way in the year 2004 Netherlands registered 1.7% growth out of which 1.2 was the resulting from exports, which includes raw material, minerals and fuels (Adnan Kassar, Annual report of WTO 1998, 21 October 1999) 4. This growth is also attributed to the trade. When we look at the global economic development, the value of global merchandise trade has registered 5.5 trillion in 1997 when compared to 1990, which was 3.5 trillion, with a growth of 2.00 trillion during 1990 and 1997. Between 1950 and 1997 average trade growth rate was 6%. During 1973 and 1996 annual foreign investments registered expansion of 17 fold increasing from 21.5 billion US dollars to 350 billion US dollars, as per the statistics the growth in world trade is increasing year by year giving rise to global economic growth, which signifies that trade is the driving force of global economic growth (As per the world Bank study) 6. 2. Doha Round trade negotiations can be a powerful tool for development of the poorest countries in improving their income and living standards and achieve the UN Millennium Development Goals. WTO is an organization engaged in managing the liberalized trade, acting as a media in trade negotiations between the global governments, formulating international trade policies and dissolving the trade disputes. Marathon negotiation from 1986 to 1994 under General Agreement on Tariffs and Trade(GATT) which is also known as Uruguay Round gave birth to WTO on 1st January 1995, since then it is making continuous efforts in promoting the Liberalized trade for global economic growth. Trade negotiations between the global nations are prime task of the organization. Member countries Negotiate together and formulate the rules and policies to make the world trade consistent, transparent, free flow and acceptable by all member countries around the world. Presently WTO has launched new negotiations "Doha Development Agenda" in 20015 Eight rounds of trade negotiation were held under WATT during 1947-1994 and present Doha is the ninth round trade negotiation under WTO. The prime object of these negotiations is to lessen the trade barriers such as custom duties, import bans, setting of quotas even sometimes red tape exchange rate policies etc., and it also allows the countries gradual introduction of changes via "progressive liberalization". Most of the members of WTO were the developing countries and countries under transition5. Doha Round is also aiming besodes removal of the barries existing in the global trade, to correct the distortions, which are preventing the rural and poor nations entering in wold agriculural markets. And to allow the poor countries to come on par with the developed and developing countries Doha Round has to make negotiations to maintain a balanced trade policy suiting to both poor and developed countries. In present circustances where rich countres aspiring for increment in their access to non-agricultural service and manufacturing sectors in strong countries like India, China and Brazil. Trade liberalization by abolistion of subsidies on agricultuere and agriculutaral tarrif would increase the global export and there by uplift the many countries out of poverty6. As part of Doha round negotiation in December, 2005 at Hong Kong where WTO meet was held some decisions have been taken and agreements were made such as a) Agreement to end export subsidies in agriculture by 2013 to avoide hidden exort subsides in fooed, credit, aid, and sale of exporting state enterprises. b) Agreement to eliminate all forms of export subsidies for cotton by the developed countries as early as end of 2006. c) Commitment for introduction of duty and quota-free access for most exports from thirty-two least-developed countries by 2008. After December 2005 Doha round talks held in July, 2006, which were suspended indefintely. In January, 2007 World Economic Forum's meeting held between a group of thirty ministers it has been agreed to resuscitate Doha talks6. In global economic growth and Doha round the main stubmiling bloc is agriculture. Senior fellow in interenational economics Proff Jagdish Bhagwati in his interview with CFR suggested US to check the Americal farm lobby, which is influencing the dobouble standard on trade. He said ""We are minimalists in terms of making concessions in the farm sector, which is the critical one, At the same time we are maximalists in making demands on others in terms of agriculture.7" The developing countries including India, China and Brazil have criticized the proposed cuts in tarrif by European Union and some of the countries even doubting the sincerity of the US officer. As per the Economist observations the success of the renewed talks of Doha relies mainly on factors such as 1)EU countries must make cuts in their agricultural tarriffs in the vicinity of 54 % , 2) US will need to limit its farm subidies to $17 billion, 3) developing countries such Brazil and India to improve their offer to open up their markets to industrial goods as called upon by US and EU. As observed by Bhagwathi an embrasment of the developing world is highly unlikely unless US gives up sgnificant farm subsidies. As said by Kimberly Elliot, research fellow at the Institute for International Economics most of the rich countreis have liberalized a great deal, with regard to tariffs on many goods after decades of trade negotiatins, still there are trade barriers in respect of textiles, agriculture, and footwear8. EU is bargaining for more attractive offer from India, China and Brazil for to EU offer increased concessions. United States and EU persuing trade retratints against China since they are worried that liberalized trade is allowed against China there would be influx of cheap manufactured goods. On the other hand China is reluctant to open its highly protected service market like Banking and Telecommunication9. Doha talks are testing for the its majour member countreis. The economists worry about how far US will keep on the agreements and they express the possibility of going back. This may pose propblems which professor Bhagwathi termes as "spathetti bowl" preferential Trading arrangement10. Elliot says that poor nations have more serious implications she says "If you get to where the whole system starts to erode, then the developed countries go back to the Hobbesian world of power relationships and developing countries lose out," other experts opine that Doha talks failure would cause a great setback to global poverty-reduction efforts such as World Bank's move to cancel debt for very poor countries11, UN Millenium Development gaols and and increasing efforts to improve foreign aid12. But professor Bhagwati says if Doha talks fail some gains from trade would be lost. He says "But it's not as if the sky will fall. All this means is, you won't be able to move forward, but that doesn't mean you will slide back. I see no reason why protectionism would break out because Doha is not moving ahead." But we have optimistic view and hope for the success of Doha round. The success Doha round will achieve the millennium development goals set up by the United Nations, which are briefed as following: 1) Eradication of Poverty and hunger, 2) Achievement of universal primary education 3) Promoting gender equality and empowerment of women 4) Reduction of child mortality 5) Improvement of maternal health 6) Combating HI/AIDS, malaria and other diseases 7) Ensuring environmental sustainability and 8) Development of global partnership by means of i) Development of trading and financial system that is rule-based, development and poverty reduction at national and international level, commitment of good governance, ii) Addressing the less developed countries special needs, which includes quota free access for their exports and tariff, enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction, iii) Address the special needs of landlocked and small island developing States, iv) Deal comprehensively with developing countries debt problems through national and international measures to make debt sustainable in the long term, v) develop productive work for youth in cooperation with the developing countries. vi) Provide access to affordable essential drugs in developing countries in cooperation with pharmaceutical companies and vii) make available the benefits of new technologies especially information and communications technologies in cooperation with the private sector12. Trade is driving force for economic development in both developed and developing countries. Doha round therefore can be a powerful tool for development in the poorest countries if these negotiations are successful. This will help the poor countries in raising their incomes and living standards and also achieve the UN Millenium Development Goals. The success of Doha round will be possible with the effective role of the rich countries in promoting free trade by elimination of trade restrictions and providing financial and technical assistance to the poor countries. The role of middle-income countries is that they must reduce tariffs, which effect their own citizens and other developing countries as well. The role of poor countries is that, though they receive aid to improve their trade they their own trade regimes must be reformed. To reap the benefits of multilateral trade liberalization they must improve their institutions and governance as well. Sources: http://www.imf.org/external/np/speeches/2007/033007a.htm http://vancouver2.mofcom.gov.cn/aarticle/chinanews/200504/20050400049263.html 3. http://66.102.9.104/searchq=cache:9EuVE6Pb0lAJ:www.cbs.nl/en- GB/menu/themas/macro-economie/publicaties/artikelen/archief/2005/2005-1796-wm.htm+Trade+is+a+driving+force+for+economic+growth&hl=en&ct=clnk&cd=9&gl=in&ie=UTF-8 4.http://www.iccwbo.org/policy/economic/id1270/index.html 5. http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm 6. http://www.cfr.org/publication/10555/1 7. http://www.cfr.org/publication/12592/ 8. http://www.iie.com/publications/author_bio.cfmauthor_id=11 9. http://www.cato.org/people/ikenson.html 10. http://www-personal.umich.edu/alandear/glossary/p.html#pta2 11.http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,menuPK:64166739pagePK:64166681piPK:64166725theSitePK:469043,00.html. 12. http://www.un.org/millenniumgoals/ Bibliography: 1. Richard Grabowski, Micheal P. Shields, Development Economics, (1996) 2. Stephen C.R. Munday, Current Developments in Economic (2005) Read More