Reducing The DG: Trade, Investment And Economic Growth Flashcards
Managing trade
Free trade aims to remove trade barriers such as tariffs and quotas. Any form of trade intervention can distort patterns of exporting and importing. The WTO is committed to increasing free trade. However some argue that the terms of free trade are unfair, as richer countries gain at the expense of developing countries.
Trade intervention - influencing imports
Tariffs - taxes levied on imports, which increase price and make them less competitive.
Import quotas and licensing, which limit volume of imports.
Tight regulations - eg on labelling making importing more difficult.
Trade intervention - influencing exports
Incentives - financial help and tax concessions for producers of exports.
Establishing export processing zones and free trade zones.
Formation of trade blocs.
Trade agreements
Generally bilateral agreements, but there has been an increase in free-trade and regional-trade agreements involving countries from different geographical locations, such as NAFTA, essentially they are trade blocs and encourage free trade with their boundaries but also tend to put up barriers to external countries.
General advantages of trade between developed an developing countries
Removal of barriers promotes expansion of trade which increases wealth.
Free trade concentrates production of goods and services where they are cheapest, lowering prices to benefit consumers.
General disadvantages of trade between developed an developing countries
Many agreements are biased towards rich countries.
Agreements often require policy changes to allow foreign investment: new labour and environmental regulations.
Subsidies to farmers in some rich countries reduce the effect of agreements.
Advantages of trade between between developed and developing countries: for the developing countries
Concessions that are not given to other countries, eg better access for their products.
New trading opportunities, for example increase in Mexican manufacturing exports with NAFTA.
More FDI.
Disadvantages of trade between between developed and developing countries: for the developing countries
Trade agreements often require something in return. If TNCs based in rich countries gain access to poor country markets, local producers are put out of business.
Local firms often have difficulty complying with restrictive rules-of-origin regulations on goods for export to the rich-country partner.
Trade expansion
Key driver in economic growth. Developing world’s share of world trade tripled from 12% in 1995 to 36% in 2006. In 2006 average annual growth in economic output in developed countries was 2.4% compared with 6.4% in developing, with China recording 10.5%.
Fair trade
This NGO seeks to obtain a fair price for a wide variety of goods exported from developing to developed countries including coffee, cocoa and bananas. The aim is to work with small scale producers and make them more economically secure. The fair trade movement goes from strength to strength. In 2006 fair trade sales were valued at 2.3 billion dollars, 5 million people have benefitted.
Doha
Attempted between 2001 and 2008 to establish better trade conditions for developing countries by allowing them access to the EU and US manufactured goods and services.
Concerns with Doha?
Several developing countries had concerns with Doha as it would not reduce poverty for their poorest farmers. At the same time some developed countries were not prepared to give up farm subsidies . There were also disagreements about a sliding scale of tariffs that would have enabled emerging countries to impose higher duty.
