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Welcome to SUNS 2008! |
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Committee: World Trade Organization Topic: The Impact of unrestricted trade on lesser developed countries Director: Jorge Gonzalez
This topic is one of the most related in economics in countries inside the World Trade Organization. Since all of the countries must trade in order to gain a profit and maintain the country’s budget, fully developed countries take advantage of those less developed countries. The most common and current practice throughout the world of unrestricted trade is protectionism.
One example of protectionism would be the tariffs, which is imposing of taxes in imported goods whenever this process is taking place. This would be the best for the exporting country, but the one that puts it in most of the cases are the importing countries, this with the purpose of having a competitive market. In a simple explanation, importing countries raise imported items’ prices so that people buy more products being produced inside the country.
Quotas are very similar to tariffs; the only difference is that the money gained from quotas is given to the importer (not the country’s government). To have the right to assign quotas, a license is required for importers.
Subsidies are the way that many developed countries, such as United States and the European Union, gain money in their exports. It is a way of making producers lower their products’ prices by giving them money directly from the government. Although many nations consider this “Cheating” in free trade, governments that practice subsidies affirm that it is only a way of putting small producers into the world market.
Free trade agreements may be perhaps the ones mostly affected whenever protectionism is affected or when protectionism is used to “cheat”. As in a situation of a free trade agreement, countries must eliminate tariffs and quotas in every import/export. Free trade agreements may be also referred as a free trade area, the same as all of the countries included in a free trade agreement.
Whenever a country wishes to expand its trade activities with other countries, these protectionism practices are used in a cheating way, because when there are Free Trade Agreements, imports and exports may go low because of the absence of tariffs and quotas. So their next objective is to start trade with another country and try not to make a new free trade agreement. The problem with the tariffs and quotas is that, if a country does not put these on the imported products, the country will not reach to be competent (with their products) with the production of the exporting country.
But when we talk about unrestricted trade, most of these tariffs and quotas are eliminated even though the countries are inside a Free Trade Agreement. Most of the times, countries that do this kind of unrestricted trade are developed countries, such as United States or the ones in the European Union.
These kinds of countries will often take advantage of lesser developed countries in a low economic situation and use the subsidies to have more product preference inside a foreign country. For example, Mexico’s economy had been low, so they decided to eliminate tariffs from imports so that people could buy more products, even though they are foreign products.
Brazil and United States had been having a conflict about whether to reduce farm subsidies from United States or reducing tariffs on Brazilian ethanol. It is a fact that United States’ farming products have great influence in every American market, but can the reduction of subsidies really affect their commerce? As for Brazil, they are one of the largest ethanol producers, the one that most Latin American countries buy this product from. If Brazil eliminates its tariffs, the United States might as well eliminate their subsidies. Brazil does not really have much to lose, since they are the America’s number one ethanol producer, but with tariff elimination in the United States, many other countries would reach a competence in the market and Brazil would lose profit and trade agreements with many developed countries.
African countries commonly have to use protectionism in order to have a level place in the market. Since exports include products that may be taken only from their lands, most countries look for ways for eliminating this protectionism. This involves much the African Growth and Opportunity Act, for one of their main goals is to reach a competence in the global market. With protectionism, African countries have grown since 2004 a 22% of economic growth, and so have grown their commerce with developed countries, mostly with United States. It is estimated that if the African countries continue protectionism practices at a comprehensible level with developed countries, their GDP might grow a 2% per year.
In Asia, the Asia Pacific Co-operation Group had been discussing about creating more free ways of trade among these countries, mostly with Vietnam, their newest and most needed member. Some of their strategies will be elimination of tariffs, as most countries, to support most Asian countries. But what would happen to those lesser developed countries that eliminate their tariffs in trades with other Asian countries? Since Asia has a total of approximately 60% of the world’s trade, these lesser developed countries would not have much benefits from this group.
In subsidies, most of the developed countries will try to use them in lesser developed countries so that they can have more foreign markets covered, and so that when they reach enough trade in lesser developed countries by selling their products at low prices, they can raise them high again and gain even more profit, because the people have already made a preference in these foreign products.
The main part of an unrestricted trade in a country comes from corporations, for everyday they can gain more and more. But the real fact is that lesser developed countries depend on these corporations to subsist, and even because they must pay external debts, they need to practice the protectionism instead of unrestricted trade to support their economy and population.
As of one of the world’s most renowned free trade agreement, the North American Free Trade Agreement (NAFTA), we can tell that there have not been any major problems when it comes to the trade system established by United States, Canada and Mexico. In fact, the NAFTA often looks for ways of stopping any unrestricted trade taking place inside the free trade areas and even some Latin American countries that may have trade contact with members of the NAFTA.
Recently, Mexico has been having economic problems, and this has caused the elimination of tariffs inside the NAFTA in agricultural imports for Mexico. This may be affecting other countries, such as South American countries that may have had trade with Mexico in agricultural products, since these are most of the South American countries’ main exports. Also, since other countries in Central and South America have trade agreements, these are being interrupted by the suspending of tariffs and/or quotas.
Venezuela, in this case, is also affected by some free trade agreements since one of their main exports is petroleum. Many countries, developed ones mostly, are willing to buy only raw materials and putting really low tariffs or no tariffs at all on them. This will affect the country’s economy, since they may not have more products to export to powerful countries and the influence or competition of products in the market will go really low.
The other free trade agreement that is settled in the European Union is the EFTA, European Free Trade Agreement, and it is formed by four countries: Iceland, Liechtenstein, Norway and Switzerland. Since they are all developed countries, their trade systems are not affected by the free trade agreement. They most of the times look for the elimination of unrestricted trade, but as trading partners of any country not belonging to the EFTA, they may use subsidies in many cases.
But the reason why Free Trade Agreements have not been separated is that most of the times these help lesser developed countries get into the global market by selling their products, but in the other hand, whenever a country is inside a free trade agreement, they might abandon other trade partners because of the elimination of tariffs on imports from the members of the agreement.
When it comes to developed countries: Most of the times, developed countries seek to create a free trade agreement with lesser developed countries because of the advantages that they can get of influence in a foreign market. For example, if a developed country’s products go into a lesser developed country’s market at a low price (Because of the subsidies) or with no tariffs at all, the product will gain influence, and so the lesser developed country’s products will not be competent at all inside their own market.
When it comes to lesser developed countries:
Lesser developed countries most of the times export agricultural products, which are very sensitive to any price change. If these countries export their agricultural products into developed countries, the price variation and tariff increase may grow and also not give any opportunity on the competence in the global market.
Another case is the electronics exports and imports. Most of the times, lesser developed countries have more expensive electronics than developed countries, even though the electronics were exported from the lesser developed country. This is constantly because of the previously mentioned competence in the global market.
The main cause of the problems in any free trade agreements may be the “Cheating” as in subsidies in developed countries. This may be a reason of why they are in the top in the global market and why lesser developed countries may not stand a chance against them because a developed country may have the same products and need not of imports and subsidies of lesser developed countries.
The most recent meetings of the WTO (Cancun especially) have all but collapsed over the issue of subsidies to industries in the well developed countries like the US and the European Union.
When it comes to a solution:
Take in account that many developed countries will affirm that subsidies are not cheating; it is helping the small enterprises enter the global market by giving them some economic help and advice.
Lesser developed countries do not stand a chance if they apply the subsidies on their producers. Developed countries may produce the same product and import it inside this lesser developed country.
The most sensible import is petroleum. If a country has petroleum, developed countries will look for a way to buy it in a cheaper way and with the fewer tariffs possible. Most of the times, even though prices do not vary that much, developed countries buy the raw petroleum, for they do not have the resource inside their country and petroleum prices are going up every time more.
Questions for the Debate:
Does your country have Free Trade Agreements? With whom?
What are your country’s major imports and exports?
What was your country’s position in the Doha and Cancun WTO meetings?
Does your country tax imports (tariffs) or put import quotas?
Does your country have multi-national corporations doing business in other countries?
Bibliography:
http://www.nafta-sec-alena.org/DefaultSite/index_e.aspx http://findarticles.com/p/articles/mi_qa5433/is_/ai_n21481315 http://news.bbc.co.uk/1/hi/business/7420023.stm http://www.sice.oas.org/agreements_e.asp\ http://wharton.universia.net/index.cfm?fa=viewArticle&id=1570&language=english&specialId= http://findarticles.com/p/articles/mi_qa5480/is_200703/ai_n21293772 http://www.fas.usda.gov/info/factsheets/NAFTA.asp www.brazzilmag.com/content/view/8106/54 http://www.ibls.com/internet_law_news_portal_view.aspx?id=1636&s=latestnews
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