Global Trade Liberations

Abstract

This study addresses the issue of the impact of global trade liberalization on developed and developing countries. The advantages and disadvantages of global trade liberalization, and whether it has helped either of the developed or the developing countries in their economic developments will also be discussed. The different perspectives of both the type of economies and further their expectations regarding the trade liberalizations will also be dealt with in detail. We will analyze the contrasts in their perspectives with the help of examples of policies introduced by the government in different type of economies.

Introduction

In the past few decades we have seen a very drastic change in the practices of trade throughout the world. Many world economies have developed and many others have progressed. These changes are a result of the fast growing international trade. Further this increase in international trade has been led by the technological advancements taking place in the world and the reduced trade barriers globally. Some developed countries have reduced or removed trade barriers for the further development of their economies and some developing countries have done the same so that their economies can compete with the developed nations of the world. The remaining trade barriers on the part of industrial nations or developing countries that are still prevalent are on the agricultural products or the labour intensive trades in which the developing economies have a comparative advantage. Trade liberalization in these areas by both developing and developed economies will definitely help to reduce poverty globally.

Trade liberalization has also been considered as the major driving force behind globalization. Many critics of trade liberalization have blamed it for a number of problems like rising unemployment and wage inequalities in developed countries, increased exploitation of working force in the developing countries, increasing poverty, global inequality and degradation of the environment. These views have spread in spite of barrier free trade, in terms of improved allocation of resources and consistent gains in productive efficiency and economic growth.

The impact of trade liberalization is of particular significance in context of employment. The economic development of a nation can be determined on the level of employment, especially developing countries. The impact of trade liberalization on the level and structure of employment determines the level of poverty, wage, income distribution and the quality of employment. Trade liberalization in general provides a better growth perspective to economies whether developed or developing as fewer trade barriers make trade profitable for them. So there is no doubt that trade liberalization is beneficial in terms of growth, economic development and employment. This integration of the world economy has raised the living standard around the world. Trade liberalization can be seen as a very powerful means for economies to promote economic growth, development and poverty reduction.

Trade Liberalization

In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy.  Trade liberalization “can be defined as the process of reducing or removing restrictions on international trade. This may include the reduction or removal of tariffs, abolition or enlargement of import quotas, abolition of multiple exchange rates, and removal of requirements for administrative permits for imports or allocations.”

Trade liberalization can also be defined as removal of or reduction in the trade practices that oppose the free flow of goods and services from one nation to another. It includes removing of tariff  such as duties, surcharges, and export subsidies as well as non-tariff  barriers such as licensing regulations and quotas.

Trade liberalization usually involves the following:

·         Trading of goods without taxes including tariffs and other trade barriers like quotas on imports or subsidies of products.

·         Trading of services without taxes or any other trade barriers.

·         Free access to markets

·         Free access to market information

·         Free movement of labour between and within countries.

·         Free movement of capital between and within countries.

·         Absence of trade distorting policies that gives some firms, or factors of production an advantage over the others.

Global Trade Liberalization in Developed Nations

We will now analyze the trade liberalizations done or are being done in developed nations. The impact of trade liberalization on these economies and their further interests in such trade policies will also be talked about in detail.

Taking as an example we will talk about the trade policies of the European Union and under it we will be analyzing some policies implemented in France.

Although the trade policy of the European Union is generally an open one but there are some sectors such as agricultural and audiovisual sectors which are having a higher level of protectionism as compared to other sectors. The European Union is one of the largest exporter and importer of agricultural products. The EU firmly believes in further opening the trade in this sector for sustained and continued economic growth of all its countries. But trade liberalizations have not only economic but other effects on the sector, such as effects on environment, health, social standards and cultural diversity. These 'non trade concerns' are the fundamental links between sustainable agriculture, maintaining the landscape and the environment and responding to consumer concerns.

Agriculture is the biggest part of France’s GDP .It is “the 6^th largest economy in EU, and its GDP approximately $2 trillion. It has substantial agricultural resources, a large industrial base, and a highly skilled work force. A dynamic services sector accounts for an increasingly large share of economic activity and is responsible for nearly all job creation in recent years. Real GDP increased 2.2% in 2006. According to initial projections, 2007 GDP growth will hit 1.9 %”( Bureau of European and Eurasian Affairs).

France is the leading agricultural producer in the European Union, accounting for one-third of all agricultural land in EU. France is the world’s second largest agricultural producer, second only to the United States. However 70% of its exports are done to other EU members. Agriculture is a major part of France’s GDP so protecting the industry is necessary for the country’s economic wellbeing. That is why French Government is trying to protect its agriculture, even though it might go against the EU international trade commitments, because usually it is achieved by increasing tariffs, as well as raising quality and sanitary standards for food imports. 

The CAP (Common Agricultural Policy) has been developed to determine the health of the rural economy as well as the rural landscape. The CAP has continues tried to reflect the concerns of the rural areas of the EU. France depends on agriculture as its main source into its GDP’s growth. It is also concerned about the natural beauty of its farms and landscapes, so they are not willing to make it heavily industrialized.

In past few years, environmental objectives, landscape preservation, food quality, animal health and welfare standards have become a very important issue. The implementation of the CAP and the Uruguay Round of the GATT Agreement resulted in many reforms in the agricultural sector of the economy. France has protected its agricultural sector through various trade policies and has made sure about the safety concerns of its farmers and its lands.

The above details about the policies of the French Government towards its agricultural sector we can say that, France being the largest agricultural producer in the EU is being protected a great deal from any kind of harm to its lands, or the productions done on it.

The trade policy for import or export of its produce puts a lot of limit to the trade being done. It looks forward to open some of its trade barriers but might be very hesitant in doing so. As a developed nation France might not be able to count on any sort of further economic development through agriculture by export of its produce to non –EU nations as the route is too narrow. Although it might be willing to liberalize some policies but there may be a danger of involvement into the agricultural sector from many developing economies.

In the case above, a developed nation like France has not totally benefitted by the global trade liberalization being followed throughout the world. It may be interested in some reforms and of liberalization of its policies for its agricultural sector but not much can be expected from the Government.

Developed nations are quite careful in liberalizing their trade policies as involvement on the part of developing countries poses as a threat to their economic development.

Global Trade Liberalization in Developing Nations

Over the past 2 decades, the growth of world trade has averaged 6 percent per year, twice as fast as world output. Trade liberalization is presumed to be really good for the developing countries as they are basically involved in labour abundant. Freer trade will not only increase efficiency but also increase employment opportunities and wages for the unskilled working class of the developing countries. This will further lower the wage inequalities prevailing in the markets as the labor class is paid the least as compared to other working classes.

As a group developing countries have become a very important part of the world trade. Many developing countries have increased their exports of manufactures and services as compared to the traditional goods that were being exported.

Developing countries have increased trade among them. They are now contributing a large percentage of exports to other developing countries.

Some countries have progressed quite well in comparison to other developing countries. Some countries in Asia and Latin America have benefitted a lot through liberalization as they have freely participated in foreign trade. They have succeeded in attracting a lot of foreign direct investments to their nations. Countries like India and China are an example of developing nations that have actively participated in global trade and are now the fastest developing nations.

We will now take the example of India as a developing nation that has been affected by the trade liberalization policies.

The Edible oil consumption has been rapidly increasing in India since last few decades.

“Aggregate consumption increased from around six million tonnes in the early nineties to around than 11 million tonnes in recent years. However, per capita consumption of fats and oils in India is far below the world average”. Consumer’s preferences for the consumption of different oils vary across different regions in India and even between rural and urban areas. Groundnut and mustard oil are among the most consumed edible oils in urban and rural areas respectively. The choices of the consumers vary according to the produce of their regions.

The edible oils sector in India is currently facing several challenges. Cultivation of                        oilseed is becoming increasingly unattractive due to low and unstable yields. Decrease in the price of edible oils due to trade liberalization may result in very low prices for oilseeds resulting in poor supply response. High import tariffs and many other restrictions have made oilseed imports less attractive. Low output of raw material and restricted import of oilseeds can lead to under utilization of processing capacity.

The government has helped the people by providing them with Minimum Support Prices (MSP)) through its stocking policy and by imposing customs duties on imports of edible oils and oilseeds. Although these steps taken by the government did not help in reducing the prices instead the imports stopped and the prices increased with more increase in demand.

“Later as per the agreement under the WTO India fixed its bound rate of tariffs at a really high level of 300 percent for most oils, except for soy oil, for which the bound rate was fixed at 45 percent. Despite this low bound rate, palm oil is the most imported oil in India and not soya oil. This is mainly due to the price sensitivity of the Indian consumers” (Dohlman et. al, 2003). “Not only are palm oil prices lower at the point of origin (Malaysia and Indonesia) but also the freight cost is cheaper compared to Soy oil supplied from USA or Argentina. With trade liberalization imports rose and the prices of edible oils dropped for consumers.”

This helped Indian consumers with their edible oil prices. The reduction in duty on palm oil due to trade liberalization policy prevented prices from rising in India in spite of a drought condition around the world.

These trade liberalization policies of the Indian Government have helped the oilseed farmer and have led to the prevention of unemployment. India being an agriculture based nation can face a lot of problems related to the unemployment of their labor classes.

Trade liberalization in India’s case has helped it in many ways. It has avoided problems of unemployment, poverty, and unmet demand of edible oil. The economic growth of India could have suffered drastically if the trade liberalization policies would not have allowed import of oils from other countries.

Trade liberalization in case of developing nations plays a very important role in increasing their GDP and overall economic growth. Higher standards of living, employment, reduced poverty, inflow of foreign currency through exports etc, are some of the major factors that have led developing nations to liberalize their trade policies and hence they are among the most active participants in global trade. Freeing trade frequently benefits the developing economies. The increased growth resulting from barrier free trade tends to increase the incomes of the poor in developing nations in roughly the same proportion as those of the population as a whole. Hence new jobs are created for unskilled workers, giving them enough to survive properly, further leading to a higher GDP and growth of the nation. Developing countries are far more benefitting from trade liberalization than developing nations. Hence it can be said that we can expect a lot of trade policies being reformed and liberalized by the developing nations as compared to the industrialized ones.

Further Liberalization of Global Trade

Trade liberalization has played a very important role in making our world a globalized economy. Trade has flourished to such extent that countries now are importing and exporting goods on a large scale to fulfill the demands of their consumers. There are still many restrictions for economies in trading with each other. These restrictions can be liberalized further for a freer trade globally. Some developed nations have still restricted a lot of policies for import of goods to their nations to maintain a balance among their exports and imports. These restrictions basically affect the developing nations from entering foreign markets, which in turn slow their economic growth. It might take a long time for developing nations to entirely be able to trade freely with other developed nations. But as we can easily see that the global trade is being dominated by the developing nations, it might soon be possible for them to trade without any barriers with the developed economies also.

Conclusion

This report has emphasized on the trends of the global market in regards with the global trade liberalization being done. Globally many reforms have been made to make trade easier throughout the world. We have also analyzed the effects of liberalization of global policies on the developed countries as well as developing countries. Although it cannot be said that developed countries do not benefit from liberalization of trade but it is quite clear that the developing nations are far more benefitted by these liberalizations. There are many factors which can show the affects of liberalization on a country but the major one is “the economic development through the increase in employment”, which is easily visible in case of developing countries. Liberalizing of trade policies has helped many nations grow and have also increased their economic growth. Globally many trade practices are being restricted which should also be reformed for a better global economic growth.

References:

1.      Sullivan, Arthur; Sheffrin and Steven M. (January 2002). Economics: Principles in Action. New Jersey: Pearson Prentice Hall.

2.      Black, John .,2002:A Dictionary of Economics: Oxford University Press

3.      Lee, Eddy: Trade Liberalization and Employment.

4.      Smith, Jeremy.  “France eyes farm reform during its EU presidency.” March 29, 2008. 

5.      The Bureau of European and Eurasian Affairs.

6.      International Monetary Fund and World Bank, "Market Access for Developing Countries' Exports", 2001