Barriers for free Trade In Developing Countries Abstract: The objective of this essay is to highlight the mechanism of WTFO through which developing countries trade internationally. A brief introduction of the WTFO is given. Various mechanisms and regulations which facilitate trade of developing countries are mentioned in the essay. Differences between trading of developed and developing countries in term of favorable and/or unfavorable WTFO regulations have been discussed In detail. The Doth round and Its focus on the needs and interests of developing countries has also been analyzed.
At the end, the essay is concluded with some policy implications. Keyword: WTFO, Developed & Developing Countries, Transaction Costs, Tariffs and non-Tariffs Barriers. Introduction The World Trading Organization (WTFO) launches an international trading framework for its 1 53 member countries out of which developing countries hold almost 75 percent membership. The open exchange policies offered by WTFO brought major changes in Rupee’s trading and aid agreement with 80 developing economies that is known as “Cottons Agreement (HTTPS:/two. Gob. UK/the-world-trade-organization- and-trading-with-developing-countries)”.
The WTFO Is also known to consider the need to offer greater provision of assistance to developing world and for small business as well. Developing countries can be seen playing vital role in international trade and Investment under World Trade Organization. Their share of export of overall world manufactured goods become has been increased from 10 to 20% Since 1980 (Sally, 1999). Foreign direct investment (FDA) has also went up from 14% during late sass and World bank reports reflect that share and output of developing countries can be doubled approximately by year 2020 (Sally, 1999).
Moreover, less developed countries ND countries currently in transition play a large part in devising policies for International trade. How WTFO facilitate Developing Countries In Free Trade The WTFO has made various negotiations and agreement to lower and remove tariffs and non-tariffs barrier for global trading. Such agreements include “the General Agreement on Tariffs and Trade (GATE – goods); the General Agreement on Trade in Services (GATES); the Trade-Related Aspects of Intellectual Property Rights (TRIPS)”; dispute resolution between member governments; and specific products/services and exporter/lampooner agreements”.
Moreover. Mom other changes have also been considered by the WTFO for welfare of developing countries such as “special measure for least developed countries and small economies, changes to the relationship between trade, debt and finance, the possibility of technology transfers and the relationship between patents and development”. In addition, some changes such as ” technical assistance and capacity building and an amendment in TRIPS ruling that developing countries can offer low price medicine In particular situation (HTTPS:// wagon. K/the-world-trade-organization-and-trading-with-developing-countries There is an intensive discussion on the outcome of rising globalization of the world economy and faster amalgamation of manufacturing and market place since sass (Grumman & Obsolete, 2000). Due to lower transaction costs which consist of lowering the barriers, lower cost of communication and transportation and revolution in the has been increased (Boughs, Demitasses, & Northernmost, 1999).
Williamson, (2008) described transaction cost as the cost of collection and evaluation of information regarding substitute exchanging options to negotiate about exchanging the transactions and enforcing contract of exchange. After World War II (WWW-II), trade tariffs and barriers have been decreased due to various “General Agreement on Tariffs and Trade (GATE)” rounds of polygonal negotiation on trade (Busses, 2009). In 1947 GATE was first established which result in decrease in average trade tariff from 40 to 4 percent in 1999 (Sent & Conman, 2000).
Collective with deregulation in products and financial markets, globalization of capital and financial flows and massive growth in well equipped containers transportation and telecommunication technologies result in competitive environment across the globe and encouraged Mounties for more trading and investment internationally (Sent & Conman, 2000). For instance, world production and manufacturing growth rate was 1. 5 percent during sass, trading grew by 6 percent and foreign direct investment (FDA) by 23 percent (Workloads, 2002).
It is argued that developed countries possess more capabilities to function with lengthy process requiring high direct and coordination cost relative to the most developing countries, however, this is not the whole case. Developing countries have also been discriminated due the insufficient resources to apply WTFO elicits as well as higher indirect costs to initiate WTFO disputes (Lopez, 2006). Moreover, since the start of WTFO, developing economies remained continuously dissatisfied with the trading situation of the world.
Developing countries are in favor of free trade among nations but they feel that they are receiving less and compelled to offer more in world trade. Such feelings lead such poor countries to bring this issue into the WTFO forum (Chem., 2004). Moreover, it is also felt by developing countries that they are not getting same and equal benefits and probable welfare arm the international trading as developed and industrialized countries have (Lopez, 2006). For example, most international trade and investment can be seen in developed COED countries.
In 2000, such developed countries have FDA inflows by 85 percent while exports rate by 74 percent and this figure is relatively higher than their population share (14 percent) in the world (Workloads, 2002). It was reflected that trading system of the world is not fair for poor economy as they face various barriers in markets of developing countries. Less developing economies face more than average barriers to trade in the markets of developed countries in case of the product for which they are competitively strong like textile, clothing and agricultural goods which ultimately negatively affects their growth potential in export (Miller, 2002).
In November 2001 a multifaceted negotiations on trade was started up in Doth Qatar by the World Trade Organization that is the successor to the GATE to cope this problem. This is called “development round” whose main objective was to emphasize the increasing integration of poor countries into the worldwide markets (WTFO, 2001). Whereas the agenda of WTFO primarily focuses on the different levels of tariffs and non-tariff barriers and other facets of international trade such as policies of international competition, however, the key feature of comparative trade performance of less developed countries was largely ignored (Busses, 2009).
The share of tariffs and non-tariffs barriers in overall transaction cost is relatively small as the developed industrialized countries, this other trading cost is much higher in developing countries which obstruct integration of developing economies into developed economies (Boughs, et al. , 1999). Trifler, (1995) was of the view that reduction in overall trading cost would result in welfare gains significantly and increase in the export of less developed countries.
Transaction Cost in International Trade The exchange of products and services globally based upon three kind of transactions such as “flows of information, goods and capital” (Busses, 2009). There are three main types of transaction costs. First transaction cost is information and communication costs include all expenditure a local firm spends for collection of information about competitors, products, services and environment of foreign entry (Boughs, et al. , 1999). It also includes the cost of supplying the information to quarter concerned such as suppliers, trading partners and international markets (Boughs, et al. 1999). Second transaction cost is known as capital transfer costs which involve costs of capital transfer barriers (banking costs), insurance costs and transfer fees (Enameling, 1991; Boughs, et al. , 1999). Third transaction costs involve the costs of goods transfer which has been further divided into transportation costs, transportation insurance and costs of trade barriers such as tariffs and non-tariff arises (Enameling, 1991). Tariffs and Non-Tariffs Barriers The international exchange of products and service does not always bear all types and sub types of transaction costs as mentioned above.
Moreover, the intensity and significance of single component have been significantly changed during last decades. Tariffs rates have been decreased drastically after World War II however “average tariff rates in developing countries are still high as compare to those in industrialized countries” (Enameling, 1991, up. 717). While tariff rates have been decreased, tariffs rates in term of sector are still significantly high. In developed industrialized and high income country, tariffs often increased sharply especially in agricultural products.
Moreover, tariffs enhancement in high income countries can also affect the import of processed goods such as leather, furniture, sports items and clothing from developing or least developed world (Busses, 2009). Transaction cost become higher when high-income countries follow the policy of protectionist trade (Busses, 2009). Tariffs have also risen considerably if the level of processing increases. If the tariffs increase in the high income countries, it can decrease the demand for reduces or services to be imported from developing countries (Blackcurrants, Enders, & Franc’s, 1995).
Moreover, it can also be seen that poor countries put tariff against each other which obstruct their own development. In the WTFO Doth Round, multifaceted trade liberalizing negotiations, agriculture and some labor-intensive products and services are on the top of agenda (WTFO, 2001). Though overall significance of tariff has been decreased in recent decades, governments around the globe, particularly developed ones impose some non-tariff barriers to protect their local industries through various forms of non-tariff barriers (Miller, 2002).
These non-tariff barriers include some import quota such restrict the number of products can be imported; or some export quota such as limit the number of products to be exported. Non-tariff barriers have their roots back in sass and sass in US and later tariff barriers is “antiquating duties (Finger & Art’s, 1993). In most of the times, governments apply some regulations to protect their local industries those are offering products at higher prices.
The issue of unfair pricing becomes more significant when some international markets offer the same products on relatively lower prices (Grumman & Obsolete, 2000). Since the last decade, antiquating policy has also been adopted intensively by some developing and emerging economies such as South Korea, India, Brazil, Mexico, South Africa to protect their local industries. In addition to tariff and non-tariff barriers for import from developing countries, transportation and communication costs have been decreased drastically relative to the last century.
Technological revolution in the area of communication and transportation made it easy for exporters and importers to communicate and transport their products and services all over the world on cheaper costs (Baldwin & Martin, 1999). Because of massive production of rare planes and related services, actual cost for transportation by airline, computed as average air transportation revenue per passenger mile, have been decreased (Bored, Exchanging, & Irwin, 1999). Moreover, new communication technologies such as internet have also lowered the communication costs across the world.
Although developing countries have also been benefiting from these advancements, developing countries have also been facing higher transactions costs as compare to those faced by developed world. For instance, if a standard size 40 Ft container is being shipped from Baltimore to Rotterdam, it cost $1 500, when the container of same size is being shipped from Baltimore to Peru, it costs $ 4000, though distance from Baltimore to Peru is less than that of Baltimore to Rotterdam. The container of the same size is being booked for $ 13000 for developing world such as China, Nepal, and Transmitted (Busses, 2009).
Despite of advancement in transportation technology, so many developing economies still facing some challenges as being in the remote geographical areas from prominent market place of the world. Even world is advancing remarkably in the field of communication technology, developing world is still discriminated in term of communication costs. For instance, the cost of 3 minutes call on telephone to US from developing country is three times more than the call being made by high income COED countries. Number of telephone lines, internet connections, internet usage is higher than those in the developing countries (Workloads, 2012).
Apart from developing countries, situation of communication is worse in least developed countries which lead to higher communication cost. WTFO Doth Round and Developing Countries’ Stake The Doth round of multifaceted negotiations on international trade was billed since the start of “Doth Development Agenda” with the commitment in the “Doth Ministerial Declaration to place their [developing countries] needs and interests at the heart of the Work Programmer adopted in this Declaration” (WTFO, 2001 b, Para 2).
The drive for such consideration was the feelings that the last round has largely ignored the interests of developing economies. After the “Seattle Ministerial Meeting” where many conflicts arose between developing and developed world (Shoot, 2000), hose who are intended to address these issues to reach an agreement and to initiate negotiations round at Doth were committed not to exercise the same which were almost related to the needs and interests of developing countries. The issues which were more significant to the developing economies are discussed below.
Agriculture Under this umbrella, two main issues were included the protection policies of governments of developed countries as well as subsidies offered by these governments for their farms in order to produce both domestic products and for import as well (Brown, Tradeoff, & Stern, 2003). Earlier, the GATE played significant role in decreasing or eliminating tariff barriers for import of manufactured items. However, removing barriers on import of agricultural products has not been part of GATE policies (Cravings, 1998).
On the other side, agricultural producers have formed a distinctive group which could not be made by manufacturing sectors. It is because of this distinctiveness which results in blocked “agricultural liberalizing” (Brown, Tradeoff, & Stern, 2003). The needs and interests of developing economies in removing tariff barriers for agricultural product is quite understandable in a case if developing countries export their agricultural products to a country where import barriers exist.
Their concentration in removing export subsidies may be comparatively less obvious because their customers may get benefit with subsidized agricultural goods (Anderson, 2004). In case of poor countries where hunger can be seen on the large scale, people may need subsidized cheap foods which exactly offer what they need. However, it is quite obvious that decrease and removal of agricultural policies offered by developed governments is on the top of agenda of the Doth Round.
Moreover, it can also be seen that normally developing countries follow the policies of developed world, so if there is the case, they may also impose some protection policies to secure their own local industries which will result in no opportunities for other developing economies. Intellectual Property One of the significant successes of the Uruguay Round was its addition of the “Agreement on Trade Related Intellectual Property Rights (TRIPS)” which was accepted as one of the new components of WTFO (Brown, et al. , 2003).
It has been accepted due to several reasons such as TRIPS was intended to focus innovation internationally and for their local markets. It was also accepted due to the pressure came from developed world. However, it was predominantly accepted in exchange because they have expectation from trade liberalizing in textile and clothing (Chorea, 2007). Later on, a new component in the TRIPS has been included that focus on provision of treatment of several diseases of the poor country people especially AIDS which was separated from Doth and arose as “Declaration on the TRIPS Agreement and Public Health” (WTFO, AAA, Para 4).
The separate agreement addresses the issues of poor countries and countries incapable to manufacture heuristically. Ministerial agreement stated only two narrow TRIPS issues to be addresses that are “geographical and biological diversity’ (WTFO, Bibb, Para 19). The second one result in “production of traditional knowledge and folklore” which is of great interests for developing countries.
Services With the start of Doth round, developing countries started expecting the negotiations on movement of services across the countries that can be of interests of developing countries. Services providers in developing economies normally see themselves in this (Brown, et al. , 2003). But the ample availability of higher quality services at lower costs will be valuable and beneficial for developing countries with the strengthening their capability to gain competitive advantage in other areas.
Though developing countries may find themselves incapable to survive in competitive services sectors that have high probability to be liberalized, they, however stayed to gain something as exported from continuing GATES negotiations (Addling, 2006). If the developing countries have the only opportunities to send high skilled workers to developed world, they might have little to gain (Brown, et al. 2003). However, they can gain a lot from movement of unskilled workers even for a shorter time, they can gain a lot.
However, this debate is still ongoing and various developed countries have their own policy regarding the import of human resource (Pulaski, 2006). Market Access In the Uruguay Round, average tariffs have been lower in developed industrial countries while major non-tariffs barriers have been removed with the exception of tariffs in agriculture sector (Finger, Owing, & Reindeer, 1996). However, tariffs have still been issues particularly in the sectors in which most developing countries export heir products to developed world.
The Doth Round was also intended to renegotiate on this issue however, “extreme sensitivity of the issue is indicated by its appearance under the heading WTFO rules in the Ministerial Declaration, rather than under Market Access or any more explicit category’ (WTFO, Bibb, Para 28). This issue seems not be resolved unless major efforts making by developing countries themselves. Technical Assistance The agenda of Doth Round also included the need to provide assistance to developing economies to implement and comply the WTFO regulations (Wilson & Cooperation, 2002).
Such issues include that it is to be acknowledged that developing economies, relative to the developed one, view compliance with WTFO regulations more difficult. It was stated that “we commit ourselves to ensuring adequate technical assistance and support for capacity building both during the negotiations and after the conclusion” (WTFO, Bibb, Para 26). Moreover, separate items mention “Trade Facilitation and Technical Cooperation and Capacity Building”, both are particularly aimed at providing assistance to developing countries so that they may integrate themselves with international trading system.
If this commitment could have been fulfilled, the developing countries can gain a lot however, WTFO is not that much equipped to provide vast variety of technical assistance to its 75% percent developing members. So how WTFO facilitates its member countries is still quite unclear (Wilson & Cooperation, 2002). Special Treatment for Developing Countries There is a phrase “special and differential treatment” mentioned in the agenda of Doth round but its meanings in this case are not clear (WTFO, Bibb, Para 44).
Such assistance is expected to include long time to follow the WTFO regulations as well as inclusion of assistance in technical and financial matters. Moreover, Doth round have a substantial section dealing with the “Least Developed Countries (Olds)”. Again this is call for technical and financial assistance for Olds and most importantly, “duty- free, quota-free market access for products originating from Olds” (WTFO, Bibb, Para those who are still not members.
Doth declaration calls for facilitation of speeding up the approaching WTFO membership. Unlike many other objectives of Doth round negotiations, these tasks seem clear and possibly resulting low cost for developed world. This is one of the areas which can be progressed easily. Conclusion This essay is aimed to highlight the international trade by developing countries under the World Trade Organization framework.
Various mechanisms have been mentioned through which developing countries trade internationally with other countries. It has also been stated that why developing countries are not happy with the WTFO negotiations and conclusions. Developing countries find themselves as giving more and in replacement, gaining less from international trade. They also realize that developed industrialized countries put extra tariff to protect their local industries and they do not give access to developing countries to their markets.
Furthermore, developing countries have to pay more in term of shipping charges for transportation of their goods internationally. Moreover, they bear higher cost of information and communication technologies to communicate with rest of the world. Although, various tariffs and non-tariff barriers have been reduced by developed countries to import goods and services from developing countries however, a large number of barriers including agricultural products still exist.
To address these issues, Doth Round was held in 2002 which addressed the needs and interests of evolving countries in term of removing barriers by developed industrialized countries for import of agricultural products, giving access to the markets of developed countries, providing human resources to them, providing technical assistance to developing countries to comply with WTFO regulations and providing assistance to members for compliance with WTFO rules and non-members Olds for getting membership of WTFO.