The twenty-first century is increasingly global. The sharp rise in communication tools such as television, internet, airplanes and telecommunications has blurred the nation-state borders and merged people as global citizens of an interdependent world. Martin Luther King aptly said
“Before you finished your breakfast every morning, you have depended on more than half of the world.”
With coffee coming from Africa, tea from India or milk from cows imported from Australia, one does enjoy the benefits of Free Trade. Despite the many procuring advantages, there are several pitfalls of free trade that have led to a growing mistrust in the public, especially belonging to the developing nations. The years of dispute in the world trade Organization’s ministerial Doha Rounds prove the discontent of member states to reach to an unbiased conclusion. However, before expanding the pros and cons of Free Trade and excavate the myth of “free” in international trading system, a genesis of Free Trade is essential.
What exactly is Free Trade? Free trade refers to the absence of any barriers/restrictions on international trade between two (or more) nations. Free trade is the opposite of Protectionism. Where Protectionism calls for tariffs and duties on imports to protect a country’s domestic producers, Free trade is a policy of allowing imports and exports to flow freely between nations without any restrictions. Free trade also enables foreign companies to trade just as efficiently, easily, and effectively as domestic producers.
... ratio of trade to production in the world for rice producers, Cramer, Wales, and Shui, were import quantity restrictions, import tariffs, and ... to the general GATT principles of non-discrimination and most-favored nation treatment. Furthermore, STEs are supposed to act solely on ... of the quota amounts to a protectionist measure against free market ex-porters. Another problem relates to the fact that ...
Free trade areas allow the agreeing nations to focus on their comparative advantage and to freely trade for the lacking goods. Eighteenth century economist David Ricardo put forth the doctrine of comparative advantage: free trade between nations benefits each nation involved. A free-trade policy does not necessarily imply that the government abandons all control and taxation of imports and exports. The State does not hinder international trade, such as tariff barriers, currency restrictions, and import quotas. Free trade can also foster international cooperation, by encouraging nations to freely exchange goods and citizens.
Free trade forms the basis for regional free trade agreements and economic communities. Free trade encourages innovation through competition between foreign and domestic companies which is return develop better products. Free trade area is a type of trade bloc, a designated group of countries that have agreed to eliminate tariffs quotas and preferences on most (if not all) goods and services traded between them. It can be considered the second stage of economic integration. Countries choose this kind of economic integration form if their economical structures are complementary. If they are competitive, they are more likely to choose customs union.
Adam Smith was the first economist to document the value of free trade in 1776. In The Wealth of Nations he proposed unilateral free trade by allowing unrestricted free access to their domestic market. The theoretical case for free trade is based on Adam Smith’s argument that the division of labor among countries leads to specialization, greater efficiency, and higher aggregate production. The way to foster such a division of labor, Smith believed, is to allow nations to make and sell whatever products can compete successfully in an international market. Up to the nineteenth century, under the system of mercantilism, Europeans faced two main kinds of barriers to trade: first, there were duties, quotas, and prohibitions restricting the movement of goods from one customs area to another; second, controls on participation in particular trades imposed by corporations like the British or Dutch East India Companies.
MYTHS OF THE POLITICAL-ECONOMIC WORLD VIEW A MYTH IS a traditional story that offers an explanation of some fact or phenomenon. Myths are neither wholly true nor wholly untrue. They may have been more true in the past than now, but people act as if they are still true, even when they no longer really believe in them. Some modem usages of the word have connotations that suggest that myths are ...
In 1813 the British East India Company was deprived of its monopoly over trade between Britain and India. Following a prolonged public campaign, the repeal of the Corn Laws 1846 opened the British market to cheap foreign grain. The exemplary force of these events was all the greater because they appeared to be applications of the cogent and appealing liberal economic theories of Adam Smith and David Ricardo. Moreover, rapid growth in international trade, coinciding with increasing wealth and an extended period of general peace in Europe, at first appeared to confirm these theories. Ricardo had argued in his theory of comparative advantage that free trade between nations would bring gains to both parties to an exchange, even when one was the more efficient producer of every good they traded. This was because trade encouraged even an unproductive national economy to devote resources to those branches of production in which they would be least inefficiently employed.
Colonial America had trade regulations. The imposition of tariffs and duties has always been a source of revenue for the U.S. government. After tariffs and duties reached a peak in the early 1930s, the U.S began to reduce tariffs/duties on imports by negotiating bilateral trade agreements with other countries.
After World War II the General Agreement on Tariffs and Trade took effect. It provided for multilateral trade agreements to be negotiated in a series of “rounds,” the most recent of which the Uruguay Round that started in 1986 was concluded in 1993. Uruguay rounds took eight long years to complete and the reason behind was the disparity between the industrialized North and the lesser developed South. However, it resulted in the creation of World Trade Organization in1995. WTO was reformed on modern economics and ethical aspects like Mercantilism which constituted GATT became history.
Presently, 140 countries are members of WTO with many in queue for membership. Economic prosperity is center point of all issues and that is true of the international system that is why the G-6 expanded into G-20 adding the states from the developing world. WTO’s ministerial Doha Rounds began in 2001 and haven’t found a concluding date in 2010 ten years later. The reason behind this is the increase membership from different parts of the world that has diverse economic priorities and dissimilar ratio of poverty, yet they have to face the trade tariff on equal terms with the industrialized world. The world leaders promised against protectionist measures but do just the same. The United States of America and EU gave state-aid to their automobile and agriculture industries to protect them and India followed suit by protecting its steel industries. The role of Dispute Settlement Authority of WTO is now questionable as it has failed to contain the great powers.
Abstract Purpose- This paper presents the analysis of U.S. imports and exports by managing the trade balance. It also presents the leading U.S. imports and exports in terms of value along with the important partners. Design/methodology/approach- The author explains the balance of trade including the rise and fall of U.S. trade deficit using the analysis between different countries imports and ...
Reasons why free trade should be protected and promoted
There are two reasons why free trade should be protected and promoted. The first concerns free trade’s profound contribution to global economic prosperity. The second is that free trade is a human right not an absolute right, but a right that governments should only circumscribe in the most adverse of circumstances.
Building a Better World
One blessing of globalization is the reduction of global poverty. Trade promotes faster economic growth, and growth reduces poverty. Consider this headline on a recent World Bank study: “Global Poverty Down by Half Since 1981 But Progress Uneven as Economic Growth Eludes Many Countries.” The number of people living in absolute poverty (defined as U.S. $1 3 per day) has dropped from 1.5 billion in 1981 to 1.1 billion in 2001. As a share of the world’s population, it has fallen from 40 percent to 21 percent. Our generation has seen the greatest progress in the history of mankind in nutrition, life expectancy and infant mortality.
This has not been a uniform or random achievement. The most dramatic reductions in poverty have been in countries that have made the most progress in opening themselves to the global economy: China, India, Vietnam, Uganda. In fact, in China we have witnessed the greatest poverty reduction program in history of the world, not because of foreign aid, internal transfers or threats of sanctions, but because of domestic reforms and trade liberalization. Trade and growth create a larger middle class, which has traditionally been the backbone of democracies.
... and bilateral trade and other agreements with participation of SAARC member countries; secondly, quantitative assessments of economic gains, welfare ... opportunities for Bangladesh economy. The creation of the World Trade Organization has created new ways of enjoying ... multilateralism versus bilateralism, sectoral versus comprehensive approach, duty‐free market access, rules of origin (RoO), removal ...
The economic case for free trade is straightforward. Trade allows the global economy to do more with the resources, skills, and technology at its disposal than would be possible if countries were to operate in isolation. Opening up to trade lets countries shift their patterns of production, making more of what they are relatively good at producing. They sell abroad the part of their output that their own people do not want, and import things they do want that are not domestically produced at lower prices than if they were to try to make those things themselves. Indeed, the fruits of trade are on the shelves of shops around the world. When trade dries up, as it did in 2009 as a result of the economic crisis, it causes palpable pain in the form of shuttered factories and unemployed workers. And few would doubt that at least part of the dramatic growth of trade in the post-war era has been because of a progressive lowering of trade barriers.
Free trade is also about economic growth and opportunity. Trade delivers tangible benefits for the vast majority of families as consumers delivering lower prices, more choice, better quality, and higher real wages. Think of free trade as the market’s own competition policy, protecting the public against potentially abusive domestic monopolies. Unfortunately, the highest trade barriers in rich countries are typically imposed on products disproportionately consumed by lower-income households at home and produced by poor people abroad—food, clothing, and shoes. Protectionism as we practice it today is a regressive tax on millions of hard working families.
Exporting companies obviously benefit from being able to sell in larger markets. Companies that produce automobiles, airliners, and pharmaceuticals can enjoy greater economies of scale by spreading huge fixed costs across longer production runs. Companies and nations can specialize in what they do best by a global division of labor. Export-industry jobs typically pay above-average wages.
Globalization is also tilling the soil for democracy and greater respect for human rights. Free trade promotes political freedom by promoting communication and travel. In Kuwait, women are using cell phones and text messaging to organize for more political and civil freedoms. The free market creates counterweight to concentrated authority and space for civil society. Everybody can agree that the world has become more globalized in the past 30 years, but what fewer realize is that the world has become more democratized.
Introduction I believe that the North American Free Trade Agreement was an inevitable step in the evolution of the United States economic policy. The globilization of the world economy due to technological advances in computers and communications have shrunk the world to the point where no single country acting alone can effectively compete on the foreign market. Even the United States, with its ...
According to Freedom House, a human rights NGO in New York, the share of the world’s population that enjoys the kind of freedoms we take for granted—open political competition, a climate of respect for civil liberties, significant independent civic life, and independent media—has jumped from 35 percent in 1972 to 44 percent today. The share living in countries classified as “Not Free,” or the worst kind of tyrannies, has dropped from 47 to 35 percent.
This is good news, and globalization has played an important role in making it possible. Our best hope to promote political and civil liberty in countries such as China, Vietnam, Cuba, and the former Soviet republics would be to encourage more trade and globalization, not less.
Lessons of History
Too many critics of globalization fear the future, misinterpret the present, and ignore the past. Consider our own lessons of history, especially surrounding World War II. In 1930, the U.S. Congress passed the infamous Smoot-Hawley trade bill that drastically raised tariffs. That feeding frenzy of protectionism deepened and prolonged the Great Depression, and it certainly didn’t lower unemployment. Just as destructively, it ignited a downward spiral in global trade and made it virtually impossible for Australia to service its reparations from World War I. The disintegration of the global economy did not cause World War II,
In the immediate aftermath of World War II, world leaders came together to establish not only NATO but the General Agreement on Tariffs and Trade. The United States turned away from protection, and so eventually did Australia. Trade expansion was seen as an instrument not only for raising living standards but also for knitting together our Cold War allies and spreading the values and blessings of freedom to a wider circle of mankind. We have also seen a deepening of economic integration in Europe that has helped to make war among the major powers of the continent virtually unthinkable today. So the argument for free trade stands not only on economic logic but on a concern for humanity and a respect for history.
... American markets. The U.S.-Canada trade agreement was to demonstrate the cause and significance of free trade all over the world. Goods from countries that were not ... This free trade agreement was an agreement between Canada and the United States signed on 4th October 1988 and was finalized on October ...
The Role of Free Trade Agreements
The trouble with multilateral negotiations is that they are slow and messy and incomplete. Finding a deal that wins support of 148 nations means you must appeal to a lowest common denominator. It also means you wait around a long time for a deal to be struck. Since the 1960s, a comprehensive agreement among GATT countries has been concluded on average every 13 years, and it has now been more than a decade since the last agreement and no end is in sight for the current Doha Round.
When we consider the political challenges of unilateral liberalization, and the cumbersome nature of the multilateral process, regional and bilateral trade agreements offer a third-best option for trade liberalization.
One, FTAs provides a safety valve if multilateral negotiations become stuck—an all-too-real possibility. The Doha Round has already missed several deadlines, and the prospects do not look good for any kind of breakthrough at the Hong Kong ministerial in December. Because of the need for consensus, it takes only a few intransigent members to scuttle a new agreement. Fears that FTAs will divert attention from the multilateral track are unfounded.
Two, FTAs can help less-developed countries lock in and institutionalize ongoing economic reforms. A signed agreement prevents backsliding in times of economic or political duress, assuring foreign investors that reforms mark a permanent commitment to liberalization. Free trade agreements can reward and solidify market and political reform in regions of the world where models of successful reform are most needed. In this way, free trade agreements can serve as carrots to encourage the spread of political and economic freedom abroad. This was probably the most powerful argument in favor of the just-enacted Central American Free Trade Agreement.
Third, FTAs can provide a useful template for broader negotiations. Negotiating with only one country or a small group of like-minded countries allows more meaningful liberalization in complex areas such as sanitary and phytosanitary regulations, technical barriers to trade, and services trade and investment. The Australia-U.S. FTA has certainly blazed a trail in many of those areas for wider regional and multilateral negotiations.
Finally, FTAs can spur the economic reform and industry consolidation within member states. By encouraging regional integration, FTAs hasten the consolidation of supply chains among members, increasing economies of scale, and creating a more integrated production process. More efficient industries and infrastructure can yield dynamic gains year after year, boosting growth, investment, and demand for imports from FTA partners as well as the rest of the world. NAFTA is one reason why North America has been one of the engines of global growth in the past decade.
An Assessment of the Australian-U.S. FTA
The agreement relaxes rules for American investment in the Australian economy, reducing the cost of capital while creating more and better jobs. The Australian government can magnify the benefit by “multilateralizing” the new, more open rules—that is, extending them to all other foreign investors. Like the United States, Australia is generally open to foreign investment. That’s a major reason why their economies are so prosperous.
Another huge benefit of the agreement will be the expansion of services trade with the United States. It guarantees Australian companies full, national-treatment access to the world’s largest, most dynamic services market. It provides mutual recognition of professional qualifications. For Australian consumers, it opens their market to more competition in such areas as life insurance. In a side deal, it will allow 10,500 Australians to work in the United States each 8 year under the new E-3 visa. Manufacturing and agriculture are important sectors, but the real heart of Australia’s economy is now services. The service sector produces more than three-quarters of their GDP and employment, and virtually all of their economic and job growth. This agreement will make the services sector even more competitive, boosting growth throughout the economy.
On market access for goods, the story is also positive, with the notable exception of sugar. The Bush administration should have opened the U.S. market to Australian sugar in the agreement. It was a political calculation to not take on the powerful sugar lobby. On other agricultural products, the agreement delivers duty-free access for two-thirds of Australian exports immediately and for another 9 percent in four years. Beef and dairy products received an immediate increase in quotas. For the first time, Americans can buy Australian butter, cheese, cream, and ice cream. In fact, the Australian Dairy Industry Council estimates the agreement will deliver A$2,500 to A$3,500 a year in extra income per farm when fully implemented. The 35 percent tariff on canned tuna was eliminated upon enactment, as were tariffs on fruits, vegetables, and cut flowers. Tariffs on Australian wine will be eliminated in 11 years.
The agreement also eliminates tariffs on Australian auto and auto part exports to the U.S. The 25 percent tariff on light trucks is eliminated. The commercial relationship between Australia and the United States offers a compelling example of the mutual benefits of globalization. The United States is Australia’s second largest trading partner, behind only Japan, with total two-way trade topping A$40 billion last year. The United States is the second largest export market for Australian goods and services, and the largest source of imports. Last year, Australian companies sold almost A$14 billion worth of goods and services in the United States.
It is a well known fact that in North Korea, which ranks lowest in economic freedom in the world, consumers have to struggle to find the most basic items such as food, while in South Korea, which is one of the most rapidly-growing market economies, consumers enjoy per capita income which is about 12 times that of North Korea.
Korea has successfully negotiated three FTAs so far. Partner countries are Chile, Singapore, and the European Free Trade Association (EFTA).
EFTA is an international organization of Iceland, Norway, Switzerland, and Liechtenstein.
The European Union (EU) Case
The European Union is the world’s biggest trader, accounting for 20% of global imports and exports. Free trade among its members underpinned the launch of the EU 50 years ago. The Union is therefore keen to liberalize world trade for the benefit of rich and poor countries alike.
The EU has been a key player in international trade liberalization negotiations. The latest of these is the so-called Doha Development Round which began in 2001. The aim of these negotiations, held in the framework of the World Trade Organization (WTO), is to reduce tariffs and remove other barriers to world trade. Following earlier rounds, the EU’s average tariff on industrial imports has now fallen to 4%, one of the lowest in the world.
Progress in the Doha Round has been slow. Wide and persistent differences have opened up between the rich and poor countries on issues concerning access to each other’s markets and the long-running question of agricultural subsidies. Negotiations have lurched from crisis to crisis. The WTO hopes the Doha Round can be successfully concluded by the end of 2008.
Free Trade Agreements in US
Free trade agreements (FTAs) have proved to be one of the best ways to open up foreign markets to U.S. exporters. Today, the United States has FTAs with 14 countries. In 2006, six new FTAs were implemented: with Bahrain, El Salvador, Guatemala, Honduras, Morocco, and Nicaragua. Last year, trade with countries that the United States has FTAs was significantly greater than their relative share of the global economy. Although comprising 7.5 percent of global GDP (not including the United States), those FTA countries accounted for over 42 percent of U.S. exports.
U.S. Free Trade Agreement Partners in the Global Economy
FTA = free trade agreement
GDP = gross domestic product
Note: World GDP excludes the United States. GDP percentage shares are based on GDP figures on a purchasing power parity basis. Export figures are for total U.S. Exports.
Free trade agreement countries include all countries with free trade agreements with the United States (Australia, Bahrain, Canada, Chile, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua, and Singapore).
The United States is party to many bi-lateral and multi-lateral trade agreements. Countries with which the U.S. has active bi-lateral trade agreements include: Australia, Bahrain, Chile, Israel, Jordan, Morocco, Peru, Oman, and Singapore. The active multi-lateral trade agreements that the U.S. has signed include the North American Free-Trade Agreement and the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR).
The U.S. is also party to the General Agreement on Tariffs and Trade (GATT, overseen by the WTO) along with 152 other countries. U.S. trade agreements with Panama, Korea, and Colombia are pending congressional approval. The U.S. is also in negotiations on trade agreements with Malaysia, Thailand, the United Arab Emirates, and the Southern African Customs Union (SACU) which includes Botswana, Lesotho, Namibia, South Africa, and Swaziland.
The Tangible Benefits of Trade
The gains from freer Trade are substantial. Today, the $12 trillion U.S. economy is bolstered by free Trade, a pillar of America’s vitality. In 2005, U.S. exports to the rest of the world totaled $1.2 trillion and supported one in five U.S. manufacturing jobs. jobs directly linked to the export of goods pay 13 percent to 18 percent more than other U.S. jobs. Moreover, agricultural exports hit a record high in 2005 and now account for 926,000 jobs.
With more than 95 percent of the world’s consumers living outside of the United States, the global marketplace is important to U.S. firms. Free Trade opens the door to that marketplace and promotes America’s continuing prosperity.
For over five decades, the U.S. has earned benefits from reducing its Trade barriers, paving the way for substantial economic expansion and higher standards of living. Chart 1 illustrates some specific facts about free Trade and the U.S. economy:
• The average U.S. tariff rate on all goods has fallen from over 19 percent in 1933 to 1.8 percent in 2004.
• As a percentage of GDP, the importance of Trade in the economy has climbed from single digits in the 1930s to nearly one-quarter of U.S. GDP in 2004.
• At the same time that Trade has become freer, real per capita GDP in the U.S. (in constant 2000 dollars) has climbed from a low of $5,061 in 1933 to about $36,000 in 2004.
Freer Trade has been a driving force behind America’s high standard of living and promises even more if Trade barriers can be broken down even further. The Institute for International Economics estimates that over the past 50 years, Trade liberalization has brought an additional $9,000 per year to the typical American household. The North American Free Trade Agreement (NAFTA) and the Uruguay Round of the WTO-the two major agreements of the 1990s-generate annual benefits of $1,300-$2,000 for the average American family of four.
Importance of Free Trade Agreements In Age of Globalization
Trade agreements help open markets and expand opportunities for workers and businesses and can help their company enter and compete more easily in the global marketplace. Trade agreements are also a tool for promoting fair competition and encouraging foreign governments to adopt open and transparent rulemaking procedures as well as non-discriminatory laws and regulations. Trade agreements can strengthen the business climate by including commitments on issues of concern along with the reduction and elimination of tariffs. Trade agreements may include commitments on topics such as:
• Improving intellectual property right protection
• Enhancing labor rights
• Government procurement
• Opening service sectors to competition
• Enhancing rules on foreign investment
• Environmental standards
• Improving customs facilitation
The Story from the Other Side – Is free trade “free”?
Driven in part by a progressive lowering of barriers to trade in both rich and developing countries, global trade expanded faster than the global economy grew. Economists argue that free trade makes everyone better off, allowing more, and more varied, goods, and lower prices, than would otherwise be possible. Some also argue that it leads to faster economic growth and less poverty.
Some critics of free trade argue, however, that its supposed benefits for poor people and developing countries are illusory. Trade, they say, benefits rich countries at the expense of poor ones, increasing inequality between nations. Others say that it hurts rich-country workers, particularly the less skilled, thus increasing economic equality within rich countries. All would rather that the world concentrate its efforts on making trade “fairer” rather than further attempt to reduce trade barriers.
The leaders of the world’s major economies dutifully trot out the requisite promise about completing the seemingly interminable Doha round of multilateral trade talks and abjuring protectionist measures each time they meet. Despite this, the political will for making trade freer seems almost non-existent. Part of the reason for this is that the benefits of trade are believed to be uneven. Some regions and some groups within them are seen as cornering all or most of the gains. Others—autoworkers in America or call-centre employees in Ireland, for instance—are seen mainly as losers. Trade, the argument goes, is fundamentally unfair, both to rich-country workers who see their jobs shipped off to China and the workers in China who must do those jobs for a fraction of the original workers’ wages, and under conditions that the former would shudder to accept. Instead of concentrating on more and more open trade, the argument goes, it is more important to deal with trade’s inherent unfairness.
World trade rules have been developed by the rich and powerful on the basis of their narrow commercial interests. Rich countries and powerful corporations have captured a disproportionate share of the benefits of trade, leaving developing countries and poor people worse off. Trade rules should be judged on their contribution to poverty reduction, respect for human rights, and environmental sustainability.
Fairness is also important in the governance of trade. International trade negotiations have resulted in rules which open up markets mostly for the goods and services exported by rich and emerging economies, while keeping markets closed in agriculture and other goods which are the main produce of poorer countries. The rules are made in negotiations in which the powerful call the shots, and do not always do so in good faith. In the Uruguay Round of negotiations industrialised countries were perceived to have exacted precise and far-reaching commitments from developing countries, in exchange for vague promises, such as to liberalise agriculture, which they have not kept. The Doha Round keeps failing to restart, in large part because there is too little trust in the fairness of its likely outcomes, as well as the fairness of the negotiating process, something Pascal Lamy, Director-General of the WTO, is trying valiantly to change.
The enforcement of trade rules is also unfair. When countries break trade rules, they are not systematically policed. They will be caught when their actions affect countries in which business groups are organised and well resourced enough to play a key role in gathering information and financing the preparation of the case against the offender. For most small countries, bringing a case against an important trade partner is unthinkable. They could lose discretionary trade access, aid or geostrategic assistance. Were they to win, they would secure the right to apply retaliatory measures which might have little effect—a pyrrhic victory for many.
Rigged Rules of Free Trade
The rich world tells the poor world to get rid of subsidies, but continues to spend $1 billion a day subsidizing its own farming enterprises.
Rich countries dump subsidized produce on developing countries, driving down the price of local produce – with devastating effects on the local economy. This unbalanced playing field has made many poor farmers even poorer, or forced them off their land completely.
Burkina Faso: Cotton story
The international cotton trade provides the best example of the damaging effects of commodity subsidies. Because American cotton producers get more federal subsidies with each additional bushel they produce, current farm programs encourage overproduction with the surplus dumped on the international market, lowering prices and undercutting the livelihoods of millions of poor farmers around the world.
Cotton subsidy reform could substantially improve the welfare of over one million West African households—10 million people—by increasing their incomes from cotton by 8 to 20 percent. For farmers living on less than $1 a day, this means more money for food, medicines, school fees, and fertilizer—more money to help sustain lives and livelihoods.
A typical cotton producing household in West Africa has about 10 family members, an average life expectancy of about 48 years and an adult literacy rate of less than 25 percent. Cotton is often the only source of cash income for these families who live on less than $1 a day per person. Added income from increased cotton prices could make a world of difference.
With a complete removal of US cotton subsidies, the world price of cotton would increase by 6-14%, prices that West African farmers would receive for their cotton would increase by 5-12%. At the household level, this increase would result in additional income that could cover all health care costs of four to ten individuals for an entire year, or schooling costs for one to ten children, or a one year supply of food for one or two children.
Antidumping is one of the measures of “trade defense” utilized against countries that conduct dumping. Dumping, according to GATT, is an unfair trade practice, that involves the “placement of great quantities of products in a foreign market at extremely low prices”. Pursuant to Article VI in the GATT, countries that are victims of dumping are permitted to conduct antidumping measures. These measures include the use of retaliatory sanctions when imported products are deemed to be below “normal price”. The use of these sanctions as a tax, devalues the reasoning behind their use, which can originate from either dumping or other unfair trade practices.
U.S use of Anti-dumping Protectionism – Determining Dumping in the U.S
The Department of Commerce and the U.S. International Trade Commission (ITC) together start the investigation process of a dumping case. The steps in starting an antidumping case are as follows:
1. U.S. company submits a petition to the International Trade Administration at the Department of Commerce, alleging that a foreign company is dumping its product in the U.S.
2. If the Commerce Department determines that sufficient evidence exists, it will proceed with an investigation.
3. The ITC then may start its own investigation to determine whether there is injury to any domestic companies.
4. If the ITC finds there has been material injury to a U.S. company, the Commerce Department will determine whether the product in question is being sold in the U.S. at “less than fair value,” or at a lower price than that sold in the home market or a third country market.
5. If the Department issues a preliminary finding that sufficient evidence of such pricing practices exists, it will direct the U.S. Customs Service to suspend the importation of the product, or require U.S. importers of the product to post a deposit. This bond must be paid to the U.S. government in the event that a final determination finds that the product is being sold at less than fair value.
6. The ITC, at this point, must determine if there is any actual material damage to U.S. companies caused by the alleged dumped imports.
7. If the ITC determines that the dumping has caused injury to a U.S. manufacturer, the products then are subjected to “antidumping duties” equal to the amount of the determined margin. If, however, the ITC finds that there is insufficient evidence, the case is dismissed.
Problems with U.S Anti-Dumping Laws
When an American business accuses a foreign business of dumping in the U.S., the Commerce Department must compare the price of the good in the home market of the foreign firm and the price it is sold for in the U.S. If the U.S. price does not reflect “fair market value,” which was determined by the Commerce Department, the foreign business can be found guilty of dumping. The problem is that the methods the Commerce Department employs are complex, arcane, and plagued with conceptual and technical problems. And because so many aspects of estimating the fair market value are subjective, it is easy for the Commerce Department to “prove” dumping when in fact no dumping has occurred. However, the federal government claims that antidumping laws help fight unfair trade practices by foreign businesses, in reality there are so many problems associated with determining the existence of dumping that the rules themselves turn out to be unfair. Here are just a few of the many difficulties caused by antidumping laws:
When a U.S. company charges a foreign company with dumping, the Commerce Department assumes that the products in question are similar. “For example, if U.S. farmers charge Colombian farmers with dumping, it is presumed that the American farmers are accusing the Colombians of dumping the identical crop to that produced by the Americans. Yet many U.S. dumping cases against foreign products are initiated by American companies marketing products significantly dissimilar to the products allegedly dumped”.
When the Commerce Department decides if a product is being dumped, they must first determine the dumping margin between the price the product is sold for in the foreign market and the U.S. market. For this to occur both of the prices must be calculated in U.S. dollars. This creates a problem because some business agreements between a foreign and U.S. company use fixed exchange rates. So the selling price of the product in the foreign country will change according to the current exchange rate, but the production cost will remain the same. The problem occurs because U.S. government sometimes will use the current exchange rate, instead of the exchange rate used by the foreign business.
Anti- Dumping Trends
Data on anti-dumping actions illustrate some interesting facts. The number of antidumping actions initiated each year continues to be high, but not all countries are affected equally by anti-dumping actions. For example, China is the country that has been the most targeted with anti-dumping actions (investigations initiated and measures imposed) each year since the early 1990s).
In addition, developing countries began to make more use of anti-dumping after the formation of the WTO and as a group, are now initiating more anti-dumping actions than developed countries. Another interesting is that a high percentage of anti-dumping actions affect the base metals (mainly iron and steel) and chemical sectors.
The table below, which provides data on the definitive anti-dumping duties that were in force on 31 December 2003, confirms that anti-dumping duties are prominent in the iron and steel and chemical industries. Almost 60 per cent of the anti-dumping duties then in force affected these two industries and it is also clear from the table which countries were imposing the anti-dumping duties. The US had 148 anti-dumping duties in force against various exporters in the iron and steel industry and Canada 67, EC members 49, Argentina 30, India 23, Thailand 22, South Africa 21, Mexico 15, Brazil 11 and Peru 10. The countries with the most anti-dumping duties in force on 31 December 2003 against exporters in the chemical and allied industry were India (106), the US (55), EC members (44), China (32), Brazil (18), Australia (14), Mexico (12) and South Africa (12).
Developing countries are now the principle users of anti-dumping, and it is more than likely that developmental reasons would be cited as the explanation for this protectionism. The large numbers of anti-dumping initiations by India in the chemical sector are of particular interest in this regard. Producers could also use anti-dumping to protect themselves during recessionary periods, when demand for their products is low and prices are. Another important factor that has contributed to the increased use of anti-dumping since the early 1980s is the fact that non-tariff barriers like quotas can no longer be used and that tariffs have been systematically reduced by the multilateral trade negotiation process known as GATT.
If Africa, East Asia, South Asia, and Latin America each increased their share of world exports by just one per cent, the resulting gains could lift 128 million people out of poverty.
Rich countries limit and control poor countries’ share of the world market by charging high taxes on imported goods. As a result, many poor countries can only afford to export raw materials, which give far lower returns than finished products.
For example, the rich world buys cheap cotton and cocoa and turns them into expensive clothes and chocolate – reaping all of the profit. At the same time, poor countries are threatened with having loans withheld unless they open their markets to rich countries’ exports.
Globalization and trade have drawn millions of women in developing countries into paid work. Their labor is contributing to rising global prosperity and to the profits of some of the world’s most powerful companies. But women workers are systematically being denied their fair share of the benefits from their labor.
Companies’ demands for faster, more flexible, and cheaper production in their supply chains are undermining the very labor standards that they claim to be promoting.
Women workers – and their families – pay the price. Many face insecure contracts, intense production pressure, and intimidation in the workplace. Governments, competing to attract investment and boost exports, too often exacerbate the problem. Instead of strengthening protection for labor rights, they have simply traded them away.
Colombian flower-workers’ story
“The women have to come back into the greenhouses immediately after the flowers are sprayed with pesticides. Some of them get dizzy or have trouble with their blood pressure, and some of their children have been born with lung problems.”
– Dionise Trujillo, ex-flower worker, Colombia
For thousands of women in Colombia’s flower industry, flowers aren’t so much a symbol of love as one of mass exploitation. It’s a cruel irony that, in an industry which generates so much profit from Mother’s Day, summary dismissal for pregnancy is standard practice.
Colombia is second only to Holland as a flower exporter. Seventy per cent of the industry’s workers are women. They are employed on temporary contracts which are often only verbal.
On an average day, one woman picks around 400 carnations. That number can double during peak periods – for example, the run-up to Valentine’s and Mother’s Day. The flowers from her day’s work will sell on the main streets of the USA and Europe for up to $800. But she will earn a minimum wage of just under $2 a day. And it gets worse. Medical surveys show that two-thirds of Colombia’s flower-workers suffer from problems associated with pesticide exposure, ranging from nausea to miscarriages.
Regional Trade Agreements
Regional Trade Agreements between equal partners can be beneficial to both – but between a rich and a poor economy, the stronger economy always comes out on top. A regional free trade agreement removes all barriers to trade and foreign investment, meaning that poor economies are not allowed to use import tariffs to protect their growing industries or their farmers from floods of cheap imports.
Free trade agreements also include additional rules on investment that pose a potential threat to poor people’s access to public services. The US and the EU in particular, are pressing ahead with this piecemeal approach to trade. And without the advantage of ‘strength in numbers’ that poor countries had at the World Trade Organization talks, they are much more likely to be pressed into accepting unreasonable demands of rich countries.
Chilean fruit-picking workers’ story
Chile is proud of its status as one of the most open countries in the world. It has signed 47 free trade agreements, including one with the US. Chile has seen an overall growth in its economy but behind this success story, there are some heavy costs.
The additional money does not reach the poorest people – in fact, the agreements have thrown them further into poverty. Although there are more temporary jobs, the quality of these jobs is not high.
In the agricultural industry, Chile exports products such as grapes (for wine), fruit, and salmon. The profit from this business ends up in the pockets of transnational companies while the women who work the fields get paid below minimum wage and are denied their labor rights. The trade created in Chile has lined the pockets of big business and increased insecurity for millions of women workers.
Rosa Palleres works for a group of temporary women agricultural workers in Andacollo, Chile: She tells their story…
“Imagine it: a container of grapes sells for $200m, but where is the dollar for the worker here? We are paid miserably. There is a minimum wage but they don’t pay it for agricultural workers. If people in Europe knew what happened to the workers here… would (they) want our products?
“Supposedly the free trade agreements demand that the workers are ok, that they have rights. But we find that the Free Trade Agreements in Chile have not strengthened our rights at all. We are still getting poorer. The businessmen are richer, and the workers are poorer, in every sense of the word: economically, spiritually, morally; we are degraded in every way.”
In the fruit-picking sector, 75% of women work more than 60 hours a week in season, on temporary contracts, and a third of them do not earn even the minimum wage. Half these women have no contract, and therefore there is no welfare system to support them if they fall sick.
“An agricultural laborer doesn’t take holidays, because she would be fired immediately, and would have to go elsewhere, and would have no way of buying food to eat. The situation is very difficult. One sees lots of injustice, all over the country…I feel like I have lost out… we are all losing out, we don’t have transparency from the government. If things don’t change, all that remains for us workers is to be exploited while others skim off the cream.”
Worker Abuse – Sweatshops
A sweatshop is characterized by the violation of worker rights that have been certified by law. These include the right to organize, bargain collectively, prohibition of child labor as well as paying wages that allow workers to feed, clothe and shelter themselves and their families.
However, many big U.S companies were held responsible for violating these laws and exploiting workers in foreign factories, these corporations include big names such as Nike and Reebok.
In 1997, an audit by Ernst and Young for Nike was leaked and revealed that workers in a Vietnamese factory were exposed to cancer causing toluene and suffered from respiratory problems. These workers were required to work 65 hour weeks often in unsafe working conditions. Similarly in 1999, a study of two Indonesian factories for Reebok shows sex bias, unsafe working conditions and health problems for workers.
Nike and Reebok both being pushed by sweatshop critics set to reform in 1999, increasing wages up to 43% from the minimum wage level for 100,000 workers. However this reform left much to be desired since this compensation amounted to 20 cents per hour – which was less than the required amount needed to support an Indonesian family as well as the fact that Nike paid 27 cents per hour before the 1997 economic crisis had hit Indonesia.
Level Playing Field – WTO vs. Environmentalists
Mexico etc versus US: ‘tuna-dolphin’
In eastern tropical areas of the Pacific Ocean, schools of yellowfin tuna often swim beneath schools of dolphins. When tuna is harvested with purse seine nets, dolphins are trapped in the nets. They often die unless they are released.
The US Marine Mammal Protection Act sets dolphin protection standards for the domestic American fishing fleet and for countries whose fishing boats catch yellowfin tuna in that part of the Pacific Ocean. If a country exporting tuna to the United States cannot prove to US authorities that it meets the dolphin protection standards set out in US law, the US government must embargo all imports of the fish from that country. In this dispute, Mexico was the exporting country concerned. Its exports of tuna to the US were banned. Mexico complained in 1991 under the GATT dispute settlement procedure.
The embargo also applies to “intermediary” countries handling the tuna en route from Mexico to the United States. Often the tuna is processed and canned in one of these countries. In this dispute, the “intermediary” countries facing the embargo were Costa Rica, Italy, Japan, and Spain, and earlier France, the Netherlands Antilles, and the United Kingdom. Others, including Canada, Colombia, the Republic of Korea, and members of the Association of Southeast Asian Nations, were also named as “intermediaries”.
Mexico asked for a panel in February 1991. A number of “intermediary” countries also expressed an interest. The panel reported to GATT members in September 1991. It concluded:
• that the US could not embargo imports of tuna products from Mexico simply because Mexican regulations on the way tuna was produced did not satisfy US regulations. (But the US could apply its regulations on the quality or content of the tuna imported.) This has become known as a “product” versus “process” issue.
• that GATT rules did not allow one country to take trade action for the purpose of attempting to enforce its own domestic laws in another country — even to protect animal health or exhaustible natural resources. The term used here is “extra-territoriality”.
What was the reasoning behind this ruling? If the US arguments were accepted, then any country could ban imports of a product from another country merely because the exporting country has different environmental, health and social policies from its own. This would create a virtually open-ended route for any country to apply trade restrictions unilaterally — and to do so not just to enforce its own laws domestically, but to impose its own standards on other countries. The door would be opened to a possible flood of protectionist abuses. This would conflict with the main purpose of the multilateral trading system — to achieve predictability through trade rules.
The panel’s task was restricted to examining how GATT rules applied to the issue. It was not asked whether the policy was environmentally correct. It suggested that the US policy could be made compatible with GATT rules if members agreed on amendments or reached a decision to waive the rules specially for this issue. That way, the members could negotiate the specific issues, and could set limits that would prevent protectionist abuse.
The panel was also asked to judge the US policy of requiring tuna products to be labelled “dolphin-safe” (leaving to consumers the choice of whether to buy the product).
It concluded that this did not violate GATT rules because it was designed to prevent deceptive advertising practices on all tuna products, whether imported or domestically produced.
United States — Import Prohibition of Certain Shrimp and Shrimp Products
Seven species of sea turtles have to date been identified. They are distributed around the world in subtropical and tropical areas. They spend their lives at sea, where they migrate between their foraging and nesting grounds.
Sea turtles have been adversely affected by human activity, either directly (their meat, shells and eggs have been exploited), or indirectly (incidental capture in fisheries, destruction of their habitats, pollution of the oceans).
In early 1997, India, Malaysia, Pakistan and Thailand brought a joint complaint against a ban imposed by the US on the importation of certain shrimp and shrimp products. The protection of sea turtles was at the heart of the ban.
The US Endangered Species Act of 1973 listed as endangered or threatened the five species of sea turtles that occur in US waters, and prohibited their “take” within the US, in its territorial sea and the high seas. (“Take” means harassment, hunting, capture, killing or attempting to do any of these.)
Under the act, the US required that US shrimp trawlers use “turtle excluder devices” (TEDs) in their nets when fishing in areas where there is a significant likelihood of encountering sea turtles.
Section 609 of US Public Law 101–102, enacted in 1989, dealt with imports. It said, among other things, that shrimp harvested with technology that may adversely affect certain sea turtles may not be imported into the US — unless the harvesting nation was certified to have a regulatory programme and an incidental take-rate comparable to that of the US, or that the particular fishing environment of the harvesting nation did not pose a threat to sea turtles.
In practice, countries that had any of the five species of sea turtles within their jurisdiction,and harvested shrimp with mechanical means, had to impose on their fishermen requirements comparable to those borne by US shrimpers if they wanted to be certified to export shrimp products to the US. Essentially this meant the use of TEDs at all time.
Many have missed the importance of the Appellate Body’s ruling on this case.
In its report, the Appellate Body made clear that under WTO rules, countries have the right to take trade action to protect the environment (in particular, human, animal or plant life and health) and endangered species and exhaustible resources).
The WTO does not have to “allow” them this right.
It also said measures to protect sea turtles would be legitimate under GATT Article 20 (i.e. XX) which deals with various exceptions to the WTO’s trade rules, provided certain criteria such as non-discrimination were met.
The US lost the case, not because it sought to protect the environment but because it discriminated between WTO members. It provided countries in the western hemisphere — mainly in the Caribbean — technical and financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices.
It did not give the same advantages, however, to the four Asian countries (India, Malaysia, Pakistan and Thailand) that filed the complaint with the WTO.
The ruling also said WTO panels may accept “amicus briefs” (friends of the court submissions) from NGOs or other interested parties.
U.S Farm Bill
The U.S. Farm Bill is one of the most important pieces of agricultural legislation in the world. The Farm Bill decides which crops the government will support, how involved the government will be in setting prices for those crops, and how much support the government will give to promote exports in the world market. All these aspects of the Farm Bill affect the world’s poor and their access to food.
In 2007, the U.S. Congress will write a new Farm Bill, and there will be an opportunity to reevaluate the impact it has on world hunger. Past Farm Bills have been designed to push market prices for basic agricultural commodities down—in many cases below their cost of production. When exported below the cost of production—a practice known as dumping—these exported commodities have done enormous damage to farmers in poor countries who simply cannot compete. As many farmers in poor countries lose their livelihoods, those countries lose their ability to feed themselves and become vulnerable to volatile global markets to feed their hungry. Dumping artificially cheap food, instead of contributing to food security, is actually contributing to hunger. Another concern is the U.S. Food Aid program, set by the Farm Bill, which suffers from being inefficient and costly while encouraging practices that undermine farmers in countries that are food insecure. The Farm Bill also funds export credits to U.S.-based agribusiness firms, giving those firms an unfair advantage in the global marketplace and undercutting farmers in poor countries.
About 850 million people in the world are undernourished in 2007.
Since 1990, the Institute for Agriculture and Trade Policy has been documenting agricultural dumping by U.S.-based agribusiness firms for the five biggest exported crops: wheat, corn, soybean, rice and cotton. In the case of each commodity, crops were fairly consistently exported at prices below their cost of production from 1990-2003.2 Developing country agriculture, vital for food security, rural livelihoods, poverty reduction and generating foreign exchange, is crippled by this competition from major dumped commodities.
Artificially cheap commodity prices associated with agricultural dumping have two major effects on developing country farmers who raise competing products. First, below-cost imports drive developing country farmers out of their local markets. If the farmers do not have access to a safety net of subsidies and credit (in most poor countries they do not), they have to abandon their land. When this happens, the farm economy shrinks, in turn shrinking the rural economy as a whole and the nation’s ability to feed its own people. Second, developing country farmers who sell their products to exporters find their global market share undermined by the depressed “global price” that results from dumping. The cascading effects of dumping are felt around the world in places as far apart as Jamaica, Burkina Faso and the Philippines.
Wheat dumping levels increased from an average of 27 percent per year pre-1996 Farm Bill to 37 percent per year post-1996 Farm Bill
✴ Soybean dumping levels increased from an average of 2 percent per year pre-1996 Farm Bill to 11.8 percent post-1996 Farm Bill
✴ Maize dumping levels increased from an average of 6.8 percent per year pre-1996 Farm Bill to 19.2 percent post-1996 Farm Bill
✴ Cotton dumping levels increased from an average of 29.4 percent pre-1996 Farm Bill to an average of 48.4 percent post-1996 Farm Bill
✴ Rice dumping levels increased from an average of 13.5 percent pre-1996 Farm Bill to an average of 19.2 percent post-1996 Farm Bill
All of these crops, with the exception of cotton, are critical food staples for poor countries struggling to address hunger. And cotton is an important revenue source for many farmers in poor countries.
U.S food aid has been highly criticized around the world for being poorly planned and implemented, ultimately creating problems for local markets. Specifically, two practices of the program have been targeted: First, the monetization, or selling, of food aid by non-governmental organizations is expensive and often works to the detriment of local farmers and traders in poor countries battling hunger. The U.S. is the only food aid donor, aside from South Korea, that sells part of its food aid. All other countries donate all of their contributions. Second, taxpayer-funded export credits facilitate dumping of food aid (overseas sales of food aid at prices below the cost of production).
Food aid is also categorized by the way the food is sourced. There are again three ways this happens.
Direct transfers are food aid donations that originate in the donor country. This mode of supply
accounted for 74.5 percent of all food aid deliveries and 80 percent of food aid provided by the U.S. in 2003.20 All direct food aid transfers are a form of “tied aid” in the sense that they are limited by definition to food sourced in the donor country. In addition, a lot of directly transferred food aid is tied to additional requirements, such as the use of donor-country contractors. In particular, the U.S. requires that at least 75 percent of the procurement, processing (including fortification with nutrients), bagging and shipping be handled in the U.S., by U.S. firms. Canada ties 90 percent of its food aid budget to the costs of procuring and handling Canadian commodities.
Triangular purchases describe food aid purchased in one country (not the donor’s) for use as food aid in another country. Such transactions provided 12 percent of all food aid in 2004 (down from 16 percent in 2003).
Of this food, 73 percent was purchased in developing countries.22 Triangular purchases are usually financed by a cash contribution from the donor for the initial purchase of the food. Commodity swaps, a form of triangular transaction sometimes used by the U.S., involve the delivery of a food commodity to one country, where it is sold to buy a food commodity that gets shipped to a third country for use as aid. Triangular transactions account for less than 8 percent of total U.S. food aid, but because the U.S. is such a large food aid donor (and triangular purchases a relatively small share of global food aid), the U.S. provides 26 percent of the global total of triangular purchases.23 The other main bilateral contributors to triangular purchases include the E.C. (20 percent), the UK (12 percent), Japan (8 percent), Germany (7 percent) and Norway (5 percent).
Local purchases refer to the procurement of food in the recipient country. About 15 percent of food aidwas locally purchased in 2004, up from 9 percent in 2003.24 This is one of the most cost-effective ways to source food aid, although it is still only a small part of total food aid contributions. Of the 1.1 million metric tons of food aid donated through the European Commission in 2003, 45 percent was transferred directly from E.U. countries, 31 percent was acquired in triangular transactions, and 24 percent was purchased locally. Of the E.U. member states that provided food aid bilaterally, the UK and Germany were notable for the large share of local purchases in their total food aid contribution: 58 and 81 percent respectively. In the same year, the U.S. donated or provided loans for 5.7 million tons of food aid, of which 91.6 percent was a direct transfer from the U.S., 7.7 percent was from triangular purchases and barely more than half of one percent was purchased locally. The Bush Administration recently proposed shifting $300 million from its project food aid budget to increase the budget of the U.S. Agency for International Development (USAID) for local and triangular food aid purchases. Congress has rejected this proposal.
Where food for food aid is obtained can be very important to the immediate efficacy of food aid and to its longer-terms effects on food security. Most aid policy analysts agree that local purchases or triangular purchases from nearby countries are generally preferable to food direct transfers. This is because food can be purchased from less costly sources, because shipping costs are often lower if food travels for shorterdistances and because, when properly managed, food purchased locally or from nearby developing countries can stimulate agriculture and other economic activities in hunger-prone regions. Local purchases are not always the most appropriate use of food aid resources. Before deciding to buy food locally, it is important to assess if enough food is available in the market and whether local purchasing will cause a price spike that might perversely increase hunger by cutting people’s access to food. Some of the other constraints on local purchasing, such as inadequate storage facilities or transportation networks, are problems that must be addressed for long-term development as well. If local purchases can stimulate an improvement in the infrastructure for agriculture, then the programs will address the important strategic goal of supporting local food production, in addition to answering the immediate problem of getting food to hungry people.
Is U.S. food aid worse than others?
Two things stand out about U.S. food aid. One, as it contributes roughly 65 percent of the global total, what the U.S. does really matters in the food aid world. Two, the U.S. has continued to spend a lot of money on expensive and sometimes damaging kinds of food aid, rather than showing leadership towards best practice. It is not that the U.S. is alone in its bad habits: Canadians have an even higher domestic procurement requirement, with a 90 percent minimum threshold for in-kind food aid. South Korea also sells food aid, ratherthan providing only grants. The E.U. disbursement of food aid funds is so slow that the timing of their assistance—a critical variable in assuring good results—can make it less useful than in-kind donations, even though these have to be procured and shipped from thousands of miles away. Japan uses food aid to get rid of unwanted rice imports, forced on it by the WTO Agreement on Agriculture’s minimum import requirement for countries that did not convert market access barriers into tariffs. Nonetheless, most food aid donors havemade important reforms to their food aid programs in recent years: the U.S. has not.
The main problems with U.S. food aid
1. Food aid sales, under Title 1 of PL 480. Although program food aid is now less than a tenth its former size, the U.S. continues to sell food aid.
2. The insistence on minimum levels of U.S. procurement, processing, bagging and shipping. Best practice would create a more flexible system, designed to be responsive to recipients’ needs. The E.U.’s greater reliance on local and triangular purchases contributes to shipping costs of less than one half those paid by the U.S. The Bush administration this year proposed carving out a further $300 million for local and triangular food aid from existing food aid resources. Congress, encouraged by food aid PVOs and other lobbyists for the status quo, rejected the proposal.
3. The time lag created by insisting on in-kind food aid. Food aid shipments from the U.S. take an average of five months to reach their destination—making them pointless for rapid response, and potentially harmful if the shipments arrive at a time when domestic production is available in the market. It is true the E.U. has bureaucratic problems with the disbursement of its food aid cash that can make its local and regional purchases slow as well. This situation has to be improved. But the U.S. will not be able to improve its performance until it moves towards an untied system that favors food purchases in developing countries, near where the food aid is needed.
4. In-kind food aid wastes money. An OECD study published in 2005 determined that in-kind food aid, by conservative estimates, is at least 30 percent more costly per metric ton than the much smaller portion of food aid that is purchased in third countries. Food aid that is purchased in the recipient country usually costs less than food purchased in the open global market and far less than food aid procured in donor countries.
5. Food aid needs a single government home, with an agency that is responsive to recipient needs and which knows how to work with the multilateral community engaged in responding to emergencies and fostering long-term food security. USDA, the Department of Defense, and many of the other agencies involved in U.S. food aid have limited—if any—development experience and no natural constituency pushing to ensure their programs serve people living with hunger overseas. These are not the agencies that should run U.S. food aid allocations. In 1990, the Farm Bill declared the sole purpose of all U.S. food aid to be food security. It is time its administration reflected that worthy ambition.
6. Continued links between levels of domestic production, the storage of domestic commodities and food aid contributions, such as exemplified in the Bill Emerson Humanitarian Trust. The trust pays private companies to store food against possible shortfalls; the result is the companies involved have become an active lobby to stop the commodities being used (they are only paid if they hold the grain in their silos).
Similarly, when grain prices fell in the late 1990s, U.S. program food aid sales jumped. A tighter administration of food aid and clearer mandate for the programs as a whole could avoid the imposition of domestic concerns on what should be a program that serves some of the world’s poorest people.
At the moment, the three sides of the iron triangle are joined by some farm organizations to support food aid. Farmers really have nothing to gain from food aid as it is now structured. PVOs gain large amounts of money for their work but at a high price: their legitimacy is called into question because of their support for practices that are rejected by the international food aid community for their counterproductive effects in developing countries.
Most of the transnational (U.S. headquartered) agribusinesses involved in providing food aid are supportive of deeper trade liberalization through the WTO; food aid contracts are lucrative but hardly worth the trade off if U.S. refusal to reform its food aid puts other countries off significant tariff cuts under WTO negotiations. Transnational agribusiness is much more interested in access to larger developing country markets than in protecting a few million dollars worth of food aid. Besides, companies like Cargill might well continue to get some of the action with a shift to local or regional sourcing, since they are major players in the grain market in over 160 countries worldwide, especially when cross-border shipments are involved. The constituency with the most to lose is part of the shipping industry. So long as not much is known about its role in food aid, and the subsidies that are consistently pumped their way, they have nothing to lose by pushing for the current food aid system. Nonetheless, it is unlikely their role in food aid would earn them any public support, and it could even become a tempting target for someone in Congress looking for a crusade against public boondoggles.
Recommendations for WTO
As discussed above, WTO has been a major factor in the liberalization processes. However, it has benefitted the developed countries more and has fallen short in providing free trade balances, benefits many developing countries. In fact most of the negotiations and policies are highly dominated by the few developed countries. It has digressed from its essence of formation.
In order to create its better role in international environment Ailen Kwa has proposed few recommendations for WTO. The first recommendation deals with the very core problem which has been deeply penetrated in the organization that is it should discontinue its domination by fewer developed countries (EU, US, Japan, Canada ) who use coercion more than cooperation. On the other hand it should insinuate the developing process for developing countries. Secondly she suggests immediate revision of “areas of agreement” such as TRIPS, textile, agriculture etc and other “dispute settlement systems” which discriminate against the interests of developing nations. Thirdly Kwa emphasizes on discontinuation of US dominance in WTO in making decisions. She says that there is a need for a democratic and autonomous system in WTO. The participating member states should have allowance to consult their respective legislature, civil society etc when the negotiation process is going on, before arriving at some decision. Fourthly she develops that in such a democratic system member parties should have immediate means for the minutes of the meeting and the procedure should be completely transparent. Each member should have access to dispute settlement system (although this will be a slow procedure due to large membership of countries in WTO).
Fifthly, WTO should transform its policies from “trade creates wealth” to “trade for broad based development” so that poor and developing countries can raise their status in terms of trade and as well as in terms of their nation (many of these countries suffer from illiteracy, mal- nutrition, food depravity etc which are spillover effects towards government policies).
She suggests that the underlining focus needs to be development and people not capital. (The developed nations must recognize their responsibility of being power and come forward to strengthen the economies of the poor nation states).
Sixthly, main focus should be domestic growth of each country not international growth. (The international growth doesn’t show the inequality amongst various regions and nations across the globe).
Finally she proclaims that WTO should provide access to developing countries in the matters of policy that they can protect their industries from external pressures by putting necessary tariff barriers as the developed countries do.
Ailen Kwa other than above recommendations also advocated following proposals for the WTO: first of all, as discussed above by Sally, all the members need to have negotiating powers for the free trade to effectively reach to the betterment of the world. The “fast track” liberalization process is hard to meet for the developing countries and hence should reduce its pace. Secondly, the decision making process is extremely imbalanced. As US trade minister described a WTO meeting in the following way “The process, including even [in the the 3rd WTO Ministerial] at Singapore, was a rather exclusionary one. […] I don’t think that [European Union trade representative] Pascal Lamy can object or would object to the notion that the process has to be transparent and accessible not just to the rich countries, which has always been the case, but to the poor countries, which has never been the case” (Barshefsky 1999: p. 2) . This being the situation there is a need for participation of all the countries. Thirdly, the conflict/ dispute resolutions should involve the developing states as they usually suffer in this situation. The case study of banana war is quite clear in this regard in which US raised case against EU for banning the bananas exports from its colonies. After WTO accepted the objection, US raised protection against EU in other commodities and introduced 17 tariffs, which greatly harmed the developing countries. Although the war settled down by the intervention of WTO but the developing countries paid the price.
Fourthly, “US multi- billion subsidies to their farmers should stop” as this harms the developing counties’ industries. Or the developing countries should also be given right to protect their infant industries so that a balancing competition can occur in the world market for their items. Lastly it is recommended that TRIPS should either be omitted completely or at least the policy makers should exclude the medication and other such items from the agreement so that health is promoted.
Actions/ Measures which Developing Countries Should Adopt
As presented above developing countries has increased their share both in trade and investment since past years, Razeen Sally gives facts for WTO report which proclaims that the share of developing countries in world trade will reach 50 percent till 2020. Moreover “since 1980, their share of world manufactured exports has doubled from 10 to 20 percent. Over a third of foreign direct investment (FDI) goes in their direction, up from 14 percent in the late 1980s” .
These developing countries are gaining more opportunities to participate in the world economy, high access to technology and productivity gains through competition. Previously GATT had disengaged many of the developing countries; however, in recent eras around 30 more countries have participated in WTO. Although the participation of these developing countries is mounting to an increasing number, the adoption of liberalization policy varies in various developing countries is slow in pace. Incorporation of these reforms, be it “macroeconomic stabilization, internal price liberalization, privatization, and institutional reform”, are not manifested. Some of the developing countries have been acquiring high growth while on the other hand the rest of the countries have not completely opened their economies to such reforms due to multiple internal and external reasons .
In the era of multipolarity these developing countries need to voice their policies and goals in the world trade forum in order to gain better negotiating abilities about their liberalization pattern. Sally says in his article that both unilateral and multilateral trade arrangements are important. And for developing countries to really gain from the fruits of trade, they should strengthen their unilateral trade on one hand but more so multilateral trade as per WTO policies. In order for free trade to be really free he says that there has to be complete integration of world economy and for that to happen, citizens and foreigner should transact with each other without any discrimination. In order to come close to that concept he further says that these developing countries need to actively participate in multilateral trade negotiations of WTO .
Many of the developing countries are way behind in liberalizing their economies. These countries, as suggested by Sally should strengthen their unilateral trade as in order to improve in the international form. Regional trade agreements can also help if they are done without discrimination as done by APEC .Author then suggests that there are more representatives of developing countries in WTO, and especially those developing countries who are influential relatively, (“This group includes Chile, Mexico, Argentina, Brazil, the Association of Southeast Asian Nations countries, Korea, Hong Kong, the Czech Republic, Hungary, and Poland” ).
They must really become “forceful demandeurs” who can negotiate on better terms as per their national interests . However Sally further says that immediate policies demanded few countries such as Pakistan, India etc who would want the multilateral negotiations to adhere to already laid down agenda of WTO, can be harmful . Because that will enable developed countries to take benefits from these negotiations eventually. The approach should be rather more future based. The developing countries are required to go about the procedure in a positive way as they have increasing bargaining position in international forum with more participation.
Developing countries strength and bargaining position as discussed by the Mendoza and Bahadur can really increase by making alliances amongst and across each other. This will give a positive edge in bringing their concerns more forcefully on international forum such as labor and environmental issues. These alliances can “pool technical expertise” for research which will play beneficial in trade as well. There can also be agglomerations which are specific to issue as in the case of “financial support provided by the Organization of the Petroleum Exporting Countries (OPEC) to the Group of 77 in the latter’s efforts to prepare positions on the United Nations International Conference on Financing for Development.”
Sally then gives proposals of bargaining which developing countries should make on the negotiating agenda. They should push forward the agendas of “Single Undertaking” which propagates equal application of the agenda to all WTO members and the entirety of the reforms . Under single undertaking, there are also requirement for these countries proposed by Razeen Sally which will eventually strengthen the international trade and further help the developed countries to make compromises; these are following:
Agreement on making “less use of Article XVIII of the GATT, which sanctions exchange controls and quotas on balance of payments and infant industry grounds” and acceptance on binding “their WTO MFN tariff ceilings at or close to applied rates” . “Make substantially more bound commitments in the GATS” and “desist from increasing anti-dumping actions .”
Moreover, the developing countries should push in their negotiation pressure that the agreement on The Multifiber Arrangement should be adhered to and developed countries should lower their tariff barriers on textiles and cotton . Most of the developed countries are increasingly posing tariffs, tariff escalations on agriculture which harms the developing countries. The sector of Agriculture should be liberalized along with the “sanitary and phytosanitary (SPS) regulations” . SPS regulations are essential in protecting these developing countries. Developed countries’ tariff on industrial sector distort the trade of developing countries especially in areas of automobiles, steel , textile etc. developing countries in the negotiating agenda are required to put pressure on their reduction. The issue of discrimination due to anti dumping policies discussed by Ayesha in the paper is significantly affecting the developing countries in harmful manner as the new entrants and small firms are hard hit. Sally proposed that this issue must be raised in the WTO negotiations to put pressure on United States and EU. He says that “less developed countries should push hard to tighten AD procedures in Article VI of the GATT to reduce arbitrary and selective protection. There is a long-odds chance that the United States and the EU will relent on antidumping if offered significantly greater access to developing country markets, especially in services.”
Along with other important demands, one of the crucial matter at hand is the environment standards which developed countries try to impose on developing.” Furthermore, the developed countries which have completely different consumer, preferential settings, cannot be applied in poorer countries. Developed countries should stop imposing their sanctions extra territorially as was the case of “shrimp-turtle issue, which, while finding against the United States in the specific case, suggested that there might be grounds for extraterritorial application of national regulations providing there is adequate consultation”
Sally argues that, “this interpretation contravenes the provisions of Article XX of the GATT forbidding discrimination of imported goods by governments on the basis of how they are produced” Many of the developing countries are suffering from volatile and instable political, legal and administrative structure. Sally argues that these countries require financial assistance in order to face the various sanctions (SPS, Intellectual property rights, and other issues).
For that matter, Razeen Sally proposed that there should be an “independent advisory center” in WTO to assist these countries . More proposals that he made were inclusion of Air and maritime sectors in WTO. Developing countries enjoy comparative advantage in services sector; WTO negotiations should further export market access to these in benefit of developing countries.
There are other factors which can influence the position of trade with developing countries. There are many internal causes which harm standing of these countries which lie in their internal policy structure, such as their poor communication with policy makers, unstable governments. We can take the case of Pakistan where many of the infant industries have very limited or no approach to the world markets. These domestic issues give a spillover effect in their trade internationally as well. Therefore the proposition of Sally about an advisory centre can pay some acceleration. Mendoza and Bahadur talks about making leadership amongst developing countries in order to strenthen their bargaining position as was done in EU by few leaders. The bargaining in itself cannot reap the fruits as most of the table of negotaition is imbalanced as controlled by the quad, therefore there are further two reforms suggested by Mendoza and Bahadur. Firstly an integrated platform of key organizations should be made to reolve trade related problems as was done in 1996 in “trade related technical assistance”. Lastly he suggests Rawlsian Mechanisms to be introduced in international trade which will amend ways in WTO and bring the reciprocal system to development approach and complement the limitations in bargaining process. There is a need for reforms in certain areas in order to create balance in imbalance free trade practices as suggested by Mendoza and Bahadur. Moreover, reforms should be made in agricultural subsidies and in special and differential treatment clause in WTO as it has not been very effective.
There lie different political, socio and economic circumstances domestically in different countries. Although the desire to integrate is increasing especially after the beneficial fruits observed in EU, the historical processes and divergent circumstances make complete integration difficult if not impossible for many countries. Having varied dynamics in countries both developed and developing, still there exist many common interests in these countries which they should come to terms with and promote their healthy trade. Also various issues which developing countries face during the transition of trade should be dealt sectorally, for instance the issue of labor by ILO and environment by UNEP etc. Because attempting too many things at the same time make more complications than resolutions .
The countries, who exercise power in WTO, have been making expansionist policies in trade regime in which their trade flourishes at the expense of exploitation of developing countries’ markets. Most of the negotiations which happen on the WTO are made to promote further development of the developed nations and protect them from suffering rather than protecting developing nations to lose in the great game . Great powers need to realize their responsibility and start initiation of development in WTO in the right way as it will not only improve developing countries but also benefit developed countries as well.
Free trade is an important phenomenon. It has been one important factor in improving standards in developing countries, however Mr. Bhagwati, says that in current international trading system where there exist many bilateral, preferential and multilateral system at the same time, it is difficult to bear fruits of free trade . His statements give a counter argument to Razeen Sally’s argument as discussed above. Moreover Bhagwati and Razeen both agree that although many macro micro economic theories exist, there is a need for their implication. Moreover for Bhagwati there doesn’t exist intellectual discourses which administer such discriminatory and non discriminatory policies in various developing countries and for that proper research should be made in developing countries to check their effectiveness. Having analyzed accomplishments and shortcoming of free trade, there seems to emerge a positive hope on free trade. If developing countries acquire their bargaining position along with other implementation discussed above and WTO accepts certain recommendations along with great powers to seek their responsibility, free trade can in true essence be free and fair. After all failure of foreign aid by making developing countries more dependent , free trade offers prolific opportunities for developing countries and those developed.
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