Term Paper on "Trade Issues in Economic Development"

Term Paper 7 pages (2307 words) Sources: 1+

[EXCERPT] . . . .

Trade Issues in Economic Development

This report attempts to present insights into trade issues as they relate to economic development, globalization and developing countries. Today, globalization and world trade are being spurred on by new advances in technology, finance and social understanding. Consider the new advantages of our global banking system. Today banks have the capabilities to move billions of dollars to any locale in the world in mere milliseconds. Our oceans are traversed by multi-level cargo container ships and super oil tankers in weeks as opposed to months. If they are not fast enough, the option of flying a cargo plane to any point in the world is just a satellite or cell phone call away.

Our highly competitive and globally centered market place continues to shrink our world. Trade is at the center of that smaller world. But, even before Christopher Columbus discovered America or Marco Polo traveled to Asia; world trade was already linking disparate nations into highly complex systems of finance, communication and migration. World trade has actually been traced as far back as the Chinese Neolithic period. But, modern day global trade has the before mentioned advantages of modern communications, transportation and containerization. Our airplanes, ocean transports, satellite communications, and even cell phone allow us to overcome past historic barriers.

Trade Barriers

The new world order has a foundation that is built on a global market place that can be served and severed through free trade agreements. One example is the United States, Canada and Mexico agreeing to open up their markets to one another through the North American Free Trade Agreement (NAFTA). The effects of NAFTA were instantly seen as a distinct economic advantage for those nations. To follow suit, the European nations aimed to match the benefits of NAFTA through their own combined economic and trade pact. The rest of the world all are reeking benefits from free market trade agreements as demonstrated by the oil producing nations of the world locking together as OPEC and the Asian nations currently in negotiations.

But, these free trade pacts open up some boarders while systematically closing others. This can be demonstrated by the United States closing off prior competition from Japan with NAFTA. The Japanese had very profitable trade agreements with both Mexico and Canada for their steel and automobile industries. NAFTA inadvertently closed those ties for the Japanese economy. This is just one example of how our new realm of trade barriers will be presented to the world. These inter-nation trading agreements are very good at actually reducing the size of the world's markets through direct and indirect market manipulation. This can also be said for smaller and emerging nations.

There are very few trading partnerships available to these less developed countries. The problems stem from the fact that developing nations far too often require a plethora of financial assistance packages. "Large countries have as great a stake in the functioning of the regime, as in many instances disputes will involve other large trading nations. Moreover, for an export firm what counts is market access, independent of whether it is located in a small or large country, and the WTO helps guarantee that access." (Hoekman et al.)

The World Trade Organization is just one important source for the international trade system and these smaller less developed countries. Since it was created, the World Trade Organization has been credited with promoting free global trade. However, smaller and Third World countries vocally vilify the World Trade Organization because they are under represented when it comes to free and fair world trade. "Multilateral agreements must be translated into domestic law through implementing legislation. The existence of dispute settlement procedures gives members an incentive to raise disputes in the WTO, rather than seeking redress through unilateral retaliation." (Hoekman et al.)

Oil

The media portrays globalization and economic trade as an attempt by the industrialized world to use all of the world's oil and natural resources. "The global appetite for crude in 2003 will grow by a robust 1.9%, or 1.44 million barrels a day, and in 2004 by 1.5%, or 1.16 million barrels a day. The IEA raised its estimates for daily demand growth in the two years by 160,000 barrels and 90,000 barrels, respectively." (Stanley) Oil and other natural resources are a major aspect of the global economic trade environment.

The industrialized nations have become very dependent on the world oil producing nations. Because the industrialized nations are driving the world supply and demand factors associated with oil production and consumption, less developed and third world nations are often priced out of the markets and therefore fall short and do not have adequate supplies to become producer nations.

Country

Crude oil reserves

(million barrels)

Saudi Arabia

262,697

Iraq

112,500

IR Iran

99,080

United Arab Emiratest

97,800

Kuwait

96,500

Source: OPEC Annual Statistical Bulletin 2001

(Home Page OPEC)

Saudi Arabia is currently the world's largest supplier of oil. Coupled with the Organization of Oil Producing Countries (OPEC), world supplies are greatly controlled. "The OPEC Statute, written when OPEC was formed 1960, declares that OPEC is dedicated to providing a stable petroleum market, with steady supplies to consumers, reasonable prices and fair returns to investors in the oil industry. In pursuit of these aims, OPEC has for many years maintained a limit on the oil produced by its Member Countries. This has provided for a relatively stable oil industry, with reasonable prices. But OPEC is concerned that factors outside of its control may disrupt this stability. This includes taxation, which now constitutes the largest part of the price of oil products in some countries." (Home Page OPEC)

As consumption continues to dramatically increase, our current world economy has created many new nations that are either or both producers and consumers and their motivation has continued to be of raising their citizens' living standards and to become twenty-first century economic powers of their own.

The anticipated Third World nation's attempts to expand their own production rates will only add to the world's current demand crunch. "With global oil demand roughly 82 million barrels a day, the amount of excess oil production available is only about 1%, according to many analysts, leaving the industry a slim margin for error in the event of a prolonged supply interruption." (Foss)

World Debt

Another major barrier in the realm of world economic trade is the ever growing international debt crisis. "The growing reliance on foreign bank financing has affected the investment priorities and the whole development process with a powerful bias toward outward-oriented growth. Contrary to public lending, which had become a conscious element of foreign policy with explicit and external conditions, the resort to private lending has tended to internalize economic management constraints. Loans, and the renewal of loans, hinge upon creditworthiness, and creditworthiness is determined by good behavior. As a result, ultimate decisions on economic policy are as likely to be made in Washington, New York, and London as in Mexico, Lagos, or Seoul." (Allen et al., Financial Crises and Recession in the Global Economy)

World markets are so closely linked now that any single default by a major or even a middle of the road debtor nation could seriously endanger the basic structure of the international financial and trade systems. According to the World Bank, the average interest rate paid by developing countries on their foreign debt rose from 5.3% in 1970 to 11.4% in 1981, while the average loan maturity declined from 20 years to 14 years during the same period. (The World Bank Group)

The real dilemma in regard to world debt is that there are currently no solutions available that could reduce the high levels of global debt. "The debt crisis is not a short-term problem that could be eliminated by short-term changes in market conditions. The external debt is a long-term financial, monetary, trade, and development issue and its impact will be felt by all areas for a long period of time." (Fatemi, International Trade and Finance: A North American Perspective)

The United States has become the world's largest debtor nation. The nation has begun to see the effects of that debt as the dollar's equivalence in international markets continues to lose ground. "Since the dollar is, and will likely remain, the unit of value of international transactions, any fluctuation in its parity will have repercussions far beyond the U.S. balance-of-trade picture." (Fatemi, International Trade and Finance: A North American Perspective)

Loan accumulation over several decades has literally created these high levels of international indebtedness. "Third World countries currently owe foreign creditors more than $1,000 billion, or about $250 per person." (Kaufman, "Banking And Currency Crises And Systemic Risk: Lessons From Recent Events")

Over borrowing by small and emerging countries in order to meet their production or consumer trade needs has become a very common phenomenon even though there are already far too many defaulted loans on the world's books. "The debt crisis results from a juncture in the relationship between sovereign borrowers and creditors, in particular,… READ MORE

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