Challenges of Developing Economies
In the twenty first century, the globalized world has made trade one of the most powerful links between lives. Trade also acts as an unprecedented wealth source. In addition, world trade has the ability of reducing the poverty gaps between the rich and the poor. However, manufacturers from the poor economies have continued to lag behind in international trade. As a result, the potential of world trade has been lost and the greatest beneficiaries have been the developed economies. Several efforts have been initiated with the intention of helping the developing economies increase their share of international trade. (World Bank, 2002).
Evaluation of the statement
All of the 24 kinds of toys recalled in the US this year were from China. This absurd considering that products with the brand “made in china have found themselves in the shelves of most retail stores in the US. This ranges from industry giants like Wal-Mart to small discount stores such as mom and pop. China’s manufactures have been capitalizing on the ability to produce cheap goods and lack of strict regulations that ensures that industries sell quality products. Examples of toys recalled include Thomas and friends trains, children sunny patch chairs and happy Giddy gardening tools
The recall of those products has many benefits to consumers and law-abiding manufacturers. First, the sub-standard products have been reported to have far-reaching effects on consumers. For instance, a child died after swallowing a magnet from a Chinese-made toy. Therefore, this is a protective measure to consumers (Smith-Spark, 2007). Secondly, the manufacturers who have been facing unfair competition from the sub-standard goods are at last relieved. This because such companies incur a lot of costs in producing safe and quality products. Therefore, when other companies are allowed to sell cheap unsafe products then it is unfair on them. Thirdly, such massive recall acts as a wake up call to the China’s government to take stern measures that will ensure that their products are not badly publicised in the world market (Newman, 2011).
Some institutions will be affected negatively by the recall measure. A case in point is the Chinese exporters, because the recall implicates all goods from Chinese industries. The massive recall has exposed the poor regulations on manufactured products. Therefore, consumers will be sceptical on the safety of such product and will be reluctant to buy them. Demand will subsequently go down even for those goods that are of quality (Newman, 2011). The American importers who deal on Chinese products also feel the heat. This is because such a measure portrays the businesses selfish in that they value profit over the well-being of their consumers. In addition, they will incur losses because the goods they spent a lot on will not reach the market (Lewis, 2007).
The recall has negative effects on both businesses in the US and in China dealing in Chinese goods. However, the effects are temporary compared to the benefits that are realized from the measure. The recall helps in averting deaths as well as infections that the unsafe products can cause. It also ensures that future imports are done in line with the regulations. This therefore questions the effectiveness of the safety regulators at the country’s entry point. Therefore, it is a challenge to the American government to increase vigilance on imported goods. This will ensure that the disadvantages associated with recalls are minimized.
Challenges that face Developing Nations
International trade is not intrinsically against the interests and needs of the developing nations, but the challenges that face the developing economies within and externally are the major hindrance to success. By addressing these challenges those economies will be able to produce standard products and compete effectively with the developed economies. These challenges are explained as follows:
Lack of capacity
Firstly, the economies of developing countries lack institutional capacity. Most of these economies have adopted increased export strategy as a means of growing their economies. However, their governments are unable to monitor the actions of every producer to ensure that they have met the required standards of international trade (Lewis, 2007). As a result, some producers have ended up exporting substandard products, which have in turn destroyed the reputation of credible firms due to blanket blame. This has led the developed economies to institute stringent rules on imports that have in turn harmed even those industries that are producing standard products. As a result, exports to developed economies have been reduced. This is clearly seen in the case of China where the government cannot trace some exporters as they keep on changing their identities. However, the credible firms continue to suffer because of the unscrupulous producers (Newman, 2011).
Secondly, there is lack of good governance. There is a general correlation between good governance and economic growth. Necessary economic growth can be achieved by the development of industrial and service sectors. However, this cannot be achieved easily in developing countries due to the lack of good governance. Therefore, they are faced with poor decisions in prioritizing of investments. The economies end up with deficient infrastructure and communication, external debt crisis, human capacity deficits and less developed internal markets. As a result the required institutions are not developed. The industrial sector is left behind and external competition level is too high for the local firms. (Smith-Spark, 2007).
Unfair International trade obligations
International trade obligations have various requirements to the signatories and each member is required to keep those obligations. One among those obligations is to maintain an open market as agreed after the WWII. However, most of the developed economies have found ways of restricting exports from developing countries by using some other international rules such as antidumping laws. For instance, in protecting their local markets, some manufacturers have evoked sympathy from their governments and the public by initiating lawsuits against their target – importers from developing countries. They accuse them of dumping or selling subsidized products. Due to the limited financial resources of those importing producers, they always opt to leave the market even if they would have won the case. In addition, the antidumping and anti-subsidy laws are quite complex. Therefore, the governments of developed economies have realized that they can wear down the importers from developed countries with court cases hence forcing them to leave (Rothgeb & Chinapandhu, 2007).
Data on antidumping from the World Trade Organization clearly brings out the unfairness that faces exporters from developing countries. It explains that in the period between 1997 and 2005, out of the 2,160 cases that were carried out, 1,216 were targeting developing economies’ exports. This represents 56 percent of the total initiated cases. This is absurd considering that exports from developing economies in that period were only 30% of the total world trade. Therefore, producers from developing countries cannot enjoy the benefits of global industrial trade. Secondly, the rules of international trade have been skewed in favour of the developed countries. The developed countries have used trade policies to erect barriers for imports from the developing economies while they continue with their rhetoric of commitment to poverty eradication. This therefore shows that those are window dressing efforts to convince the world that they are doing something to balance the trade deficits (United Nations Economic and Social Commission for Asia and the Pacific, 2007)., n.d).
Restricted foreign market access
If developing countries manage to gain a miniscule of the foreign market, rapid growth in exports will occur considering their small economies. However, barriers to markets in developed countries have continually frustrated these efforts. Some of these restrictions include import restrictions, rules of origin as well as environment-related barriers. These can be explained as follows: developed countries have in the past offered preferences to enable developing countries’ exports to enter quota markets or even import duty free. The main challenge of developing countries is that the amount of products covered by those preference schemes is very small. Therefore, they still end up paying high tariffs charges for their products as if the schemes were not there (United Nations. Economic and Social Commission for Asia and the Pacific, 2007).
A case in point is the “Everything but arms preferences scheme of 2001” by the EU. The scheme was meant to promote countries that are behind industrially, to build vertically integrated structures of production by uplifting the supply capacity of domestic manufacturers. However, the targeted industries in the developing countries have benefited. Contrary to plan, the rules have restricted the use of preference schemes. This is because the developed countries have used such schemes to put a check on competition against their local firms. This is confirmed by the fact that less than 15 of those countries had at least 30% of their exports covered. Furthermore, it is estimated that only 0.03% of exports from developing countries benefited from the initiative (ICTSD, 2008).
Fourthly, the unpredictability of the period of the preferences schemes limits the benefits. This is because the manufacturers from developing countries are always reluctant to make major investments in the schemes. For instance, when there is lack of a clear commitment from the countries offering the preference benefits on the period, which the scheme remains effective, the countries covered and the products remain eligible. This is because the preference-granting countries often review the list of products depending on their economic sensitivity. In addition, the countries to benefit from the schemes are sometimes determined based on non-trade terms. This results in short-term export strategies by the manufacturers in developing countries because the conditions of the schemes are mostly controlled by the giving nations (Watkins & Fowler, 2002).
Fifth, exporters from developing countries are faced with high prerequisite costs that they are required to meet before being allowed to sell to the markets of developed countries. This is due to the stringent rules that have been put in place especially in preference schemes. Some of the costs include documentation costs to prove that the importer has actually conformed to the set rules. A case in point is the EU market, whereby the importer is required to provide documentation that the goods were shipped directly from the country of origin. In case they passed through another country, evidence should be provided by that country of transit proving that the goods were not exposed to its domestic market. Practically, it is difficult for the importer to obtain all these evidences. (Kiggundu, 2002).
Sometimes the importer is often required to adopt an accounting system that is inconsistent with the systems in his country of origin. This is done as one of the requirements of receiving a certificate of importation. Oftentimes the compliance cost ends up exceeding the expected value of the margin to be obtained in the preference scheme. As a result, an importer from the developing country would opt for the most-preferred-nation rates instead of going through the long and costly administrative changes. For instance, under the EFTA-EC FTA scheme manufacturers incur an extra cost compliance cost of 5%. Under the North American Free Trade Area (NAFTA), the importing manufacturers incur at least 1.8 percent of the value of exports as compliance costs (ICTSD, 2008).
Unfair WTO requirements
The World Trade Organization has many trade benefits to the members. However, such benefits come with responsibilities. Therefore, before a member is accepted to the organization I must meet those requirements of which some relate to export of manufacturing goods. Such laws tend to be burdensome to manufacturers from developing countries than those of developing countries because their systems are not yet developed enough to meet those requirements effectively. As a result, most of their exports are limited in access of developed countries’ markets. For instance, when China was granted membership in to the WTO in 2006, it had been given some subjective restrictions to its imports. These included requirement that the US and other WTO members were to continue using non-market economy methods to measure dumping in cases of antidumping relating to Chinese goods (Zumwalt, n.d).
It is undoubtedly clear that developing nations are not inherently poor in international trade. However, the reason for them lagging behind is the challenges that are both internal and external. It is also clear that efforts by developed nations to assist them and continuous rhetoric of commitment to poverty eradication are just but window dressing measures taken by the developed nations to avoid blame. In addition, the developed nations only support the developing nations when their interests are taken care of in the deal. However, in the event that the situations changes to their disadvantage, they quickly change their terms of involvement. In fact, they use the international trade rules to frustrate the exports from developing countries that threaten their domestic markets.
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