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Challenges ofdeveloping Economies

Paper Outline

Introduction
Challenges that face Developing Nations

Lack of capacity

Unfair International trade obligations
Restricted foreign market access
Unfair Representation in the World Trade Organization

Conclusion

 
Introduction
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, the poor economies have continued to lag behind in international trade. As a result, the potential of world trade has been lost and the most 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. These include agreements by developed countries to provide aid to the developing nations, urging the developing economies to open up their economies for international trade and signing of agreements to allow preference of imports from developing countries in to developed countries (World Bank, 2002).
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 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 the lack good governance. Therefore, they are faced with poor decisions in prioritizing of investments. The economies therefore end up with deficient infrastructure and communication, external debt crisis, human capacity deficits, less developed internal markets and biophysical barriers like tropical diseases. 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. Corruption also sets in as a result, whereby some producers try to circumvent the existing laws. Government officials also support tem in their deals. However, their products end up harming the users and the image of the country is dented as a result. (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 WWỊỊ. 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 companies 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 companies, 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 ware down the importers from developed countries with court cases hence forcing them to leave (Rothgeb & Chinapandhu, 2007)
For instance data on antidumping from the World Trade Organization clearly brings out the unfairness that faces exporters from developing countries. It explains that 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. 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)
In addition, the World Bank and the IMF have pressurized the developing economies to open their economies at breakneck speed. On the other hand, the rich countries have their markets still restricted. This has led to damaging consequences to the developing nations, as they have exposed their vulnerability to international competition. Thirdly, the developed countries’ unfair trade laws have evolved over the years such that, they can easily use them at their convenience to shield their local firms from competition. On the other hand, the officials from developing countries have little knowledge on the complex international trade laws. WTO also has provisions that permit a country to impose penalties on unfair trade while on the other hand allowing them to choose the circumstances under which the penalties maybe effected. This happens in spite of the calls from developing countries to restrict the conditions of employing the penalties. As a result, the exports from developing countries have continually been discriminated against to the advantage of the developed countries’ economies (World Trade Organization, n.d).
            Fourthly, there is lack of coherence in policy between international processes and national strategies. For instance, the developed countries provide aid to developing countries to improve their participation in international trade. However, in their countries they continue to maintain the import barriers, which has seen the goods of developing countries kept out of those markets. A case in point is in 2002, whereby the support by OECD to agriculture was 1.2% of GDP, while aid from DAC to developing countries stood at 0.23% of GDP. Worse still was the fact that not less than 20% of the aid was tied to donor exports. As a result, its value was reduced by 30%. This results in much minimized positive effects in the exports of developing nations (United Nations. Economic and Social Commission for Asia and the Pacific, 2007)
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. First, 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 covered most products that are not produced by the least developed nations. It left out rice, sugar and bananas, which are some major products of developing nations. In fact, 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. Secondly, the developing countries are unable to fully take advantage of these preference schemes. This is due to lack of technical knowledge, lack of human resource as well as institutional capacity (United Nations. Economic and Social Commission for Asia and the Pacific, 2007)
 
Fourthly, the unpredictability of the period of the preferences schemes limits the benefits. This is because the 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 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 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).
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. Often times the compliance cost end 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 (Kiggundu, 2002).
Unfair Representation in the World Trade Organization
Developed countries have a lot of say in WTO negotiations as compared to the developing countries. This has led to resolutions that give the developed nations a comparative advantage in world trade. For instance, the developing nations have continually pushed for restriction on conditions under which the unfair trade penalties can be employed with no success. Another example is seen during the Doha ministerial meeting, in which the Doha Development Agenda was adopted. This development agenda is unpopular with the developing nations and widely supported by the developed nations. Ironically, it is meant to stimulate development through trade in developing nations through trade. The developing nations do not support it because it leads to inclusion of non-trade issues in the WTO. This include human rights, Governance, which the developed nations might use as excuses to limit market access or even restricted trade of a developing country. This shows why the developing nations cannot rely on the WTO to improve their international trade (Nand, 2008).
Conclusion
It is therefore 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 developed nations when their interests are taken care of in the deal. However, in the event that the situations change 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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