Contemporary Barriers to Genuine Free Trade - Research Paper Example

Free Trade Student’s Name Institutional Affiliation Introduction In the era of globalization, the disparity between the poor and the rich is not homogeneous but rather widening as shown by the study conducted by McKay (2000). Whilst the existence of such a gap is irrefutable, its composition, effects as well as cause are not. Therefore, free trade can only be the solution to such income inequalities as it contributes to economic development as well as narrowing the gap between the poor and the rich. If there are no barriers to free trade, the trading nations will benefit from trading and their economic development will be enhanced. Famous economists have flaunted trade as a key tool to development as it helps in the creation of wealth thus constricting the gap between the poor and rich nations. Nonetheless, trade may not be a universal remedy for economic growth and development as imperative issues have been raised on how genuine free trade can help reduce such disparities and how it can maintain the survival of domestic infant industries (Rahul 2004). Inequalities between the rich and the poor are characterized by failure of a nation to accomplish either of the indicators of wealth especially in areas related to income generation and maintenance of apt consumption levels. For instance, the bigger the divergence in income between a nation’s rich and poor the larger the disparity. However, it is worth noting to realize that the diminution of the levels of poverty within a nation does not imply that the inequalities will decrease, since the benefits of economic growth may accrue to all societal classes at the same time, maintaining a constant gap among them (Pradhan & Ravallion 1998). Literature Review According to Kuznets (1955) there has been a number of achievements since the capitalist system were established. Advancement in the level of technology have brought about a new form of wealth in the developed countries as well as accrued benefits to Less Developed Countries (LDCs). According to Truman (1967) these accomplishments have been made possible due the establishment of enhanced frameworks that encourage competitive markets, political liberty, universal education, support scientific research and tolerate social as well political criticism. However, Wolfgang (1995) documented that these accomplishments were associated with a number of conflicts. In an attempt of reducing scarcity and narrow the gap between the poor and the rich, there has been sustainability crisis. The removal of national barriers has exposed both the rich and the poor from the risks as well as the advantage of free trade. According to Weber (1975) globalization of the economy has affected some of the key sectors in the Less Developed Countries for instance in the agricultural sector which dominates most of developing nations’ economies. Developing countries have been left behind in terms of industrialization and this shortcoming can only be mainstreamed through the commodity markets to enhance their comparative advantage in its natural resources. Through commercialization of their natural resources, the developing countries may attain a balanced trade surplus. As outlined by Wolfgang (1995) free trade liberalization can have a great impact on poverty level and its implications can be either constructive or unconstructive. In the long-term, trade liberalization can be enhance the nation’s economic growth and may as well bring about negative effects to a particular group of people particularly in the short-run. However, the limitation is the ‘double-standard’ liberalism that may facilitate genuine free trade and concurrently worsen the livelihoods of the nation’s inhabitants. Its applicability is in the context of the European Union’s Common Agricultural Policy that was established to safeguard the income of affiliate nation’s dairy farms by use of product prices, improvising of import restrictions, production quotas as well as export subsidies. According to Wolfgang (1995), the production of milk is the main economic activity among the member states of the European Union and is especially a lucrative business in France, Ireland, United Kingdom, France and Netherlands. Supporting its need to possess its own internal market, the European Union came with an arrangement of production quotas back in 1984 that was fixed at a yearly milk volume of 120 million tons. This represented the current domestic consumption of 110% that implied that a reasonable surplus on export was based on the quota system (Abu 2007). Furthermore, the dairy sector obtains subsidies of approximately $16 billion, which translate to 40% of the total dairy production. Market Access The concept of accessibility to the market in the context of genuine free trade is somehow complex but imperative. The concept can be categorized into three groups where the first classification entails consciously imposed trade barriers that include tariffs, quotas as well as tariff escalation. The second category is inclusive of trade barriers that are because of external and local producer support inform of subsidies and export credits. The third category fall under indirect trade barriers as a consequence of Less Developed Countries failure to have institutional capacity to participate in the global economy as well in bilateral institutions on the basis of identical terms. Barriers to Trade In developed countries, there are high tariffs that are imposed on the agricultural sector and which is twice as much as those imposed on manufactured goods. Approximately 15% of the EU’s tariffs are within the agricultural sector mostly targeting the processed products rather than key export crops of the Less Developed Countries. Nevertheless, most of the developing countries moderate zones have the capacity to compete as less cost producers in moderate products (Brett 2000). Thus, trade liberalization plays an important role through creating avenues for genuine free trade possibilities that will help to narrow the gap between the rich and the poor. Developed countries that have more concentration of high-income earners (rich) usually impose sturdy tariff escalation on agricultural products. This hinders the expansion of value added exports and daunts diversification into economic development. In developed countries, tariffs imposed on food products rises steadily, particularly in European Union as well as Japan. Multifaceted tariffs prevents the exporters from the Less Developed Countries to access the markets in the developed countries further worsening the economic growth in the developing countries and thus the gap between the poor and the rich nation continues to widen. Developing nations are less industrialized as compared to their counter parts and therefore the means to create wealth are limited (Fajnzylber, Lederman & Loayza 1998). The wealth in LDCs nations is concentrated in the hands of few individuals who are considered rich and the majority of the nation’s individuals are poor with lower levels of income. The consumption levels considered as the drivers of the economy are usually low as compared to those in the developed countries and thus hindering the economic growth and development. Since third world countries are poor trading ties between with other nations are minimal as they lack sufficient resources to trade with their counterparts. On the other hand, the developed nations impose trade barriers to genuine free trade thereby limiting the poor nations from attaining same economic level. This further widens the gap between the rich and the poor nations with most of the citizens in the developed nations having quality living standards whereas their counterparts in the LDC wallow in poverty with their per-capita income below $ 1 dollar. Imposition of tariff quotas especially on agricultural products and basic goods further worsens the conditions of free trade since in most nations agricultural sector forms the backbone of their economy. By imposing quotas on these products the poor nations are restricted from trading freely with the rich nations thus their income, consumption and wealth continues to dwindle and thus slowing the economic growth in such countries. Consequently, the disparity between the rich and the poor continues to widen with the poor in the LDC continuing to become poorer and the rich in the developed nations continues to become richer. This creates a societal class in such nations where the rich group themselves in a certain class and the poor in their own class further widening the gap between them (Deininger & Squire 1996). Dumping of unwanted trade surpluses is also another barrier to genuine free trade. Due to lower levels of technology, inadequate skilled labour and limited resources the poor nations becomes a dumpsite for unwanted trade surpluses from the developed nations (Watkins 2002). These goods further worsens the economic conditions in the developing nations as those good have lower economic value and some, especially the food products may be harmful to human consumption. Discussion Trade form an imperative path for economic growth for any given nation whether poor or rich and the countries that have good trading ties with other nations have benefited from trade in terms of increasing their wealth. In absence of genuine free trade between the nations of the world, the gap between the poor and the rich continues to widen and the disparity between the wealth of Less Developed Countries and that of developing nations continues to broaden. Therefore, if the trading partners can come together and look for means to eliminate trading barriers among themselves the economic growth of trading partners will be enhanced and the gap between the rich and the poor will be narrowed. Nonetheless, if they have to impose barriers on free trade they should be genuine such as those that prevent dumping of trade surpluses especially from developed nations to less developed ones. References Abu, B, 2007. Regionalism, trade and economic development in the Asia-Pacific region. Cheltenham, UK: Northampton. Brett, A. 2000 "Development Theory, Universal Values and Competing Paradigms: Capitalist Trajectories and Social Conflict," LSE Development Studies Institute -- Working Paper Series No. 00-02, London: London School of Economics. Deininger K. & Squire L.1996, "A New Data Set Measuring Income Inequality," World Bank Economic Review 10: 565-591. Fajnzylber P., Lederman D. & Loayza N. 1998. "Determinants of Crime Rates in Latin America and the World," World Bank Latin America and the Caribbean Viewpoints Series Paper. Washington, D.C.: World Bank Kuznets S. 1955, "Economic Growth and Income Inequality," American Economic Review 45, no. 1: 1-28. McKay, A. 2000, "A Review of Empirical Evidence on Trade, Trade Policy and Poverty - A Report to the Department for International Development (DFID), prepared as background document for the Second Development White Paper," mimeos. London: DFID Pradhan M. and Ravallion M. 1998, "Demand for Public Safety," Free University and the World Bank, mimeo. Washington, D.C., World Bank Rahul, S. 2004. Free trade agreements in Southeast Asia. Singapore :ISEAS. Truman S 1967. "Inaugural Address, January," in Documents on American Foreign Relations. Connecticut: Princeton University Press Watkins, K. 2002. "Cultivating Poverty -- The Impact of U.S. Cotton Subsidies on Africa," Oxfam Briefing Paper 30. Oxford: Oxfam Weber, M. 1975. The Protestant Ethic and the Spirit of Capitalism, London: Unwin University Press. Wolfgang, S. 1995. The Development Dictionary -- A Guide to Knowledge as Power. London: Zed Books Read More