Integrating the Least Developed Countries into the World Trading System - Essay Example

Integrating the Least Developed Countries into the World Trading System Introduction European Union’s trade policy toward the developing countries leaves detrimental effects on the economies of the developing countries. One way or other, the EU’s protectionism and extension of heavy subsidies to its local farmers have supported the notions that the EU’s double standards heavily affect the developing economies of the world. The sub-Saharan African countries have been the economic victims of such policies that have clearly devastated the livelihood of such economies which were totally reliant on the natural resources. The EU’s subsidy policy to its farmers has substantially increased the earnings of EU farmers at the cost of African farmers. The European Community has developed numerous economic and trading layers through which the bloc manages and deals with the economic and trade affairs with other countries of the world. The European Union is consisted of 27 members (Jacoby 2004; Kelley 2004; Vachudova 2005). This expansion enables EU as a unitary actor to exercise considerable geo-regulatory and geo-economic power (Damro 2006; Young and Peterson 2006). The other instruments employed by the EU to enhance its influence beyond Europe borders include conditionality (Lister and Carbone 2006) and development aid (Holland 2008). The members of EU have developed an integrated policy including agriculture policy, common competition policy, and common external tariff policy. The members have also observed the uniform application of four basic components of freedom such as capital, movement of persons, goods and services. The entire bloc has allowed the citizens of member countries to enjoy free cross border mobility without using or facing any visa restrictions. The members also use Euro as a single currency to exchange goods and services. Another manifestation of the European Community is represented by custom unions, which came into existence through the establishment of a common framework. The EU has entered into numerous custom unions agreements with a wide range of countries. During the decade of 1990s, the EU initiated negotiating with non-ACP states (Sbragia 2010). In 1996, an agreement was signed with Chile, with Mexico in 1997 and with South Africa in 1999 (Dur 2007; Frennhoff-Larsen 2007; Sanabuja 2000; Szymanski and Smith 2005).The first generation association agreements in the period of 1970s observed the establishment of customs unions with the states of Malta and Cyprus. The European Economic Area (EEA) represents a single market of the European Union. The major function of EEA is to work as a free trade area along with maintaining its own distinct and separate tariff level. Free Trade Areas (FTA) are the regulatory framework underway between various developing and developed countries of the world. The FTAs with other countries including Slovenia, Estonia, Bulgaria and Lithuania and other central and eastern estates have been concluded. In addition to that, the Mediterranean Partnerships encompass economic and trade relationships between various countries from the Middle East and other parts of the world. The focus is to increase and strengthen the economic ties and relationships. In this regard, Africa, Caribbean and Pacific (ACP) preferences are also another mechanism put in place to develop and maintain economic and trade relations with a number of developing countries. The framework of Generalized System of Preferences (GSP) is increased when the inclusion of the recent ‘Everything But Arms’ initiative took place in which economic and trade framework were further analyzed and developed a workable framework with the developing countries with an aim of strengthen economic and trade relationships. However, there are various experts who do not agree with the notion that EU trade policy extend the share of benefits that it has given to the EU farmers. And they also contend that one way or other, the EU trade policy works at the cost of the developing countries. In the subsequent parts of the paper, firstly different economic and trade mechanisms of EU have been detailed with an aim of extending comprehension about them. They provide the aggregate economic and trade outlook of the EU. Subsequent to that, detailed critical discussion has been included asserting that the EU trade policy does not extend benefits to the farmers in the developing countries instead its policy has been substantially detrimental for the developing economies. European Community’s seven layers of integration For the economic reasons and other reasons, the European Community (EC) can be identified with seven different economic mechanisms working collectively to represent the aggregate outlook of the economic and trade policies of the European Community as a single integration of the bloc’s policy towards other countries of the world. In order to entertain the objectives of their trade and economic affairs, the following are the main parts of the European Community. European Union European Union (EU) is consisted of more than 27 members particularly after the increase of members in the last decade. The members of the EU are characterized by the deep integration with common agricultural policy, common extern tariff and common competition policy along with basic rules regulating the four basic components of freedom: movement of services, goods, persons and capital. The majority of the EU members enjoy the free mobility across the members of the European Union without using any visa or other regulatory requirements. Accepts for the United Kingdom, the Euro is the currency as a formal channel for the making money related transactions across the member’s states. Customs Unions The EU has put in place various agreements for the establishment of customs unions. This kind of agreement came into force with Andorra in the year of 1991 through it was informed to the World Trade Organization (WTO) in the year of 1998 (Panagariya 2002). Subsequent to that, the first generation association agreements with the states of Cyprus and Malta, which encompassed provision for the setting up of customs unions were finalized in the era of early 1970s, were informed to the forum of GATT in the year of 1973 and 1971 respectively. However, due to some reasons they do not seem to have practically established the custom unions to this point of time (Panagariya 2002). European Economic Area (EEA) The Agreement on European Economic Area opens the Single Market of the European Union to three out of the four members of the European Union Free Trade Area (EFTA), known as Iceland, Norway and Liechtenstein. For the sake of understanding, it is necessary to understand difference between EU and EEA. Two points create a distinctive reflection between the two components. EU is identified as a customs union along with a common external tariff; on the other hand, EEA works as a free trade area with each member having and maintaining its own individual and distinct separate tariff level. Furthermore, the EU common agricultural policy is separate and distinct and does not extend to EEA framework. Aggregately in the year of 2000, EEA consisted of a market of around 380 million consumers and contributing almost eighteen percent of the world imports along with twenty percent of the world exports (excluding the intra-trade between EEA members). Free Trade Areas (FTA) The EU manages a considerable number of FTA frameworks and arrangements, which work at various stages of implementation including the Europe Agreement with the Central and Eastern states of Czech Republic, Poland, Slovak Republic, Hungary, Romania, Estonia, Slovenia, Hungary, Latvia, Bulgaria and Lithuania. Free trade areas also exist with Denmark, Switzerland, Mexico, Iceland, Chile and Euro-Mediterranean Association Agreements with Israel, Morocco, Tunisia and Jordan as well. Mediterranean Partnerships European Union has a particular economic relationship with its twelve Mediterranean partners in Eastern and Southern Mediterranean. Three Maghreb partners include Algeria, Morocco and Tunisia and Mashreq partners consist of Egypt, Israel, Jordan, Lebanon, Syria, Turkey, Malta and Cyprus. The so-called Barcelona Process, initiated in the year of 1995, regulates the current EU-Mediterranean economic relationships. So far, the EU has finalized Association Agreements with Israel, Tunisia, Jordan, Egypt and Morocco. In interim agreement exists between the Palestinian Authority. ACP Preferences EU develops and maintains one-way economic and trade preferences for a total of seventy-one countries from Africa, Caribbean Pacific regions (ACP). As these preferences are neither given or allocated to all the developing countries nor limited to just least developed countries of the world, they disregard and violated the regulations and regulatory framework of the WTO. GSP Preferences Moreover, EU extends trade and economic preferences under the framework of Generalized System of Preferences (GSP) with the use of the Enabling Clause of WTO. As a segment of its GSP framework, it also enforced the recent ‘Everything but Arms” initiative developed and aimed at the least developed countries. European Union Trade Policies and their Impact on Developing Countries The EU trade policies severely hurt the economic interests of the least developed countries. The wide spread protection and subsidies by the developed countries including the EU has negatively affected the world prices and limit the market access of the least developed countries to the developed countries thereby adversely affecting the export value and quantity output of the least developed countries. Adopted in February 2001, the EU’s initiative ‘Everything but Arms’ extended duty free access to the imports of almost every products from the countries representing Least Developed countries, without putting any quantitative restrictions, but only disallowed the imports of arms and ammunitions. In addition to that, trade policy can support with reconstructions of the economies particularly in the aftermath of conflict or natural disaster. In this regard, one of the EU’s responses to the December 2004 Asian tsunami was to reduce the tariffs affecting the country exports to enable them to re-begin their economic recovery and activity. In addition to that, there certainly is a scope for analogous actions supporting the countries that are emerging from conflict as a segment of strategy for the long term reconstruction and growth as well. However, the EU is not extending such benefits even in the normal economic conditions. In practice, developing countries have always remained excluded from the EU markets even where there has been enhanced access, and advantages of trade are not automatic and rapid export growth is substantially absent. Instead, the measures such as FLEGT and, the Kimberley Process are severely increasing the divide between rich and poor (Pauwels 2003). While the boasting the rhetoric of free trade agreements and arrangements and open developing countries’ economies, the EU is still substantially extending the facility of subsidy to its own producers and exporters at considerably below the cost price (Brown 2005). The resulting impacts of such policy is that many countries are being tapped in the dilemma of low-value added ghettos without having any capability to introduce and incorporate the element of diversity to their economies and the promise of EU markets is unable to retain its significance and worth for many developing countries. Between the era of 197s and 1995 Africa’s contribution of the EU market dropped by two thirds from the level of 6.7 to t2.7 percent (UNECA 2004). Despite the establishment of preferential agreements with the EU, a number of countries, particularly in the Sub-Saharan Africa, are finding it nearly impossible to continue trade ties and get rid of instability and poverty as well. The incidence of poverty undermines human security and produces the circumstances for conflict which converts into violence. A recent survey of 40 Sub-Saharan states projected that a five percent decline in annual growth more than doubled the chances of the occurrence of civil war. Moreover, economic shocks, uncompromising market liberalisation, decline or stagnation in the volatile states have provided civil conflict issues and their chances of reoccurrence have already increased and mostly contributed by factors such as social inequalities and corrupt elite and putting heavy taxes on the poorest and the vulnerable segment of the societies in these parts of the world. Such situations can extend accelerators for violence as unemployed youth would find it reasonable to get involved in the violence and criminal activities with an aim of fulfilling their economic and social needs. A recent impartial study concluded that the EU has the minimum and lowest market access barriers of the higher and major trading blocs. But, the tariff barriers do not alone explain and detail the entire story; import duties remain only the door charges and the original challenge is to remain competitive once entering into the EU market having its own type of complexities along with consistently and rapidly changing market conditions, frameworks and regulations. In addition to that, complying with the requirements and regulations along with paying for independent certification cannot be termed as inexpensive; developing countries considerably do not have much knowledge and understanding about the market mechanisms and they also lack technical capacity to avail the economic advantage of the few opportunities existed within the EU markets. After exhaustive internal lobbying from European producers, the EBA agreement received further weakness. Under the regulatory framework of the EBA initiative quota and duty free access for sugar, rice and bananas will be phased in over an aggregate period of eight years. These a few exceptions remain the most significant goods imported from the developing countries. Strict regulations of origin along with coupled with bureaucratic impediments represent that only a small percentage of the goods from the developing countries entering into EU markets along with the presence of preferential treatment. However, the early evaluation of the EBA highlight that its impacts have been restricted (Brenton 2003). Even if the developing countries producers intend to negotiate the EU import regulations, they may reach a playing field developed substantially unfair by the subsidies offered by the EU system. In the year of 2003, the EU spend a substantial amount of $ 41 billion on the agricultural subsidies and that figure is not excluding the contribution extended to the export subsidies (Oxfam Briefing Paper 2002). Averagely, each farmer in the EU receives subsidy that remains hundred times higher than the average annual income of an African farmer ((Oxfam Briefing Paper 2002). Only from this perspective of the developing country producers, the EU’s long debated de-coupling of the subsidies from the production and generation in the Common Agricultural Policy (CAP) must look a substantially manifestation of cosmetic exercise. A 2005 World Bank study highlighted that despite the 2003 CAP reform; there still exist subsidy incentives for the EU farmers with an aim of increasing their production. A more statement would that in effect, EU ‘liberalization’ established support the agriculture but restructured the taxes and subsides to look them less costly to the EU and make more easily defensible in the World Trade Organization (Stevens 2003). Within the same direction, the agricultural subsides, which manifest in export dumping, affect farmers living in the developing countries to face the severe consequences of lost market shares, low products price along with the unfair competition. For example, EU sugar costs three times as much to generate as in the state of India and five times more in the state of Zambia, but, the EU remains the world’s second largest exporter of sugar. The further description highlights that in EU, the amount of sugar subsidies remained 2.7 billion Euros in the year of 2003 (Pollard 2004). Another study sums that EU subsidies along with market regulatory restrictions only on sugar cost Malawi $ 32 million and Mozambique $ 38 million in the year of 2004. The EU subsidy policy not only disregards and denies the developing countries significant amount of revenue but also creates the main reasons of destabilization in the key industries. However, despite several attempts of intervention in their own markets, the EU both at the WTO and through its own other bilateral economic and trade agreements, is disregarding to support the developing countries initiatives to defend small-holder famers from the impacts of the unfair international trade competition. This view along with the EU’s extensive subsidy framework have placed the EU the top place in the Oxfam’s Double Standards Index, seeking to evaluate the gap between the rhetoric of the free trade and the original reality of the trade protectionism of the world’s leading and stronger trade powers (Oxford Briefing Paper 2002). The massive decline and the presence of volatility in the price of primary commodities remains the most serious economic threat to the farmers and producers of the developing countries. In this regard, the reliance on one or two minimally processed level of exports for a higher amount of percentage of government revenue enables a country prone to the impacts of the global commodity markets. Subsequent to that, their exports generate a limited number of employment opportunities and attract little investment and often revenue flows can bring the threat of the increased corruption and the menace of poor governance. The driving force behind Preferential Arrangements between and among countries remains rarely economics alone (Tharakan 2002). Particularly, in the sub-Saharan Africa there are seventeen countries where the contribution of non-oil exports accounts for more than seventy five percent of the total export revenue. Other statistical highlights suggest a presence of strong correlation between increased risk of violent conflict in the low revenue and income countries and dependence on the natural resources. Subsequent to that, oversupply and decline of the commodity price arrangements particularly at the end of the 1980s period brought a wave violent price instability coupled with a downward trajectory for a number of other commodities as well. By the year of 2000, the prices of 18 major export goods and services were twenty five percent lower in their real terms than in the period of 1980; for a total of eight of these commodities, the fall had accelerated fifty percent margin. According the statistical reports of the United Nations, for every one dollar with respect to aid received by sub-Saharan Africa since the early period of 1970s, $0.5 has been wasted due to constantly deteriorating issues pertaining to the terms of trade. Burundi and Ethiopia depend on the export of coffee around eight and sixty percent of their aggregate export earnings, so the two-thirds drop in the price of coffee between the period of 1980s to the year of 2000 substantially destroyed the rural livelihoods and considerably declined the government revenues which already strained by the impacts of debt repayment. It has also been contended that the declining coffee rice in the early period of 1990s in part precipitated the genocide in the Rwanda in the year of 1994 and demolished the livelihoods of the millions of the farmers in this part of the world. However, there has been a complete absence of political support and will in the EU with an aim of finding an appropriate successor to the framework of the commodity price. And the main reason can be highlighted that some members host the futures exchange that extend substantial profit from the existing amount of volatility. A number of countries particularly in sub-Saharan Africa are facing the worst days and finding it considerably challenging to diminish their dependency on the natural resources and introduce diversity to their economies. In part this is due to the fact that internal supply-side constraints including low levels of technology, poor education levels and poor infrastructure as well. Being the world’s largest trading block, the EU can put its powerful leverage with its trade policy. The EU is amassing governance and security concerns and human rights issues into the provisions of the bilateral trade agreements and arraignments. By doing so, the EU is employing its trade policy as a source to enforce EU social, foreign, environmental policy concerns on its trading partners. Through a complex mechanism of trade ‘carrots and sticks’, the EU is endeavouring to make effective utilizations of its soft power against to its limited military power. In the event of resistance from the developing countries, which generally accept the incorporation of non-trade conditions particularly in the trade deals, does this policy equivalent to blunt coercion or effective engagement? The EU extends an evolving but complex web of multilateral and bilateral PTAs. The EU offers preferential access to its market in quid pro for a collection of reciprocal measures and access, better social and environmental protections or trade liberalization. Increasingly, the EU’s PTAs comprise of governance, social and environmental criteria and a number of them could be potential conflict drivers. For instance, a more generous manifestation of the GSP scheme is provided to particularly drug producing states that face the drug trade effectively. Currently, there is a constant debate over whether and how to bring an analogous scheme to extend rewards to those countries enthusiastic participants in the war on terror. For instance, Pakistan was provided an increased textile quota allowance to the markets in the EU in 2002. In addition to that, at the June 2002 Seville meeting, the members of European Council forwarded their consent to incorporate a terrorism clause in almost all EU arrangements and agreements, encompassing free trade agreements. In this regard, the 2000 Cotonou agreement extends three fundamental elements so called ‘essential elements’ that include the rule of laws, respect for human rights and democracy. If contravened, these requirements can bring a complete suspension of cooperation including the withdrawal of preferential access. Subsequent to that, a statistical evidence of the impact of such conditionality is considerably absent or scant but EU trade does seem to extend a powerful and forceful incentive for better governance structure and mechanism. However, entertaining somewhat subjective selection and criteria established by the EU remains a concern to the developing countries, perplexed that a supposed contravention could be employed as an excuse for the European protectionism (Rippel 2004). In addition to that, the Lome agreements, the first of which was formally signed in the year of 1975, extended preferential access to the certain number of products from the seventy seven African, Pacific and Caribbean countries. However, with the passage of time, Lome’s potential became frustrated by the interrupted EU tariff escalation, tariff barriers and regulations of origin requirements that restricted the economic growth and diversification in the ACP countries as well (Fraser and Kachingwe 2003). Subsequent to that, Lome restricted the impact and its non-compliance with the rules and regulations of the WTO that led to the causes for the Cotonou agreement, which was formally signed in the month of June 2000. A restricted WTO waiver enables the 20 year Cotonou agreement to provide a constant non-reciprocal preferential access until the 1st January of the year of 2008. After the expiry of waiver, developing countries can carry out and continue trading on non-reciprocal terms under the framework of EBA initiative. Other ACP developing states have been left a stark selection. They can rejoin and continue to the GSP system, which extends the non-reciprocity but on considerably worse terms and conditions. Conclusion The European Community has observed a substantial increase in number of its members. Currently, Euro is a single currency that is used to exchange goods and services across the member states of the bloc. The citizens of the member states have been given rights to enjoy cross border mobility without needing any visa or other regulatory requirements. The integration process has resulted in numerous manifestations. They include European Union, Custom Unions, European Economic Area (EEA), Free Trade Areas (FTA), Mediterranean Partnerships, Africa, Caribbean Pacific (ACP), and Generalized System of Preferences (GSP). However, these different economic and trade manifestations of the EU only extend benefits the EU farmers at the cost of developing countries farmers. A recent study highlighted that the EU has put in place minimum and lowest market access barriers. However, the tariff barriers do not alone describe the entire story. Import duties work as the door fees for entry into market. But the biggest challenge is to remain competitive after entering into the EU market, which is filled with complex mechanism and regularly changing market conditions and regulations. Under the regulatory mechanism of the EBA initiative, quota and duty free access for rice, bananas and sugar will be phased in over the aggregate period of eight years. In the year of 2003, the EU extended $ 41 billion for its agricultural subsidies and it is inclusive of the export subsidy as well. Averagely, each farmer is the EU obtains a level of subsidy that is hundred times higher than the average annual revenue of an African farmer. A 2005 World Bank report provided that despite the 2003 CAP reforms, there still exist subsidy incentives for the EU farmers which is designed to continue supporting the EU farmers. It is the impacts of agricultural subsidies in the EU that have severely affected the farmers living in the developing countries; the impacts of such policy brings lost market shares, low products price along with the presence of unfair competition. 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