Challenges That Developing Countries Face In Trade in a Globalized World - Essay Example

Running head: CHALLENGES THAT DEVELOPING COUNTRIES FACE IN TRADE IN A GLOBALIZED WORLD Challenges That Developing Countries Face In Trade in a Globalized World Insert Name Insert Grade Course 28 March. 2011 Challenges That Developing Countries Face In Trade in a Globalized World According to the New York Times 2007, the 24 kinds of toys recalled for safety reasons included, 1.5 million Thomas & Friends trains and rail components. The main reasons for the toys to be recalled were because they were coated with lead paint, which could cause damage of brain cells in kids (Barboza, 2007). According to the report, the previous month, a ghoulish fake eyeball toy made in China was recalled after it was found to be filled with kerosene. Other toys were also recalled due to chocking hazards. Although china government auditing agency claimed that the toys distributed indicated some warning signs on the toys like, “small parts that could be swallowed or sharp edges that could cut a child”, however, according to New York Times, most of these toys exported from china, don’t include their brand name and are sold at fair prices (Barboza, 2007). This remains a major concern among parents regarding the safety of their children. The matter of safety is very important to everyone. Though china produces among the best toys in the world in a relevant fair price, the safety issue should not be compromised. Incase of any incidents or accidents, the ones who are affected the most are parents. Chocking is common in children whatever the cause, therefore, it is important for such companies to be held liable for their mistakes until they meet the required safety standards. According to the New York time, it seemed like most of the workers in the toy producing company had no idea that the paint used to spray the toys included lead in them (Barboza, 2007). Toys are play items intended not only for enjoyment, but also creativity and intellectual development of children. However, if the toys prove to be a danger than a friend, this may create confusion for children. The toy companies may also experience huge losses than profits, if the toys are recalled frequently. When the toys are returned to their manufactures, for instance the china companies, it only means that all the labor that had been put to place is in vain. The capital that was also involved in the manufacturing could yield no returns at all. Therefore, companies involved have to re-manufacture such toys with the right materials in place, thus leading to excess un-accounted for expenses. In the case of Thomas and friends’ toy company, failure to meet the safety standards could risk loosing its market abroad and also huge profits. In most cases, the worst that could happen to such companies is having their licenses revoked as an act of discipline. Some of the factors that lead to such serious health hazards in some companies could be lack of the right personnel with the right skills and the urge to make fast cash. Challenges that developing countries face in trade in a globalized world. The developing countries are those that are not fully developed in terms of technology, and have a low level of economic development. According to Morton (1997 pp15), “developing countries are differentiated from the developed countries in terms of the high levels of mal-nutrition, illiteracy, disease and poverty, within their borders.” However, a globalised world involves an economy that is very competitive, due to technology advancements. Nevertheless, one of the major problem that affect developing countries is lack of product diversification, and probable too much focus on one or two goods for export. This may be a major blow for these countries, just incase the two goods don’t perform well in some countries, and then they end up with losses. Another issue that arises from this factor is that the developed countries choose from which country they want to import from, thus, they harbor a lot of power in setting prices for these goods. Therefore, the developing countries should avoid producing the same goods to avoid stiff competition. Another main challenge is when their goods are exported such that they cannot control the price of the goods when they arrive in other country. Sometimes, the price of manufactured goods may increase with time. Trade barrier is another issue in these countries, and these may include quotas and tariffs. Quotas signify the limit of goods in relation to their quantity that a country can export. In this case, developing countries can only be allowed to export a certain amount of goods to a country. On the other hand, tariffs are taxes imposed on imports; sometimes, these tariffs are very high, making it hard for the developing countries to compete effectively. With these trade barriers, it is very difficult for these countries to trade with the globalized countries. Most of the third world countries do not have enough funds to establish new industries and firms, hence relying mostly on foreign aid which comes with strings attached. In addition, most of the products made in the local industries are not marketable in these countries, since not many people can afford to purchase such goods. Most of these countries depend on cheap labor, whereas it may come with a cost. Cheap labor may sometimes lead to low quality work that costs the country a lot more. Moreover, the value of exports may change, hence leaving these countries with no stable profits. In other cases, governments of some countries restrict the amount of exports in a country, thus developing countries hence suffer because their goods may become expensive in the internal markets. Moreover, tariffs may lead to a reduction in demand due to price increase. Most of the inputs required by the developing countries are usually expensive and some or the manufacturers and producers cannot afford them, as they are imported. This may lead to the final product being more expensive and unaffordable in the host country. In the developed countries, prices fluctuate quickly hence leading to an added budget for the developing countries. The result is an increase in the cost of production, hence high prices of these products, which in turn leads to prices being less competitive. Most developing countries lack bargaining power, thus leading to the price setting problem. When the developed countries give the price they wish to buy goods from developing countries, these countries have to agree as any resistance may lead to loss of market due to competitiveness in supply market. Thus, developing countries having little or no control at all for export products prices. In addition, such a situation yields to making the imports prices higher than the exports prices in the developing countries. Another challenge that developing countries experience is high debts. Thus these countries may restrict on the level of imports so as to reduce the debts. The result of this is hindering the level of production in these countries, and consequently lack of sufficient revenue to clear their debts. According to the UNID (1998 pp3), the world economy has undergone rapid changes over the decades. The developing countries face a diversity of external shocks and challenges in pursuit of the higher economic growth. The author further explains that, for the developing countries, the way to achieve growth is not by accumulating more resources, but by making use of the readily available resources. According to an article by Seema Sapra (2009), the Indian government had prohibited Chinese imports and exports for six months with immediate effect on January 23rd 2009. However, according to World Trade Organization (WTO) spokesman from Geneva, they had not decided on the ban, but it was India’s own decision (WTO, 2008). But later on as India and China held talks in New Delhi, over the issue, the Indian government agreed that the China safety standards on toys should be extended to other imports from other countries. As at that time, the Indian government was strict on the importation of Chinese toys, and it had earlier on banned imports of Chinese toys in their country. This was as a result of the 2007 recalling of some toys that were hazardous. China agreed to make sure that their products are up to standard by referring to the WTO safety standards. The Indian government decided to cooperate with china once again, after being convinced that safety measures would be followed up. This is however one challenge that china faced and it threatened its trade with other countries (Stanton, 2010). In 2008 WTO meeting, main concern was the Chinese toys’ safety measures. Brazil insisted that it is conducting thorough checkups on any imported toys and their objective was that the country wanted to guarantee children’s safety. The Chinese representative insisted that the unsafe toys could have resulted from inappropriate design. At the meeting, China introduced its Export Toy Quality and Safety Control System stressing that, in their country, there exists a legal framework to ensure that toy products are safe and that they comply with the international standards along with stringent export quality certification systems. New Zealand put in place safety standards of toys suitable for children below the age of 3 years in September 2005. The imported toys can only be sold after been inspected for any threats such as injury to children and afterwards being allocated with certification. All toys in this country are subject to inspection. This has created great caution and responsibility of the producers, distributors and importers of toys. According to China, these standards exert great pressure on distributors and exporters, since these major countries do not inform the WTO about the change in standards; they just make decisions abruptly. Since childrens toys are one of the major exports of China to New Zealand, the Chinese are greatly affected by such decisions. According to Cavanagh (2004 pp 102) “under the WTO rules and safety regulation, must be based on risk regulation which requires government to produce categorical proof of harm from new technologies and techniques, before they issue a ban notice.” According to Ibp Usa, USA (COR) International Business Publications (2009, pp 632), as a result of WTO, membership and agreement, Vietnam eliminated the imports of certain children toys, second hand consumer goods, and other explosive materials. It is therefore, evident that WTO interest is the safety of people and the products they are associated with. World trade organization is a combination of both developed and developing countries. This organization sets rules for conducting trade and resolves trade disputes among countries. The rules made by WTO range from trade barriers, taxation and subsidies. With the rules intact, international trade is bound to flow smoothly and freely. Moreover, the organization provides secure trading terms and conditions, thus reducing the possibility of risks when conducting business in a foreign country. According to Coglianese et al (2009 pp 193), “in the wake of the scandals involving the safety of goods such as lead coated toys, toxic toothpastes and other product, there are proposed concerns to address safety issues.“ Though these proposals would have effects on the consumer safety, they do not provide individual or collectively a full solution to the problem. However according to Coglianese et al, (2009 pp 195), importers should in a better position to monitor the safety of their products. He further argues that, although the importers are not the initial producers of imports, they should demand an assurance about the products safety and thus choose their trade partners wisely. In addition, providing the importers with appropriate incentives, make it possible for competition among them to sell products that are price friendly and also safe. According to the WTO technical barriers to trade agreement, the aim of the agreement is to the standard, certification and testing procedures do not create obstacles for trade. This agreement allows its members the right for their countries to implement the safety standards that the country deems appropriate. They are not restricted on the standard measures as long as they comply with the rules of world trade organization. According to Kelada J, (1996 pp 292), “standardization has become an important tool for reducing the risk of injury in the home, at work and in leisure time activities.” Trade partners have however agreed on improving the standards for transport vehicles, storage for perishable goods, and quality products in their countries. Conclusion Globalisation has brought about new opportunities to developing countries. Developing countries are able to access the global markets, which is associated with technology, thus improving the living standards of these countries. However, globalisation has brought about some major challenges. These include the rising inequality across and within nations, financial market volatility and the deteriorating environment. However, on the issue of safety of imports, the importers should be in a better position to monitor the safety of their products. Despite the fact that importers are not the initial producers of imports, they should demand an assurance about the products safety and thus choose their trade partners wisely. In addition, providing the importers with appropriate incentives makes it possible for competition among them to sell products that are price friendly and also safe. The developing countries should however stop wasting their resources; instead, they should maximize the use of the available resources so as to achieve growth in their countries. Most of the challenges faced by the developing countries, are due lack of financial capability in these countries. The developing countries cannot afford to establish more manufacturing industries, thus they rely on imports of raw materials which are rather expensive. Their products become expensive and unaffordable to their citizens, hence they have to export them. These countries only trade one or two primary goods in the market, thus making the prices less competitive, and as a result they have to settle for any price that the buyer offers. This leads to lack of bargaining power since they are the minority countries and have to be humbled, so as to be able to trade with the developed nations. Reference List Barboza, D., 2007. As More Toys Are Recalled, Trail Ends in China. (Online). Available from: http://www.nytimes.com/2007/06/19/business/worldbusiness/19toys.html?_r=1 (Accessed March 29, 2011). Cavanagh, J. et al. 2004. Alternatives to economic globalization: a better world is possible. Second Edition. CA: Berrett-Koehler Publishers Coglianese, C. et al. 2009. Import Safety: Regulatory Governance in the Global Economy. PA: University of Pennsylvania Press. Morton, K. and Tulloch, P., 1997. Trade and developing countries. NY: Taylor & Francis publishers. Ibp Usa, USA (COR) International Business Publications. 2009. Vietnam Investment and Business Guide. Fifth Edition. Washington DC: International business publishers. Kelada, J., 1996. Integrating reengineering with total quality. Quebec: ASQ publisher. Sapra, S., 2009. Article on Archive for the ‘Indian safety measure for Chinese toys’. (Online). Available from: http://indiainthewto.wordpress.com/category/indian-safety-measure-for-chinese-toys/ (Accessed March 29, 2011). Stanton, G., 2010. The SPS Agreement: WTO Agreement on the Application of Sanitary and Phytosanitary Measures. The international trade forum. (Online). Available from: http://www.tradeforum.org/news/fullstory.php/aid/1601/The_SPS_Agreement:_WTO_Agreement_on_the_Application_of_Sanitary_and_Phytosanitary_Measures.html (Accessed March 29, 2011). UNID. 1998. Industrial Development Global Report. NY: Oxford university publishers. WTO. 2008. Technical Barriers to Trade. Chemicals and toys main focus of members’ trade concerns. (Online). Available from: http://www.wto.org/english/news_e/news08_e/tbt_20march08_e.htm (Accessed March 29, 2011). Read More