Increasing Growth in International Trade - Essay Example

1) Identify and discuss four factors that may have contributed to this growth in world experts between 2000 and 2004. To have a better understanding of the world economy, organizations like the World Trade Organization (WTO), does periodical analysis and reports it. The report published by the WTO in 2005 showed an overall growth of 9% for merchandise and commercial services during the period, 2000 – 2004. As there are various factors which contributed to this growth, in this paper we will focus on four factors that may have contributed to the growth in world exports for the period, 2000 to 2004. Strong economic growth shown by the world economy during the period, Sharp increase in price of iron and steel, ores, non-ferrous metals and fuels, Emergence of China and Oil exporting regions increasing their exports. United States Department of Agriculture’s Economic Research Service (USDA’s ERS) report says that during the period 2000 to 2004 the world economy grew from $39190 billion to $43363 billion. (www.ers.usda.gov). WTO report says that the Asian region recorded an export growth of 14.5 in 2004. Real merchandise imports in South America grew by 18.5 per cent, which was twice as fast as world trade in 2004. Africa’s trade expanded strongly in 2004. North America’s export recovery, which started in 2003, gained momentum in 2004. The enlargement process of the European Union towards the east fostered an integration process between central and Eastern Europe resulting in sharp rise in intra – industry exchanges, e.g. automobiles. The GDP growth of Asia more than doubled from 2.37 percent in 2001 to 5.42 percent in 2004. Thus, growth of an economy automatically increases the economic components like exports and trade The major chunk of merchandise trading, after oil, around the globe happens in iron and steel, ores, non-ferrous metals and fuels. The growth of this sector also contributes to the growth of global trade. Historically the US has been the major importer of iron and steel, ores and non-ferrous metals. The growth in real estate and construction industry fuelled this need for iron and steel. Being the largest manufacturer of goods also made the US the largest consumer of non-ferrous metals like copper and aluminium. With the emergence of China, the consumption of non-ferrous base metals has gone up drastically. Chinese imports of the metals have increased to extent, where the demand has overshot the production. This increased the prices of base metals like copper. The price of copper in the London Exchange in April 2000 was around $ 1600 per metric tonne and in April 2004 it was around $2200 per metric tonne. (mongabay.com). The global trade was always skewed towards the West historically. With the accession of China to the WTO in 2001, China emerged as a major Exporter and Importer. Global trade has also seen positive growth based on the growth of the Chinese economy. As per the USDA’s ERS report, the Chinese GDP grew from $ 1456 billion in 2000 to $ 2083 billion in 2004. This was roughly 5 percent of the world GDP. Statistics released by the World Bank show that Chinas economic growth contributed on average 13 percent to world economic growth from 2000 to 2004. In 2004, the world economy reported the swiftest growth in 30 years, while Chinas economy grew by 9.5 percent and became a key driving force for the former. Also in 2004, Chinas import and export figure doubled that of three years previously, reaching US$1,154.8 billion, and its import figure nearly doubled that of three years previously, reaching US$561.4 billion. (china.org.cn). The availability of cheap labor has made China the manufacturing hub for the world. With the increase in manufacturing capacity the need for importing raw materials increased which had a direct impact on the global export trade. With crude oil as the major source of energy in the world, transport and trade of oil plays a major role in the global trade. With the increased growth of developing countries and China, the requirement for oil grew and the production was also increased to meet the demand. The natural oil reserves of the world are majorly concentrated on the Middle-Eastern countries and the CIS. They produce roughly 60 percent of the global need. The major consumers being the US and Europe, oil is traded as the major merchandise. The increase in trade of oil also reflects on the increase in global trade. The oil production capacity is measured in terms of million barrels per day (mn b/d). The oil consumption increased from 76 mn b/d in 2000 to 82 mn b/d in 2004. (www.indexmundi.com). The production of crude oil also increased from 68.49 mn b/d in 2001 to 72.49 mn b/d in 2004. (eia.doe.gov). 2) Discuss three reasons why in your view the ever increasing growth in international trade has negative implications for the environment. Among the many economic based movements, globalization is the one which had and is still having major impact on the international trade of many developing and Least developing countries and its people worldwide. In this scenario, foreign organizations, using the globalization plank, have entered and will also enter various sectors of the businesses leading to the establishment of many industries, promoting international trade. Among the many steps that these countries take for economic development, most of them lead to Greenhouse gases emissions (GHG) or particularly carbon emissions, one of the major causes of environment destruction. That is, starting from constructing new infrastructure to electrifying the infrastructure, all the activities emit carbon emissions. During the construction phase, carbon dioxide is emitted by the materials used in construction. For example, cement, which is the primary component of concrete, is a major contributor of carbon dioxide emissions. That is, during the production of cement a lot of Carbon dioxide emissions happen. “Making traditional cement results in greenhouse gas emissions from two sources: it requires intense heat, and so a lot of energy to heat up the ovens that cook the raw material, such as limestone” (Jha 2008). That then releases further CO2 as it burns”. Apart from this material, other process which involves burning and other materials like steel also contribute to Carbon dioxide emission. Because of the usage of these damaging products, emissions also continue during the occupancy phase. Electrical power is one of the main needs to sustain or accelerate the economic development. For that crucial electrical power, countries particularly the countries showing maximum growth potential, China and India are focusing on the main Carbon emitter, Coal as the primary source of electric generation. For instance, China roughly generates 70 per cent of its energy needs from coal, and India for its part needs coal to meet more than 50 per cent of its energy needs. The more disturbing fact but a possible eventuality is that this electrical generation through coal is expected to increase even more, making these countries major emitters of environment destroying GHG gases particularly Carbon. “The Asian coal rush is expected to generate 30,000 megawatts coal-fired power over the next 10 years in the region. The IEA has projected that the worlds C02 emissions will reach 40 gigatons by 2030. The emerging economies led by China and India will contribute to more than 70 per cent of these emission” (Islam 2007). As the current and further economic development will only lead to further emission of environment damaging carbon, environment and the people in those countries as well as in the other countries will face dangerous repercussions. As stated by World Bank (2007) Rapid growth and poverty reduction in China, India, and other countries that were poor 20 years ago, has been a positive aspect of international trade. But international trade has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. This environmental degradation can surely nullify the economic development in many aspects. As there is no alternative to economic development, steps particularly technology based options need to be explored to minimize environment destruction as far as possible, thereby saving the environment and the human race. Describe the term of shipment and sale of this shipment and carefully assess the distribution of responsibilities and risks associated with Direct Duty Paid (DDP), Ex Works (EXWKS), Free on Board (FOB) and cost Insurance and Freight (CIF) MV Sirius Star, an oil tanker operated by Vela International Marine, was hijacked by the Somali pirates in November 2008, making it the largest ship ever to be hijacked by the pirates. At the time of the capture, the ship was carrying its full complement of two million barrels of crude oil worth at least $100 million (£67 million) and the total ship was estimated to be worth approximately US$150 million (Phil 2008). Although, there was no clear picture regarding who is the real seller or sellers and the buyer or buyers of the cargo onboard Sirius Star, the common view is Saudi Oil Company Aramco is the seller and there were group of buyers in United States. Much depended on the fine print of contracts drafted between Vela International, the ship’s operator; Aramco, its Saudi parent company that also produced the oil; and any buyers who were due to take delivery of the crude on arrival at its destination in the US. (Pagnamenta 2008). So, the terms of the shipment was supposedly between Aramco or Vela and US buyers, with the onus on the Aramco or Vela International to arrange key things related to the shipment as per Direct Duty Paid (DDP). “Neither is it yet clear who legally had ownership of the crude at the moment that the vessel was hijacked - a key issue that will need to be determined before liabilities can be established. It is most likely to have been Aramco” (Pagnamenta 2008). With details regarding the intended sale of this shipment was not clear, under DDP, carrier Vela has to arrange everything during the course of the shipment, from providing the customs clearance agent to the overland freighting directly to their final destination including unloading the palletes. (blogspot.com 2008). As continuation of this duty, Vela is the main party or the visible party in the negotiations with the Somali pirates. With Vela conducting negotiations and taking all measures to end the stalemate, it is clear that the shipping term of Ex Works (EXWKS) was not applicable in this case. According to EXWKS, the only responsibility of the seller is to make the goods available at his/her premises (i.e., works, factory, warehouse, etc.) to the buyer, with the buyer only need to bears all the costs and the risks involved in taking the goods from the sellers premises to the desired destination. (exporters.sg). With the unknown buyers in USA not playing visible role in these affairs, EXWKS appears to be not applicable. Likewise, with Vela taking the center stage, terms relating to Free on Board (FOB) were also not applicable because under this trade term also buyer has to bear all costs and risks to loss of or damage to the goods from that point. (exporters.sg). On the other hand, the activities carried out by Vela falls within the realm of cost Insurance and Freight (CIF). This is because under this trade term seller only has the responsibility to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier. “In the oil business, it is normal for the shipper to take care of the insurance of the ship and the crew, and for the oil company to take care of the cargo insurance,” said Michael Corke, of Purvin & Gertz, an oil consultancy based in Dubai. (Pagnamenta 2008). In this case of Sirius Star, with the shipper and the oil company one and the same or part of one another, it is clear that Vela or Aramco could have covered issues related to insurance. As they have covered the issues related to CIF, Vela is right in handling the full coverage of the trade. References blogspot.com 2008, Errata Editions Books on Books Series Update, viewed on May 7, 2009 http://5b4.blogspot.com/2008_10_01_archive.html china.org.cn, Promoting World Peace and Development with Chinas Own Growth, viewed on May 7, 2009 http://www.china.org.cn/english/features/book/152766.htm eia.doe.gov, world crude oil production, viewed on May 7, 2009 http://www.eia.doe.gov/aer/txt/ptb1105.html ers.usda.gov, Historical real GDP values, viewed on May 6, 2009 http://www.ers.usda.gov/data/macroeconomics/Data/HistoricalRealGDPValues.xls exporters.sg, Commonly Used Shipping and Payment Terms, viewed on May 7, 2009 http://www.exporters.sg/info/shipping_terms.asp indexmundi.com, World crude oil consumption, viewed on May 6, 2009 http://www.indexmundi.com/energy.aspx Islam, SM 2007, “The environmental cost of growth in China and India: Asias powerhouses face serious dilemma on how to balance surging economic growth and environmental protection.” The Business Times, viewed on May 7, 2009 http://www.isasnus.org/articles/article-46.pdf Jha, A 2008, “Revealed: The Cement that Eats Carbon Dioxide.” The Guardian, viewed on May 7, 2009 http://www.guardian.co.uk/environment/2008/dec/31/cement-carbon- emissions mongabay.com, copper price chart, viewed on May 7, 2009 http://www.mongabay.com/ima ges/commodities/charts/copper.html, Pagnamenta, R 2008, Questions of who bears any loss of the Sirius Stars £68m oil load, viewed on May 7, 2009 http://www.timesonline.co.uk/tol/news/world/africa/article5201894.ece Phil, C 2008, Somali pirates hijack Saudi oil tanker with Britons on board, viewed on May 7, 2009 http://www.timesonline.co.uk/tol/news/world/africa/article5172770.ece World Bank 2007, A Guide to the World Bank, World Bank Publications. 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