Thursday, January 30, 2020
Trade Liberalization Essay Example for Free
Trade Liberalization Essay Trade is very critical in any country as it ensures that although countries have different production capabilities they can acquire all types of goods. Different capabilities arise due to the fact that different countries have different natural resources, educational capabilities, varying physical capital as well as the technological knowledge. Trade liberalization entails the reduction of limitations on trade across countries. Artificial barriers as well as other forms of distortions are reduced. (Alvarado S and Morici P, 1992, 59). Protectionism is completely eliminated and tariffs which entail the raising of import prices, quotas that see to it that there is physical limitation on goods that can be imported as well as non tariff barriers like regulation and legislation that hinder easy entry for foreign competitors are eliminated. The US is committed to ensuring that countries eradicate barriers as is seen through its efforts in General Agreement on Tariffs and Trade (GATT) and World Trade Organization (WTO) and in Free Trade Area (FTA).             Trade liberalization or policies ensure that economies are open to trade and investments with the rest of the world. It is crucial for any nation if sustained economic growth is to be attained. Free trade ensures the creation of jobs, better working conditions and the over all economic growth. No country can attain economic growth, which comes along with improved standards of living if it is in exclusion with the rest part of the world. In other words, no country is self-sufficient. Trade openings as well as foreign direct investment ensure economic success especially in third world countries. Trade liberalization has seen many third world countries develop competitive advantages in the production of certain products thus increasing their production and consequently increasing the profits derived from them. This has seen the number of people living in the margins of poverty decrease. It is evident that countries focus on the outward development rather than inward developments thrive more. Such countries focus more on the interrelated relationship with other countries and together all the parties involved benefit. Countries as India, Vietnam and Uganda are relevant examples of how faster growth and poverty reduction is realized when trade liberalization takes place. Lowering of tariffs comes along with quick growth compared to those who do not. (www.kent.ac.uk).             Trade liberalization benefits the poor more. Protection is associated with large implicit subsidies that most third world countries cannot afford. Liberalization of trade ensures that the poor people‘s incomes increase with almost the same proportion as the total population as a whole increases. With trade liberalization there is the creation of jobs, which can suit the semi and the unskilled workers in a nation, such a move, ensures their graduation from a lower social status to a higher one. Again, the reduced inequality gap that had been observed since the 1990s was partly due to trade liberalization and its effects on the economic growth. More gains can be accrued if many barriers to trade are eliminated. Third world countries are more likely to benefit from trade liberalization as a percentage of their GDP than the developed countries since their economies tend to be more or highly protected and also because they face more barriers. (www.imf.org).             To maximally leap the benefits of trade liberalization it is important that countries specialize in producing goods that they have a comparative advantage in. The opening of their markets and ensuring that their companies compete internationally then follow this. This necessitates stiff competition and increased efficiency that ensures that prices go down making the goods more attractive and affordable. Demand consequently rises and there is continued or increased production to match it. As the businesses, boom the Gross National Income rises and all people benefit from it.             Trade liberalization encourages or facilitates the increased imports of strategic goods and services, attracts foreign direct investment and enhances technological transfers. It also ensures the development of endogenous capacities as well as the development of infrastructure that is appropriate to support national objectives for industrial development.             It can indirectly be beneficial to a country’s natural resources as with the increased trade, countries can acquire the finances needed to support environmental protection, its conservation as well as remediation efforts. Although there are potential negative effects associated with trade liberalization policies that promote the positive effects ought to be enhanced. It is also important to ensure that institutional as well as human capacities of developing countries or those that are in the transition process to the market economies are well organized. This would ensure effective integration between the environment, trade and development policies. Negative effects or impacts of trade should be avoided and curbed before they even emerge and once they start being manifested, they should be addressed quickly. It is important to take into account the sustainability of a country’s environmental as well as natural resources when designing the trade liberalization policies. This will go a long way in ensuring that there are fewer or no adverse effects. In Bangladesh, the shrimp culture became beneficial with the introduction of liberalization. The economic gains included the increased GDP that recorded an increase of approximately 70 %. Exports increased and there was the increased employment rate for the locals.             Copper mining in Chile also benefited from trade liberalization. It saw the increased GDP from the sector. The sector contributed to the country’s total exports to a tune of 41% despite the fact that it created employment for just a few people. The liberalization ensured that there was increased private participation and this meant that efficiency and effectiveness would be enhanced. New technologies could easily be adopted and they ensure that costs of production were lowered, competitiveness increased and it was possible to explore previously marginalized areas. (www.kent.ac.uk). This is crucial in ensuring that rural development is attained. Diversified economic development is vital for third world countries as it reduces the rural urban migration and ensures rural development. Infrastructures are developed in areas that could have remained under developed as third world countries lack adequate capital to ensure unified development.             Liberalization enhances competition which works to increase innovation and exploration. It ensures that there is effective exploration especially in areas that had previously been marginalized. It also encourages the use of environmentally friendly technologies geared to ensure that there is minimal harm to the environment. With increased exports or trade in general there is the generation of foreign exchange, attraction of external investment and the creation of employment.             Free trade ensures that there is the creation of trade and domestic production is substituted with cheaper imports. Trade creation is important as it ensures that there is effective production efficiency. (Peloso J, 2005, 154). Factors that determine the effects on trade depend on whether there are lower prices due to tariff reduction and if the price changes are responsive to the supply and demand in the market.             Trade liberalization can be defined as a form of trade where a neutral approach is taken and there is minimal government control. Most developing countries that register minimal growth had a history of poor implementation issue in totality.             Trade liberalization and free trade ensures positive externalities that lead to increased or greater competition that ensures there is much efficiency in resource allocation, economies of scale as well as technological spill over effects. It reduces rent seeking – behaviour and promotes the increased flow of technological knowledge across the globe. There is a greater access to new goods be they capital or intermediate. There is also a faster rate in the imitation of advanced techniques that enable third world countries to prosper economically.             It makes exports more competitive especially in the international markets since it involves the reduction in exchange rates distortion as well as export duties. Trade liberalization and free trade in third world countries ensures that there is export diversification among countries involved. Trade restrictions that hinder or act as an obstacle to trade are erased.             Some third world countries especially in Africa would greatly benefit from increased trade through trade liberalization. Most of them have poor infrastructure that would need huge capital to develop in trying to increase the rates of production. Their inadequate capital makes them it hard to acquire new and more efficient technology needed to ensure that there is considerable economic growth and development. Others are inhibited by their geographical locations in ensuring that they develop economically. With trade liberalization acquisition of goods that land locked countries like Uganda is made easier. Many gains are earned when countries exploit their comparative advantage in the face of free trade and trade liberalization.             History proves that inward development among the third world countries where their governments intervene or control the economy are not effective in ensuring economic growth. In the 1960s and 70s when this approach was used it was characterized by ineffective or deficient infrastructures, underdeveloped financial markets as well as poor human capital resources. Through trade liberalization, it was possible to acquire external finances that would steer up the economy.             The overall effects of trade liberalization are highly correlated to a country’s political, economical as well as social organization. It is also affected by the way reforms are created and implemented for instance reforms on import liberalization and the approach that is taken for example through tariff reduction, structure unification or reduced duty rates.             In Tunisia, trade liberalization enhanced export promotion that created changes in the country’s economic growth and external payments. Import liberalization saw the promotion of domestic production that strengthened competition and consequently the economy’s efficiency was enhanced. It ensured trade competition with neighboring countries like Morocco, Algeria and Egypt. Liberalization of telecommunication sector made significant changes in the country’s economic development. Economic expansion in the country is also attributed to the increased privatization of most sectors making them more efficient and effective.             Trade liberalization can be of much importance to third world countries especially because through trade agreements there is the enhancement of the rule of law among the countries involved. Good governance, transparency as well as fair enforcement of contracts is ensured in the countries involved. (Wallace L, 1999, 89). Corruption is in most case eradicated as the rule of law is reinforced and it promotes foreign direct investment. Property rights are also empowered and they ensure that there is effective investment in the involved countries. This ensures that there is increased savings as well as investment and exchange. The competition that comes along with free trade benefits the poor especially in the third world countries where they are susceptible to exploitation by the elites or by a few monopolies. It promotes equality and eradicates the manipulation of trading activities. Free trade also encourages reforms in various sectors of the economy and consequently promotes growth. It sees to it that there is efficiency as the policies established are critical. Again democracies can be effectively strengthened with the establishment of free trade. Free trade in addition to promoting the flow of goods and services it also entails the transmission of ideas and values. Self confidence is therefore ensured as freedom is ensured.             The World Bank reported of the overwhelming growth that came along with the reduction of trade barriers, it estimates that in the 90s the per capita of such countries rose by almost thrice. (www.usemb.gov.do). Trade liberalization encourages domestic reforms that are needed in third world countries. Freedom and openness promote effective governance and macroeconomic policies that ensure there is economic growth. The economic gains arising from increased trade would be effective in ensuring that third world countries reduce the burden of seeking foreign assistance that comes with strings attached or conditional ties.             According to the numerous studies conducted by World Bank and also by the University of Michigan there are more gains attributed to trade liberalization especially in developing countries where trade barriers are approximately four times more than in developed countries. Another study by International Institute of Economics established that millions of people subjected to abject poverty especially in the third world countries would have their living standards improved with the global free trade. (www.usemb.gov.do). Trade liberalization and free trade therefore increases the flow of trade and benefit the third world countries. References: IMF. 2001. Global Trade Liberalization and the Developing Countries. Retrieved on 11th April 2008 from http://www.imf.org/external/np/exr/ib/2001/110801.htm Jennifer Peloso. 2005. Free Trade. H.W. Wilson Publishers. P 154 Sylvia Alvarado, Peter Morici.1992. The Premise and the Promise: Free Trade in the Americas. Transaction Publishers. P 59 America U Santos Paulino. Trade liberalization and economic performance among selected developing countries. Retrieved on 11th April 2008 from http://www.kent.ac.uk/economics/papers/papers-pdf/2000/0012.pdf. Michael McGee. 2006. Benefits of Free Trade Agreements for Developing Countries. Retrieved on 11th April 2008 from http://www.usemb.gov.do/FCS-e.htm Laura Wallace. 1999. Adjusting to the Challenges of Globalization. International
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