Global economy

Summary of the findings:
The most important finding that I did in this project is to know the real consequences of the antidumping
sanctions, what is called neoprotectionism. Before doing the project my opinion about them was positive,
because I thought they protected the environment and the rights of the workers in the less developed countries.
But now I realize that depending on how they are used, they can have the opposite effect.
While achieving higher labor and environmental standards is a goal, sanctions are not a way to achieve it.
Around the world, a fundamental dynamic takes place: Nations open to trade and foreign investment tend to
grow faster and achieve higher incomes than less open nations, leading to higher labor and environmental
standards.
These antidumping sanctions harm the economies of the poor countries by throttling their exports instead of
improving their working and environmental conditions. Furthermore, most developing countries are
unalterably opposed to enforceable labor and environmental standards in trade agreements.
In my opinion the neoprotectionism is very tricky because it often turns concern for labor rights and the
environment into an excuse to close markets. Therefore, even if it seems that the anti−dumping sanctions help
poor countries, often what they really do is to harm them.
Another finding I did is a new point of view of the expansion process of international trade and foreign
investment that we re living in the present day. I was told several times that the process is a centralized one
and because it was created by the developed countries. However, after doing this project, I think it is a
decentralized project that it comes from most of the countries around the world, not just the rich ones.
INTRODUCTION
During the last decade the global economy has been undergoing a growing liberalization. Why? The
expansion of international trade and foreign investment has not been the result of some grand design imposed
on the global economy. It has been a decentralized process resulting from two developments of the 1980s: the
collapse of global communism and the end of the Third World's romance with import substitution.
The fall of the Berlin Wall (1989) and the final disintegration of the Soviet empire two years later released
400 million people from centrally commanded and essentially closed economic systems. Meanwhile, the debt
crisis of 1982 and the resulting "Lost Decade" of the 1980s imposed a painful hangover on many Third World
nations that had tried and failed to reach prosperity by avoiding foreign capital and by protecting and
subsidizing domestic "infant" industries. Beginning with Chile in the mid−1970s and China later that decade,
less developed countries (LDCs) from Mexico and Argentina to India more recently have been opening their
markets and welcoming foreign investment. The trade liberalization of the last decade has not been the result
of a blind faith in markets imposed from above but of the total exhaustion of any
alternativetvision.
The relative success of openness as a policy, compared with protectionism, has stimulated a global movement
toward unilateral trade liberalization. Since the mid−1980s, sixty LDCs have unilaterally lowered their
barriers to trade. During that time, many LDCs have joined the WTO (World Trade Organization). Today
more than three−quarters of its members are LDCs, with another twenty waiting to join. The move to trade
liberalization has been accompanied by investment liberalization, with more than 90 percent of national policy
changes in the last decade being in the direction of more openness toward foreign investment.
Any survey of the world today will confirm that nations relatively open to trade tend to be more prosperous
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than nations that are relatively closed. The wealthiest nations and regions of the world (western Europe, the
United States, Canada, Japan, Taiwan, South Korea, Singapore) are all trade−orientated. Their producers, with
a few notable exceptions, must compete against other multinational producers in the global marketplace. In
contrast, the poorest regions of the world (the Indian subcontinent and sub−Saharan Africa) remain, despite
recent reforms, the least friendly to foreign trade. And those countries that have moved decisively toward
openness (Chile, China, and Poland, among others) have achieved real (and, in the case of China, spectacular)
gains in living standards.
We will see in the project how this liberalization of the free trade that is spreading around the world affects
countries and their economies, firms, consumers and labor. There will be also little section about the never
ending debate between free traders and protectionists. And finally, I will pay special attention to a new kind of
protectionism that the developed countries are applying through anti−dumping sanctions, the so−called
neoprotectionism.
1. ECONOMIES
1.1) The gap between rich and poor countries
There is a is perception that economic liberalization has exacerbated the gap between rich and poor
countries. The perception that the gap has been growing is broadly true. The
connectiontwithtfreettradetistmuchtlesstclear.
While some previously poor countries have managed to close the gap with the more advanced economies, a
disturbingly large number of countries have fallen further behind. According to the World Bank, the ratio of
income per capita in the richest countries compared with that in the poorest rose from 11 in 1870 to 38 in
1960 to 52 in 1985. Concern about the "marginalization" of poor countries in the global economic system has
rightly focused on sub−Saharan Africa. Since 1976, the region's share in world trade has fallen from 3 percent
to slightly more than 1 percent in the 1990s. While the flow of foreign direct investment to LDCs has risen
dramatically in the 1990s, sub−Saharan Africa has been almost entirely ignored. But
thetphenomenontoftmarginalizationthastnottbeentatrandomtevent.
Poor nations that have fallen further behind the rich nations are almost uniformly those that have applied
close economic policies. Sub−Saharan Africa has dropped behind the rest of the world in economic growth in
significant part because its markets remain among the most closed in the world. Its governments have
neglected domestic infrastructure such as roads and have distorted their domestic economies with subsidies,
high taxes, and regulations. Granted, many African nations have also the obstacles of civil and tribal conflicts,
poor soil, and inaccessible geography. But domestic economic policy must be considered a key variable in
explaining the region's failure to develop. Those African nations that have implemented more open, stable,
and market−friendly policies in the last decade, such as Uganda, Botswana, and Mauritius, have achieved
growth rates exceeding those of the advanced nations.
The most obvious variable that separates countries that are closing the gap from those falling further behind
is their own domestic policy choices. In their Economic Freedom of the World: 1997 Annual Report,
Gwartney and Lawson found strong empirical evidence linking growth rates to economic freedom. The
authors measured seventeen categories of economic policy for each of 115 countries (covering monetary
policy, property rights, government spending and regulation, and restraints on foreign trade). They found a
strong correlation between economic freedom and both economic growth and per−capita GDP.
There is nothing inherent in the process of globalization that would cause the gap between rich and poor
nations to expand. In fact, the access to capital, new technology, and larger markets that comes with global
integration should be expected to accelerate the convergence of less developed regions of the world and to
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make global trade and wealth less concentrated across countries. This dynamic has been at work inside the
United States, which has itself been a continent−sized free−trade area for more than two centuries. At the turn
of the last century, in 1900, per−capita income varied widely across the four major regions of the United
States. One century later, thanks in large measure to the free flow of goods, capital, and people within U.S.
borders, regional disparities have decreased on a spectacular way.
Of course, the advanced economies have not always been helpful. Despite progress in the post−war era,
advanced−economy trade barriers remain persistently high against clothing, textiles, and agricultural goods,
the very products in which LDCs have a natural comparative advantage. A recent study by Thomas Hertel of
Purdue University and Will Martin of the World Bank found that the average tariff that rich countries impose
on manufacturing goods from poor countries is four times higher than the average tariff rich countries impose
on each other's goods. One of the many disappointments of the failed WTO talks in Seattle was the indefinite
postponement of negotiations to lower barriers to poor−country exports. It would be wrong, however, to
blame advanced−country trade barriers for the lack of economic progress in so many LDCs. After all, the
Four Tigers of East Asia managed to become developed countries facing advanced−country trade barriers that
were even higher than they are today.
1.2) Free trade as a catalyst for systemic reforms, economic dynamism and eventual democratization:
In contrast to the failed policies of import substitution mentioned in the introduction, certain countries have
managed to improve in a spectacular way their living standards by deregulating their domestic economies
and opening up to global markets. The Four Tigers of East Asia−−Hong Kong, Singapore, Taiwan, and South
Korea−−are the most prominent examples. From typical Third World poverty in the 1950s, each has achieved
a standard of living today equivalent to that of industrialized nations, with per−capita incomes in Hong Kong
andtSingaporetrivalingtthosetoftthetwealthiesttWesterntnations.
The integration into the larger world economy has been fundamental to every poor country success story of
recent times. Exposing the economy to foreign competition and capital acts as a catalyst for more systemic
reforms. And over the longer term, examples as Chile, Mexico, Taiwan, and South Korea demonstrate the
connection of globalization, economic growth, and eventual democratization.
The greatest reductions in poverty in the last twenty years have occurred in nations that have moved
decisively toward openness and domestic liberalization. The most spectacular gains have been realized in East
Asia. Between 1993 and '96, the number of people living in absolute poverty (what the World Bank defines as
less than $ 1 per day) declined in the region from 432 million to 267 million. In China alone, the number of
poor people so defined fell by 150 million between 1990 and '97.The 1997−−98 financial crisis that began in
East Asia brought a temporary halt to this progress, but poverty rates in the hardest−hit countries (Korea,
Thailand, and Indonesia) have begun to decline back toward their precrisis levels. Globally, the number of
people living in absolute poverty has declined in the 1990s to an estimated 1.2 billion in 1998.
LDCs that open themselves up to international trade and investment gain access to a much higher level of
technology. This gives to LDCs a "latecomer's advantage": they can save the cost of expensive research and
development, and incorporate new technology by importing capital equipment with the latest advances and
computers with the latest software. Subsidiaries of multinational companies also bring with them new
production techniques and employee training that strengthen the host nation's stock of human capital.
Engagement in the global economy provides capital to fuel future growth. Most LDCs are people−rich and
capital−poor. In a few countries in Asia, the level of domestic savings has been high enough to finance
domestic investment, but typically the domestic pool of savings in an LDC is inadequate. Global capital
markets can fill the gap, allowing poor nations to accelerate their pace of growth. In 1998, $ 166 billion in
foreign direct investment flowed from the advanced economies to the less developed. A poor country that
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closes its door or fails to maintain sound well−founded domestic policies will lose the immense benefits this
capital can bring.
Openness to the global economy can provide the infrastructure a developing economy needs for growth.
Foreign capital can finance more traditional types of infrastructure, such as port facilities, power generation,
and an internal transportation network, just as British capital helped to finance America's network of canals
and railroads in the nineteenth century. But just as importantly, multinational companies can provide an
infrastructure of what could be called "enabling services," such as telecommunications, insurance, accounting,
and banking. As China and India have realized, a protected and inefficient service sector burdens an entire
economy, retarding the development of manufacturing and other industries. LDCs need to change the
mistaken idea that opening their economies up to international service competition is a "concession" to be
made to gain access to farm and manufacturing markets in the advanced economies. In reality, liberalizing
their service sectors by opening them to foreign competition is atfavortLDCstcantdotfortthemselves.
Engagement in the global economy encourages governments to follow more sensible economic policies.
Sovereign nations remain free to follow whatever economic policies their governments choose, but
globalization has raised the cost that must be paid for bad policies. With capital more mobile than ever,
countries that insist on following antimarket policies will find themselves being dealt out of the global
competition for investment. As a consequence, nations have a greater incentive to choose policies that
encourage foreign investment and domestic, market−led growth.
Opponents of globalization try to blame poverty in the world on the spread of trade and investment
liberalization. But those regions where poverty and inequality have been the most visible and intransigent for
decades (Latin America, sub−Saharan Africa, and the Indian subcontinent) for most of that time
self−consciously followed policies of economic centralization and isolation.
One of the most common complaints against trade liberalization is that it has weakened environmental
standards. Some environmental activists complain that the global trading system, as a part of the WTO,
favours free trade at the expense of environmental protection. Expanding trade is not only compatible with
high standards of environmental quality but can lead directly to their improvement. As a country sees its
standard of living rise through economic liberalization and trade expansion, its industry can more readily
afford to control emissions and its citizens have more to spend on the "luxury good" of improved
environmental quality, above what they need for subsistence. And as economic growth creates a growing,
better−educated middle class, the political demand for pollution decrease rises. Today the most restrictive
environmental laws are maintained in developed countries that are relatively open to trade.
This helps explain the Environmental Kuznets Curve, where environmental quality in a developing nation
initially deteriorates as the economy begins to industrialize but then improves after its citizens reach a certain
standard of living. Research by Alan Krueger and Gene Grossman indicates that the inflexion point takes
place at about $ 5,000 annual per capita income: "We find no evidence that environmental quality deteriorates
steadily with economic growth. Rather, for most indicators, economic growth brings an initial phase of
deterioration followed by a subsequent phase of improvement." By $ 8,000 per−capita income, the authors
found,talmosttalltthetpollutanttcategoriesthadtbegunttotimprove.
2. FIRMS
LDCs firms have the most to gain from engaging in the global economy. First, they gain access to much
larger markets, both for imports and exports. Domestic producers gain access to a wider range and better
quality of intermediate inputs at lower prices. Domestic industries can also enjoy the advantages of the
economies of scale by serving global markets rather than only a limited and underdeveloped domestic market.
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Beyond saving jobs, certain sectors of the econom-y may appeal for protection for other reasons, like national
security. The US steel industry, for example, has argued for years with some success that it is vital to national
defense. In the event of a war, the United States would not want to depend on foreign countries for products as
vital as steel. Even if the US acknowledge another country's comparative advantage producing steel, they may
want to protect their own resources. No industry has ever asked for protection without invoking the national
defense argum-ent. The testimony on behalf of the scissors and shears industry argued that in the event a
national emergency and imports cutoff, the United States would be without a source of scisors and shears,
basic tools for many industries and trades essential to our national defense. The question lies not in the merit
of the argument but in just how seriously it can taken if every industry uses it.
Another of the arguments for protectionism is that it safeguards infant industries. Young industries in a given
country may have a difficult time competing with established industries in other countries. In a dynamic
world, a protected infant industry might mature into a strong one worldwide because of an acquired, but real,
comparative advantage. If such an industry is undercut and driven out of world markets at the beginning of its
life, that comparative advantage might never develop.
Yet efforts to protect infant industries can backfire. In July 1991, the U.S. government imposed a 62.67
percent tariff on imports of active−matrix liquid crystal display screens (primarily used for laptop computers)
from Japan. The Commerce Department and the International Trade Commission agreed that Japanese
producers were selling their screens in the U.S. market at a price bellow cost and that this dumping threatened
the survival of domestic laptop screen producers. The tariff was meant to protect the infant U.S. industry until
it could compete with the Japanese industry. Unfortunately for U.S. producers of laptop computers and for
consumers who purchase them, the tariff had an unintended (though predictable) effect on the industry.
Because U.S. laptop screens were generally recognized to be of lower quality than their Japanese counterparts,
imposition of the tariff left U.S. computer manufacturers with three options:
1) They could use the screens available from U.S. producers and watch sales of their final product decline in
the face of higher quality competition from abroad;
2) they could pay the tariff for quality screens and watch sales of their final product decline in the face of
lower priced competition from abroad; or
3) they could do what was the most profitable for them to do: move their production facilities abroad to avoid
the tariff completely.
The last is exactly what both Apple and IBM announced they would do. In the end, not only were the laptop
industry and its consumers hurt by the imposition of the tariff (due to higher costs of production and to higher
laptop computer prices), but the U.S. screen industry was hurt as well (due to its loss of buyers for its product)
by a policy specifically designed to help it.
3. CONSUMERS
The greatest beneficiaries of trade liberalization are the long−suffering consumers in those nations that had
been "protected" from global competition. Free trade expands the range of choice, improves product quality,
and exerts downward pressure on prices. Consumers gain access to a much larger range of goods and
services, raising their real standard of living. Thus, the free trade transfers wealth from formerly protected
producers to newly liberated consumers, with the gains to consumers exceeding the loss to producers because
the initial losses to the economy are recaptured through efficiency gains.
Under autarky, consumers are often punished with poor service and overpriced and low−quality goods
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because there is no real competition to encourage domestic producers to meet the demands of their consumers.
This explains the poor quality of cars sold by protected domestic producers in such places as India, where the
standard Ambassador car is based on the Morris Oxford, a brand of car that went out of style in Britain four
decades ago.
When free trade is obstructed through protectionist measures, the consumers are the ones who more suffer.
Trade barriers force consumers to pay higher prices for protected products than they would otherwise pay. For
example, consider what happens to the domestic price of textiles when a trade barrier is imposed. Try to
imagine that a tariff of $1 per yard is imposed on imported textiles. If the old price was $2, the tariff raises the
domestic price of textiles to $3 ($2 + $ quantity of 1). The result is that consumers are forced to pay a higher
price for the same good and the textiles demanded drops because some consumers are not willing to pay the
higher price. In the other hand, domestic producers receiving revenues of only $2 per unit before the tariff was
imposed now receive a higher price and earn higher profits. However, these higher profits are achieved at a
loss of efficiency.
Trade liberalization facilitates the spread of modern medicine, which has helped to extend life expectancy and
reduce infant mortality in rich and poor countries alike. On average, life expectancy in developing countries
rose from 55 years in 1970 to 65 years in 1997. This good news is tempered by the fact that life expectancy
has actually fallen in thirty−three LDCs since 1990, in large part because of AIDS epidemics, and remains far
behind the OECD average of 78 years. However, infant mortality rates in Asia and sub−Saharan Africa have
fallen by about 10 percent since 1990.
By raising the general standard of living, free trade helps people achieve higher levels of education and to
gain access to alternative sources of information. It helps to create a larger and more independently minded
middle class that can form the basis of civil institutions that can offer ideas and influence outside government.
Engagement in the global economy exposes citizensttotnewtideastandtnewtsocialtandtbusinesstarrangements.
As a general rule, the citizens of nations that are more open economically tend to enjoy political and civil
liberties as well. The relationship can be confirmed by comparing cross−country data measuring economic
openness and political/civil liberties. For the political and civil data, recent ratings from Freedom House have
been used, which classify the nations of the world as free, partly free, or not free. Then these Freedom House
scores were compared with international economic freedom as measured in the study Economic Freedom of
the World: 1998/1999 Interim Report, written by James Gwartney and Robert Lawson. The authors rated
nations according to their level of taxation on trade, the size of the trade sector, exchange rate controls, and
restraints on capital mobility, with a rating of 10 representing maximum openness.
Comparing these two sets of data confirms that nations that respect human rights tend to be relatively open to
commerce with the rest of the world. Nations that are classified by Freedom House as being free scored an
average of 7.9 on the scale of economic openness. Those that are partly free scored a less open 6.7, and those
that are not free scored the lowest, 5.4. Another result of the comparison is that citizens who enjoy the
freedom to engage in international commerce are about four times more likely to be free from political and
civil oppressiontthantthosetwhotdotnottenjoytsuchtfreedom.
Globalization and the growth it motivates have contributed to expanded political and civil freedom in a
number of countries. Taiwan and South Korea were essentially dictatorships two decades ago, but they are
now governed by elected legislatures and presidents. Political debate in those countries is robust, and civil
liberties are more secure than ever. A share of the credit for political reform must be given to economic
liberalization and the educated middle class it helped to create and nurture. In Latin America, the movement
toward economic liberalization has been linked with the appearance of representative governments. Chile, a
leader in economic reform, now enjoys one of the region's most stable democracies. A decade of dramatic
economic reform in Mexico has helped to achieve a more open political system, including Mexico's first
competitive presidential primary within the Institutional Revolutionary Party (PRI).
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Sceptics of the link between economic and political reform routinely point to India and Singapore to refute the
thesis. These countries are clearly exceptions of the general rule: Singapore is one of the world's most open
economies but its government remains authoritarian, while India remains relatively closed economically yet is
ruled by democracy. Exceptions, however, do not negate a clear trend. And even these two notable exceptions
seem to be migrating toward the trend line, with India opening up to trade and foreign investment since its
balance of payments crisis in 1991, and the Singapore government gradually loosening its
controlstontciviltsociety.
4. LABOR
Free trade delivers an immediate gain to workers by raising the real value of their wages. For less developed
countries, engagement in the global economy raises real wages and labor standards. According to a study by
the U.S. International Trade Commission, wages, salaries, and labor standards are higher in export−oriented
sectors than in those that produce non−traded goods. And jobs in foreign−owned firms generally pay
significantly higher wages than do those in domestically owned firms. And higher incomes stimulated by
trade allow more poor families to send their kids to school, reducing child labor, therefore, raising labor
standards of that country.
One of the most common complaints against trade liberalization is that it has weakened labor standards, and
that it has exacerbated the gap between rich and poor, both among and within countries. Critics of
globalization warn of a destructive "race to the bottom," as advanced nations are forced to weaken labor and
environmental standards to compete with less−regulated producers in developing nations. This theory rests on
the assumption that lower standards give LDCs a significant advantage in attracting global capital and gaining
export markets at the expense of more developed countries. The OECD (Organisation for Economic
Cooperation and Development) has found that, in practice, a lack of core labor standards plays no significant
role in attracting foreign investment or in improving export performance.
The OECD did find strong evidence "that there is a positive association over time between sustained trade
reforms and improvements in core standards." In other words, trade liberalization encourages higher
standards, not lower standards. If anything, the real race may be toward the top. For reasons of internal
efficiency as well as public perceptions, multinational companies tend to impose higher standards on their
overseas production plants than those prevailing in local markets, thus raising average standards in the host
country. Free trade and domestic liberalization, and the faster growth they create, are the best ways to
encourage higher standards. As per capita incomes rise in less developed countries, so does the domestic
political demand for higher standards, and the ability of the productive sector to pay for them. Punishing
LDCs with trade sanctions would only weaken their long−term ability to raise domestic labortstandards.
The relatively larger importance of technological change compared with trade can be seen in recent trends of
job displacement. U.S. Labor Department surveys show that three−quarters of Americans displaced from their
jobs in 1995−97 were working in sectors of the economy that are relatively insulated from trade. Even in the
more trade−intensive manufacturing sector, technological change rivals trade as the principal engine of
labor−market change. International trade is often blamed for job displacement in manufacturing when in fact
many times the real cause is the rising productivity. This explains why the number of workers employed in
manufacturing in the United States has remained stable in the 1990s at slightly more than eighteen million, at
a time when manufacturing output has been rising an average of 3.8 percent a year in the decade (and 5.5
percent a year since 1994).
The main argument for protectionism is that foreign competition costs domestic workers their jobs. For
example, when Americans buy Japanese or German steel, steelworkers in Pittsburgh lose their jobs. It is true
that when a country imports goods from foreign producers, domestic producers suffer. However, there is no
reason to believe that the workers laid off in the contracting sectors will not be ultimately reemployed in other
expanding sectors. Foreign competition in textiles, for example, has meant the loss of U.S. jobs in that
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industry. Thousands of textile workers in New England lost their jobs as the textile mills there closed over the
last 35 years. Nevertheless, with the expansion of high−tech industries, the unemployment rate in
Massachusetts fell to one of the lowest in the country in the mid−1980s, and New Hampshire, Vermont, and
Maine also boomed. By the 1990s, New England had suffered another severe decline, due partly to
high−technology hardware manufacturing that had moved abroad. By 1994, it became clear that
small−to−medium−sized companies in such newly developing areas as biotechnology and software were
beginning to become strong just as hardware man-ufacturing had done a decade earlier. The adjustment is far
from costless. The knowledge that some other industry, perhaps in some other part of the country, may be
expanding is of little comfort to the person whose skills become obsolete or whose pension benefits are lost
when his or her company closes a plant or goes bankrupt. The social and personal problems brought about by
industry−specific unemployment, obsolete skills, and bankruptcy as a result of foreign competition are
significant.
These problems can be addressed in two ways. We can ban imports and give up the gains from free trade,
acknowledging that we are willing to pay premium prices to save domestic jobs in industries that can produce
more efficiently abroad, or we can aid the victims of free trade in a constructive way, helping to train and
recycle them for jobs with a future. In some instances, programs to relocate people in expanding regions may
be in order. Some programs deal directly with the transition without renouncing the gains from trade.
The right response is not to protect non competitive domestic sectors through trade barriers but to raise the
general skill level of the workforce. Instead of a useless effort to "save" the jobs of yesterday, the focus should
be on preparing workers to meet the rising demands of thetlabortmarkettfortspecializedtskills.
5. FREE TRADE vs. PROTECTIONISM
Critical to the study of international economics is the debate between free traders and protectionists. On one
side is the theory of comparative advantage, formalized by David Ricardo in the early part of the nineteenth
century. According to this view, all countries benefit from specialization and trade. The gains from trade are
real, and they can be large; free international trade raises real incomes and improves the standard of living.
On the other side are the protectionists, who point to the loss of jobs and argue for the protection of workers
from foreign competition. However, although foreign competition can cause job loss in specific sectors, it is
unlikely to cause net job loss in an economy, and workers will over time be absorbed into expanding sectors.
Foreign trade and full employment can be pursued simultaneously. Although economists disagree about many
things, the vast majority of them favor free trade.
6. A NEW KIND OF PROTECTIONISM
As we saw in the introduction, the world is facing a new kind of protectionism. One that substitutes tariffs and
quotas with antidumping sanctions. Many political parties in the developed countries encourage the use of
these antidumping sanctions to "enforce" higher labor and environmental standards in poor countries. The
case for sanctions rests on the myth of a "race to the bottom." Without the threat of sanctions, poor countries
will supposedly exploit the "unfair advantage" of low standards to capture investment and export markets
from rich countries. But low standards seem to be more of a handicap than an advantage. Of the $1.1 trillion
in global foreign direct investment flows in 2000, only 17 percent went to less developed countries, down
from about 40 percent in the mid−1990s. American manufacturing companies directly invest far more in the
high−standard economies of the European Union than in all of the developing world. In fact, nations with the
highest environmental standards, as measured by the World Economic Forum's "2001 Environmental
Sustainability Index," consistently attract the most foreign direct investment per capita.
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Antidumping supporters defend the law as a tool against "unfair trade". Although many countries now have
similar laws, the US is the country that uses more antidumping sanctions as a protectionist tool and the rest of
the world is getting increasingly tired. Dozens of countries have voiced support for new WTO rules to restrain
antidumping abuses. Brazil in particular remains inflexible that any eventual deal must include antidumping
reforms. It is extremely unlikely that any new multilateral or regional negotiations will succeed unless the US
agrees to tackle its antidumping problem. And why should the US do that? If the US wants lead the world
towards more open markets, it must lead by example. It does not seem coherent to demand other countries
reduce their trade barriers while maintaining the own ones. Sure, the antidumping law has politically powerful
support, for example, the same steel producers that are now receiving favoured treatment under section 201.
But if the US, with all its wealth and advantages, cannot face and oppose the demands for protectionism of an
industry with fewer than 200,000 workers, how can it expect to persuade much poorer countries to do that?
Therefore, the rich countries should fight against the inclusion of gratuitous antidumping measures in new
negotiations and they should make the public opinion know why that would be in the broader national
interest.
For less developed countries, engagement in the global economy raises real wages and labor standards.
According to a study by the U.S. International Trade Commission, wages, salaries, and labor standards are
higher in export−oriented sectors than in those that produce non−traded goods. And jobs in foreign−owned
firms generally pay significantly higher wages than do those in domestically owned firms. And higher
incomes stimulated by trade allow more poor families to send their kids to school, reducing child labor,
therefore, raising labor standards of that country.
Higher incomes tend to raise environmental standards as well . A study by the Cato Institute found a strong
correlation between high incomes and high environmental standards. In fact, higher incomes appear to be a
prerequisite for higher standards. In other words, while some countries have managed to achieve high per
capita incomes without high environmental standards, no country has achieved high standards without high
incomes.
Sanctions would undermine the healthy dynamic of growth and higher standards. It would be a serious
mistake to set given standards of social development as a prior condition for free trade. This would be
equivalent to making development a prior condition for development.
The threat of sanctions would also poison any new round of WTO trade negotiations. More than
three−quarters of the WTO's members are less developed countries that would be the likely targets of any
sanctions aimed at enforcing social standards. Their governments are aware of the economic damage those
sanctions would inflict on their economies, and correctly suspicious that the motivation behind them would
not be the new concern for higher standards but the old desire for protectionism.
The demand for trade sanctions as a tool to enforce environmental and labor standards confronts the public
opinion with a false choice. In reality, the best policy for promoting economic growth at home and abroad, an
economy open to global trade and investment, is also the best policy for promoting higher labor and
environmental standards.
CONCLUSION
Does the free trade benefit all parties equally? That was the question I was supposed to answer in this project.
To answer it, I considered economies, companies, consumers and labor, in each of the first four sections of the
project. In this conclusion, I would like to focus in the economies, the countries. Does the free trade benefit all
countries equally? My answer is that it does not benefit all countries equally, but it benefits all countries. In
other words, the free trade benefits some countries more than others, but all of them are better off.
Why do I say that? Trade has potential benefits for all nations, we can see it clearly trough the David
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Ricardo's theory of comparative advantage, where two countries engaged in trade end up paying less and
consuming more. Not all the countries have an absolute advantage, but all of them have a comparative
advantage in some products or services. It is good to remember that trade flows not accord-ing to absolute
advantage but according to comparative advantage: All countries benefit, even if one country is more efficient
at producing everything. Trade encourages countries to specialize in that products or services where they have
a comparative advantage. Doing that, countries use more efficiently their resources. That leads to higher levels
of output obtained. Next, through free trade, countries are able to exchange goods: they export goods in which
they have a comparative advantage and import goods in which they do not. That is why free trade is beneficial
for all the countries. But only if it is a real free trade.
In the present day there are countries that are damaged by the free trade, but that is because what we have now
is not a real free trade: theoretically we have a free trade, but not in practice. What we have now is a partial
free trade with a high protectionism being applied. Tariffs, quotas, and export subsidies which interfere with
the free movement of goods and services around the world, reduce or eliminate the gains on comparative
advantage. Is this protectionism what prevents some countries to benefit from free trade.
I agree in that there are certain cases in which some protectionism is justified. Two good examples are when
protectionism is used to safeguard infant industries or fight against foreign firms setting prices below cost. But
the current situation is that all the countries around the world are applying many protectionist measures than
are not justified at all. It is against non justified protectionism what we should fight against, instead of
blaming the free trade of the problems of the poor countries.
I want to make it clear that when I say protectionism I am referring to both protectionisms: the old one (tariffs
and quotas) and the new one (bad use of the anti−dumping measures). Because even if the governments say to
their citizens that antidumping sanctions are a tool to raise labor and environmental standards, what they
really do often is to use these sanctions as an excuse to apply a protectionism so aggressive as that one applied
through tariffs and quotas. The consequence is that these antidumping sanctions often harm the poor
countries, when theoretically they should protect them.
Both rich and poor countries apply protectionist measures to protect their own industries, but in my opinion
the developed or rich countries are the ones who should start to reduce them. Why? Because they are the ones
who more benefits obtain from the free trade. Moreover, they are the ones who advocate a real free trade
without protectionism, so they should set example to the rest of countries. Specially the United States, the
country that is leading this trade liberalization. We in the West can do more to facilitate developing or poor
countries participation in global commerce. The United States and Europe apply strong trade barriers for
precisely those products that poorer countries are best able to export (basically, food and textiles). Therefore,
the US, should stop protecting so aggressively its domestic agricultural sector and its steel industry. In the
same way, the European Union (UE) should stop protecting so aggressively its agricultural products through
the CAP (Common Agricultural Policy). Japan and the rest of developed countries should do the same. In this
way, the developing countries would be able to export the products in which they have a comparative
advantage (food and textiles). But I have the feeling that things should change a lot to see the countries
performing a real free trade. Does anybody want to bet something?
Bibliography
http://www.globalissues.org/TradeRelated/FreeTrade.asp
http://www.cato.org/dailys/09−28−01.html
http://www.freetrade.org/pubs/articles/bl−12−5−01.html
http://www.freetrade.org/pubs/articles/bl−7−6−01.pdf
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http://www.ustr.gov/regions/whemisphere/nafta.shtml
http://www.natlaw.com/treaties.htm
http://europa.eu.int/comm/trade/bilateral/mexico/fta.htm
http://mai.flora.org/
During the paper, the concept of "less developed countries" will be also mentioned as LDC's or poor
countries. In the other hand, "developing countries" (or economies) are located in a middle point between
developed countries and LDC's, although they are also considered poor countries.
While incomes in the Midwest were close to the national average, at 103 percent, incomes in the Northeast
were 139 percent above the national average and those in the West were 153 percent above. In contrast,
income levels in the South were only 54 percent of the national average.
Today, income levels in the Northeast are only 117 percent above the national average, incomes in the
Midwest and West are within 2 percentage points of the national average, and incomes in the South as a share
of the national average have risen to 90 percent.
Infant Industry: A young industry that may need tem-porary protection from com-petition from the established
industries of other countries to develop an acquired com-parative advantage.
Pittsburgh is the city with the strongest steel industry in the US.
Massachusetts, New Hampshire, Vermont and Maine are located in New England
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