Chapter 16 Review Questions Answer Key

Free-Trade, Fair-Trade, and South-South Trade
  1. This is a major concept supporting the idea of free trade. The concept of comparative advantage was espoused in the nineteenth century by David Ricardo and is based on the idea that every country has an economic advantage in the production of one or more goods relative to other countries. The best course of action is for a country to specialize in producing the good(s) that it can produce most efficiently compared to other countries (even if it lacks an absolute advantage, the focus is on choosing the good(s) it is most efficient in producing). If all countries followed this logic, Ricardo argued, all would benefit. Thus, the logic of comparative advantage lies at the root of liberal free trade theory, which calls for the removal of all obstacles to the flow of goods across borders. [p. 284]
  1. The fair trade network, which emerged in the postwar era out of a variety of direct-purchase projects that linked northern NGOs to poor and disad­vantaged artisans and producers. In the late 1980s, fair trade transitioned into a certification system that veri­fies private companies through a market-driven model. The network connects small farmers, workers, and craftspeople in the South with organizations and con­sumers in the North through a system of “fair trade” rules and principles, including democratic organiza­tion (of co-operatives or unions), no exploitation of child labour, environmental sustainability, a minimum floor price, and social premiums paid to producer com­munities to build community infrastructure [pp. 288-9]
  1. In response to the general failure of commodity control schemes to achieve their goals of increasing export earnings to the South, at the first UNCTAD conference in 1964 calls were made to increase the transfer of wealth from North to South via aid and “fairer trade.” The pursuit of fairer trade focused on the replacement of financial aid provisions with stronger efforts to ensure fairer prices for commodities from the South via a system of direct subsidies for poor producers. In other words, the emphasis was on capacity development and livelihood support rather than cash aid. [p. 288]
  1. McNally points out that while globalization is usually considered synonymous with free trade, as a percentage of GDP most exports are not greater today than they were 100 years ago. While trade has increased, it has done so mostly within the North, while trade in the South has declined as a share of world trade. Tariffs have decreased, but quotas and non-tariff barriers have increased. Institutions that are ostensibly about Fair Trade are not about Fair Trade at all. For example, the WTO has not tackled the agricultural trade barriers imposed by the Northern countries to the detriment of those in the South. Rather than being concerned with Free Trade, these organizations are instead concerned with protecting property rights of TNCs and limiting states’ rights to intervene in the economy for social, environmental, and development reasons. [p. 290]
  1. Free trade, premised on the notion that the removal of barriers to trade and the limitation of state intervention in the market will provide the greatest developmental gains for all; and fair trade, premised on the belief that the poorest developing countries cannot attain substantial benefits from global trade unless the terms of North–South trade are readjusted and market interventionist mechanisms are employed to support development efforts. These two perspectives, in manifold ways, have dominated post-war policy discourse and debate on trade and development globally, and are of key importance to understanding the dominant development theories and practices. [p. 297]
  1. Several emerging giants, led by China, India, and Brazil, have become major players in inter­national trade after decades of rapid economic growth, leading to improved social indicators and enhanced po­litical influence (see Chapters 7 and 14) (UNDP 2013). Trade between Southern countries has increased signif­icantly—the share of world merchandise trade that was South–South grew from 8 per cent in 1980 to 26 per cent by 2011—and several countries have become lead exporters and importers. China, in particular, is now the world’s second-largest economy and second-largest exporter, as well as the number-one purchaser of major goods, from cars and pork to timber, gold, and crude oil. [p. 292]
  1. Over the past decades, world trade has grown at an unprecedented rate. The total value of world exports of merchandise trade increased from $1.4 trillion in 1990 to more than $18.8 trillion in 2018. Several booming Asian economies have increased their share of exports, whereas the poorest countries have experienced only limited gains—sub-Saharan Africa’s share of the value of world merchandise exports increased from an average of around 0.7 per cent per year from 1990 to 1994 to 1.3 per cent from 2015 to 2019. While the wealthiest economies have more or less maintained their dominance, several emerging southern giants have increased their weight, while the poorest countries remain well behind. These trends have major significance for human development, global politics, and economics. Because of its significance, international trade seems to find its way into most development debates. [p. 283]
  1. The first perspective, that of free trade, is premised on the notion that removing barriers to trade and limiting state intervention in economic and social interactions will provide the greatest gains for all nations. This view is dominant within official international organizations, such as the World Bank (officially the International Bank for Reconstruction and Development, IBRD), the International Monetary Fund (IMF), and the World Trade Organization (WTO), as well as many national governments and non-governmental development organizations, although certainly not all. Western notions of free trade were popular in the 19th century and experienced a powerful revival since the 1970s, spurred on by the influence of neoliberal thinkers such as economist Milton Friedman (1962). They believe that governments inherently lack sufficient information and knowledge and are biased toward specific interest groups (such as unions or trade lobbies). Consequently, state intervention in the economy is inevitably inefficient and counterproductive while choking individual liberty. The unregulated market, they argue, responds more efficiently to the “rational,” self-interested actions of countless individuals through the undistorted market signals of supply and demand. [p. 284]
  1. Fair traders criticize free traders for focusing on speculative trade models that neglect the historical, political, and social conditions under which the real-world battle for economic success is waged. In particular, they assert the continuing significance of “absolute advantage”—the ability to produce a unit of goods more efficiently, using less labour, than another country. While a country’s absolute advantage can be derived from natural resources (having lots of oil or gold) or geography (being located in the right place or having the right size and population), it also emerges out of a nation’s economic and social policies that create the conditions for efficient production relative to competitors. Recognizing this, heterodox economists have criticized the dominant focus on trade liberalization, arguing instead for “institutional reform appropriate to the unique conditions of a country” to promote industrial development, foreign direct investment, skills and technology upgrading, and a degree of trade protection for infant industries. Some, like famous Marxist dependency theorist Samir Amin (1977), have gone further, calling on Southern countries to strategically “delink” from the world capitalist system, not abandoning global trade but focusing on “autocentric” development that prioritizes domestic agriculture and industry, higher wages, full employment, and greater economic independence. [pp. 285-6]
  1. SVG, under the government of Prime Minister Ralph Gonsalves, in office since 2001, has sought to build a “modern, competitive, postcolo­nial economy” under difficult economic circumstances. This has involved challenging neoliberal austerity and boosting public spending on social programs (e.g., education and health care) and physical infrastructure (e.g., roads and low-income housing) to promote new industries and employment. Perhaps the most impressive social achievements have occurred in education, where the government has con­structed public schools (in under-serviced rural areas), subsidized private schools, funded teacher training, promoted computer technology in the classroom, and expanded access to education at all levels. The government has also made major strides in infrastructure development, often through careful diplomacy. Particularly significant has been its mem­bership in ALBA, an alternative alliance of 10 Latin America and Caribbean nations, first launched in 2004 by Venezuela and Cuba, and PetroCaribe, launched in 2005 by Venezuela, which has provided subsidized oil sales to 18 Caribbean nations. Through these alli­ances, SVG has received millions of dollars in support and participated in unique forms of in-kind assistance, which was central to the completion of its new inter­national airport in 2017. SVG has also pursued unique partnerships toward the construction of a 10MW geothermal plant targeted for competition in 2021. Once it is completed, SVG will transition from being heavily dependent on imported petroleum to re­ceiving 80 per cent of its energy needs from renewable sources—a major achievement for a small nation lack­ing substantial resources to fund a green energy transi­tion. Advancements such as these are essential to creating a “modern, competitive, post­colonial economy,” but the market on its own cannot be relied upon to provide them. [pp. 294-5]
  1. The COVID-19 pandemic included ru­inous impacts on global trade, the worst of which was felt by those most vulnerable. In the global garment industry, for instance, the sudden drop in demand in 2020 led corporations to abruptly cancel £8bn of orders, leading to the loss of millions of jobs in the Global South, slashed wages, and a spike in sexual abuse among women garment workers. Negative impacts like these sparked a great deal of discussion on the vulnerability of global supply chains and the limits of free trade. It remained unclear, how­ever, what the long-term impacts on trade policy would be. While the outcome depended to some degree on how much longer the pandemic would last, a great deal also hinged on the outcome of trade politics. During the height of the first wave of the pan­demic, for example, the dire lack of critical medical supplies sparked calls to “reshore” the production of essential goods, with some nations taking initial steps through tariffs and restrictions to encourage domestic industry. By the fall of 2020, however, powerful trans­national medical companies were pushing back, testi­fying before the US International Trade Commission that pandemic supply problems could only be ad­dressed through further trade liberalization and glo­balized supply chains. [p. 297]
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