International Economics Mordecai E. Kreinin Copyright ©2002 South-Western/Thomson Learning. All rights reserved. Copyright ©2002 South-Western/Thomson Learning. All rights reserved. Part I International Trade Relations Part I International Trade Relations

C8-2 CHAPTER 8 Selected Trade Problems of Developing Countries

C8-3 OVERVIEW Alternative Trade Approaches to Development U.N. Conference on Trade and Development Generalized System of Preferences Regional Integration Among Developing Nations Alternative Trade Approaches to Development U.N. Conference on Trade and Development Generalized System of Preferences Regional Integration Among Developing Nations

C8-4 Important Concepts Import substitution Export promotion U.N. Conference on Trade and development (UNCTAD) Short-run commodity price fluctuations Import substitution Export promotion U.N. Conference on Trade and development (UNCTAD) Short-run commodity price fluctuations Integrated Commodity Program (Common Fund) Donor country Generalized System of Preferences (GSP) Rules of origin Polarization

C8-5 Alternative Trade Approaches to Development Import substitution—discriminates in favor of import-competing, against export industries Harms agriculture, rural income; develops excess capacity Widens internal market Tendency to use capital intensive techniques regardless of factor endowments Capital flows don’t generate export earnings, aggravate debt-servicing problem Import substitution—discriminates in favor of import-competing, against export industries Harms agriculture, rural income; develops excess capacity Widens internal market Tendency to use capital intensive techniques regardless of factor endowments Capital flows don’t generate export earnings, aggravate debt-servicing problem

C8-6 Alternative Trade Approaches to Development Export promotion—stimulates investment, employment, GDP growth Duty-free processing zones Maquiladoras India, Access to developed countries’ markets for LDCs Export promotion—stimulates investment, employment, GDP growth Duty-free processing zones Maquiladoras India, Access to developed countries’ markets for LDCs

C8-7 U.N. Conference on Trade and Development Forum for LDCs to press demands in trade and development Demands concerning primary products Violent short-run price fluctuations in exports Integrated Commodity Program Buffer stock agreements IMF compensatory finance facility, STABEX of EU Manufactured products WTO negotiation participation Trade-creation effect Trade-diversion effect Forum for LDCs to press demands in trade and development Demands concerning primary products Violent short-run price fluctuations in exports Integrated Commodity Program Buffer stock agreements IMF compensatory finance facility, STABEX of EU Manufactured products WTO negotiation participation Trade-creation effect Trade-diversion effect

C8-8 The Generalized System of Preferences Introduced by Japan, Western Europe, Preferential access to industrial markets granted, but limited by each country’s restrictions U.S. scheme EU scheme Japanese scheme Effect of Tokyo and Uruguay rounds on GSP Introduced by Japan, Western Europe, Preferential access to industrial markets granted, but limited by each country’s restrictions U.S. scheme EU scheme Japanese scheme Effect of Tokyo and Uruguay rounds on GSP

C8-9 Regional Integration Among Developing Nations Mercusor ASEAN West African Common Market Central American Common Market Trade diversion, trade creation effects on LDCs Polarization of economic activity Lack of adequate transportation facilities Mercusor ASEAN West African Common Market Central American Common Market Trade diversion, trade creation effects on LDCs Polarization of economic activity Lack of adequate transportation facilities

C8-10 Summary Selected trade problems of developing countries Import substitution Export promotion Reforms involve less government intervention in economy, promote integration into global economy UNCTAD: buffer stocks schemes demanded for stabilization of 18 primary commodity prices GSP, restrictions LDC’s interested in regional integration to expand market size Selected trade problems of developing countries Import substitution Export promotion Reforms involve less government intervention in economy, promote integration into global economy UNCTAD: buffer stocks schemes demanded for stabilization of 18 primary commodity prices GSP, restrictions LDC’s interested in regional integration to expand market size