Developing Countries

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Developing Countries
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• Specific characteristics
• (Tables 7.1,7.2, 7.3,7.4,7.5)
• -Primary product exporters
• Distribution of benefits from trade to this group
  is little
• Unstable export markets
• Low price elasticities generate more price
  instability if demand or supply shifts (look at
  the graph on the next slide from your book)
• Worsening terms of trade

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Export price instability for a developing nation
Developing nations and trade
Source Carbaugh, chapter 8.
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Trying to improve conditions
New International Economic Order in United
Nations Conference for Trade and Development
(1964)
called for tariff preferences from developed
countries, international commodity price
stabilization, aid to developing countries
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Trying to improve conditions
  Lome Convention (1975) Europe gave preferences
to 46 developing countries reducing tariffs on
their products to zero The new Cotonou
Agreement ratifies Lome in 2000. (cotton 4
countries in Africa 
(African Cotton Producer countries share of the
EU market declined from 6.7 in 1976 to 3 in
1998, and still about 60 of total exports of
these countries are concentrated in only 10
products.)
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International Commodity agreements in cocoa,
coffee, sugar, tin, and wheat are summarized in
Table 7.8
Over 70s and 80s things took a different
turn Structural adjustment policies and
macroeconomic adjustment under IMF and World
Bank (Debt problems)   Import Substitution ?
Export-led growth (Success of NICs and China)
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• Developing Countries in 1960s and 1970s
• Import Substitution (60s.. And 70s)
• International Debt (70s and 80s)
• Export Promotion (70s and 80s)
• Oil Shocks (70s.)

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•   After peaking at 28 in 1980 (mainly
  due to exports of fuels), the share of developing
  countries in world merchandise trade declined. It
  has started to pick up more recently.
•  
• Since 1980, the share of developing
  countries in world exports of mining products
  (mainly fuels)? their share of world trade in
  manufactures has doubled from 10 to 20
•  
• As a group, the Asian developing
  countries have out-performed the other developing
  countries in
• their share of world trade,
• their share of FDI flows,
• and their ratio of trade-to-GDP

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Developing countries made a major contribution to
the vigorous expansion of world output and trade
in 2000
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Developing countries accounted for 27 of world
exports of manufactures in 2000, a remarkable
increase from their 17 share in 1990 The largest
part of this increased share is accounted for by
China, Mexico and East Asian exporters of office
and telecom equipment Least-developed
countries The 49 least-developed countries (LDCs)
as a group shared in the dynamic output and
trade growth of the other developing countries.
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For trade purposes, it is useful to distinguish 4
groups   - oil-exporting LDCs, such as Angola,
Yemen, Sudan and Equatorial Guinea they
benefited from higher oil prices and increased
their exports by between 60 and 120 in 2000.
These four countries alone accounted for more
than 40 of LDC exports in 2000.   - LDCs that
export mostly manufactured goods their
merchandise exports rose by nearly one quarter
last year. This group, which accounted for almost
one third of LDC exports in 2000, comprises
Bangladesh, Cambodia, Lao Peoples Democratic
Republic, Lesotho, Madagascar, Myanmar and Nepal.
As a group, these countries have recorded high
export growth rates throughout the 1990s, nearly
matching or exceeding that of China. In many
instances, exports from affiliates of
multinational companies contributed to the
outstanding trade growth.
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  - the largest group consists of those LDCs
whose exports are limited to a few primary
commodities their export performance is often
determined by the cyclical demand in commodity
markets and the vagaries of weather. Exports of
these LDCs are not only erratic but their longer
term growth remains well below that of world
trade. Even in last years buoyant economic
environment, most of these countries saw their
exports decline.   - those LDCs that, due to
armed conflicts and civil strife have not
performed well.
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(No Transcript)
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Factors Underlying the VariableTrade Performances
of Developing Countries   Access to foreign
markets Even though the average level of
protection in the industrial countries is
relatively low, there are serious barriers to
entry in certain sectors of particular interest
to developing countries - including agriculture,
textiles, clothing and fish and fish
products. Other concerns preference
erosion, tariff escalation left out of the
trading blocs
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Capital inflows (Foreign investment). The
share of developing countries in total world FDI
flows ? from 15in 1986-90 to 35 in 1994, But
the share going to the Least Developed Countries
remained stagnant at 0.4 per cent. 10
developing countries received nearly 80 per cent
of the FDI going to developing countries.
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Other external factors Over 1984-93,
fluctuations in world interest rates on their
outstanding debts, cyclical changes in
industrial country demand for their exports, and
declines in primary commodity prices, Reduced
growth rate of developing countries Debt
Burden Least Developed Countries.
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• Over three-quarters of WTO members are developing
  or least-developed countries. Special provisions
  for these members are included in all the WTO
  agreements.
• The special provisions include
•  
• longer time periods for implementing agreements
  and commitments,
• measures to increase trading opportunities for
  these countries,
• provisions requiring all WTO members to
  safeguard the trade interests of developing
  countries,
• support to help developing countries build the
  infrastructure for WTO work, handle disputes,
  and implement technical standards.

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  GATT Article XVIII   The need
for additional flexibility with regard to GATT
obligations for the developing countries was
recognized for the first time at the Review
Session (1954-55) when Article XVIII was revised.
The structural nature of their balance-of-payments
problem was recognized, and the obligation of
developing countries maintaining
balance-of-payments restrictions to hold annual
consultations was reduced to once in two years
(Article XVIIIB). In regard to measures
deviating from GATT obligations for the promotion
of a particular industry, the requirement of
prior approval was relaxed to some extent
(Article XVIIIC). These amendments to Article
XVIII thus introduced for the first time the
concept of differential treatment of developing
countries.
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GATT Part IV   The General Agreement on
Tariffs and Trade (both GATT 1947 and GATT 1994)
contains a special section, in its Part IV,
called "Trade and Development". This section,
added in 1965, recognizes the need for a rapid
and sustained expansion of the export earnings of
the less-developed countries. To this effect,
developed countries are called upon to take a
number of best endeavor commitments. These
include according high priority to the reduction
and elimination of barriers to products currently
or potentially of particular interest to the
developing countries, including customs duties
and other restrictions which differentiate
unreasonably between such products in their
primary and in their processed forms. Part IV
codifies in the multilateral trading system the
concept of non-reciprocity in trade negotiations
between developed and developing countries.
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Enabling Clause   Part IV of the GATT was
further elaborated in 1979 in the decision which
has come to be known as the Enabling Clause. This
consolidated the concept of "differential and
more favorable treatment" for developing
countries as well as the principle of
non-reciprocity in trade negotiations. The most
significant provision of the Enabling Clause is
that which enables Members to accord differential
and more favorable treatment to developing
countries as a departure from the MFN Clause.
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The following categories of such treatment
are   (a) Preferential tariff
treatment in accordance with the Generalized
System of Preferences   (b)
Differential and more favorable treatment with
respect to the provisions of the GATT concerning
non-tariff measures governed by the provisions of
instruments multilaterally negotiated under GATT
(now WTO) auspices   (c) Regional or
global arrangements entered into amongst
less-developed contracting parties for the mutual
reduction or elimination of tariffs and, in
accordance with criteria or conditions which may
be prescribed by the GATT Contracting Parties
(now the WTO Ministerial Conference), for the
mutual reduction or elimination of non-tariff
measures, on products imported from one
another   (d) Special treatment of the
least-developed among the developing countries in
the context of any general or specific measures
in favor of developing countries.
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DOHA AGREEMENT (Statement by LDCs) Doha
Agreement did not help LDCs Agriculture is of
crucial importance in Africa. Other than
providing food security and sovereignty, it is
the mainstay of most African economies. The
sector is however performing below its capacity
as it is being affected by factors in external
markets like subsidies and tariff peaks and
escalation. The Agreement on Agriculture is
skewed - it allows developed countries to
maintain their domestic support while denying
developing countries the rights to counterbalance
with tariffs. To accept any agreements that aim
to further reducing tariffs in developing
countries is to condemn the already vulnerable
countries to perpetual poverty. Developed
countries have export subsidies, credits, tariff
peaks and escalation, particularly on sensitive
products such as sugar and beef for EC, rice for
Japan, sugar, cotton for US
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CANCUN TALKS The meeting failed primarily as a
result of the acute differences in interests
dividing developed countries (mainly the US and
the EU) from developing countries, who stood
firmly against an agreement on the so called
Singapore issues (investment, competition
policy, transparency in government procurement,
and trade facilitation).