The European Union (EU) and its Relationship with developing countries; what are the impacts on trade agreements?

Brief history on the formation of the European Union …The recommendation to form the European Union was made by the then Foreign Minister of France, Robert Schuman in a speech made on May 9, 1950. And since then, May 9 is celebrated as the EU’s birthday.

Presently there are 27 EU member countries and their motto is “United in diversity”.

EU Member Countries and Candidates for Membership

This posting is focused on one of EU member countries, Germany and its involvement with developing countries with regards to Corporate Social Responsibility and developed countries support on free trade policies.  Germany has few raw materials of its own but owes much of its present prosperity to trade. About third of Germany’s GDP is dependent on exports and on average; one job in every four depends on trade.

Over the past five decades the increase in trade flows from Germany has been disproportionately high, and world trade has increased by a factor of seventeen. The current volume of trade in goods and services amounts to over US$ 1 billion per hour. Nevertheless, Germany has a particular interest in changing this situation and enabling developing countries to play a greater part in international trade.  As the second largest trading nation in the world, Germany feels she has a responsibility in this area.  At the same time she realizes that substantial concessions will be required on the part of the industrialized countries.  Presently, there are still far too many trade barriers, either confronting developing countries or in the developing countries themselves, and these barriers need to be removed. Germany managed to ensure that the “Everything but Arms” initiative was successfully adopted as part of EU policy in February 2001. It gives the poorest developing countries completely free market access in the EU for all but a few sensitive products, for which there are interim regulations. As part of the trade round it is also necessary to introduce measures to facilitate trade for the other developing countries, notably trade in textiles and agricultural produce, in which developing countries are particularly competitive. 

http://europa.eu/about-eu/facts-figures/index_en.htm

 Map

Developing countries faced greatest threat of marginalization but not globalization. With such obstacle, developing countries are in urgent need of a trade round that will enable them to further their interests and benefit from the multilateral system.  Associated with a comprehensive development strategy, free trade is an indispensable precondition for prosperity. In addition to the negotiations over agriculture and services, already underway, the traditional trade themes belong on the agenda, particularly the lowering of customs tariffs, the elimination of quotas, the removal of non-tariff obstacles to trade, and anti-dumping.  The successful conclusion of the Doha negotiations confirmed the central role of multilateral liberalizations and rule-making WTO as a powerful shield against protectionist backsliding.

The importance of developing Countries Policies on Trade

Trade is an exchange of goods and services between buyers and sellers, while policy is typically described as a principle or rules to guide decisions and achieved rational outcomes.   So when you combine the two (Trade & Policy) together it describes setting clear standards and goals which can be understood by potential trading nations allowing them to run their businesses smoothly.  But many developing countries have not been able to utilize these concepts because of the deficiencies in their economic stability and structures, societal institutions and infrastructure.  But while these developing countries envelopment remains the principal focus of trade policy, they have become increasingly involved in regional and multilateral trade negotiations among themselves.  Because the multilateral system initiation, there have been substantial adjustments to the increased importance of developing country members’ response on reforms in governance and a shriller distinction between positive and negative approaches to integration seem likely to be needed.

Developed countries have the social responsibility to help developing countries achieve these goals, reason being, their liberalization of trade in services and the mobility of labor which are very important comparative advantage.  With developed countries flexing their regulations, it provides very substantial reductions in the trade policy and other barriers inhibiting developing country participation in world trade.   Developing countries have made dramatic shift in the pattern by shifting away from dependence on commodity exports to much greater reliance on manufactures and services, and greatly increased the importance of exports to other developing countries.  Also, there has been rapid globalization movement in the world in recent decades and the process appeared to hold broad support, but started to receive some resistance and sustained attack in recent years.

It is clear that the task to continue this process have become very much a policy question, and one with enormously important implications.  But one of the important features of the globalization process has been a major shift in the nature of the trading relations between developed and developing countries. This shift from dependence on exports of commodities to much greater reliance on exports of manufactures and services is sufficiently noticeable as to require reconsidering of old approaches to viewing trade and development as in export-led growth. It has also placed major pressures for change on the multilateral trading system as developing countries have become much more active participants.  Developing countries have to seriously get in the practice of the “Flying Geese” pattern of growth by gradually moving up in technological growth and emulating countries that are ahead of them in this process.

The Effect of United States and China Treat of Trade War

An interpretation of trade war is not just about trades between nations, but mostly, it is about the political interest of both countries leaders wanting to show the world how powerful and threatening they are when it comes to politics and the protection of their citizens.  Example is the US decision to impose countervailing tariff duties on the sale of imported photovoltaic panels from China.  Other leaders from developed and developing nations anticipated immediate response from China in like manner, but it appears as if China is taking a different approach, because it is no secret that China is equally capable of imposing countervailing pressure on the United States as well. 

President Barack Obama hosts Chinese President Hu Jintao at a working dinner in the White House

On the other hand, China announcement of increasing the tariffs on imports of U.S. chicken parts that would not have a huge effect on the total flow of goods between both countries but a patent of an unraveling trade relationship.  Notwithstanding, China’s Ministry of Commerce announcement of imposing an anti-dumping tariffs ranging from 43.1% to 105.4% on imported chicken parts from the United States is another political jargon because China’s production of chicken isn’t nearly enough to satisfy its domestic market; in recent years, the US has been the source of about half of China’s imports of chicken feet. (Austin Ramzy – Time.com) 

At work in a Chinese solar-panel plant

Both nations, The United States and China are the world’s largest economics and any trade war could mean industrial hardship, because there relationships are the most important of share resources in the 21th century.   Both countries have benefited from trading and also been hurt from the export growth rates.  China has comparative advantage to produce photovoltaic panels that are of good quality and price we could not get here on the market.  These low priced panels drive down the cost of alternative energy, increase its market share and help achieve the goals for reduced greenhouse gas emissions and more sustainable energy production.  On the flip side, there has been an uncooperative disproportion in trade relationships with China. China continues to create barrier and  access to the US markets to sell its goods, yet it protects its home markets and manufacturers in ways that disadvantage US companies from seeking entree to the growing Chinese market.  Such irregular trading behavior could result in trade war that possibly would not be beneficial for both countries.   Another effect could be harder economic times with emerging markets that are finding it difficult with their chances and other protections in the struggling developed markets. To reduce the barrier of trade and level the playing field with China, other countries need to reduce the exported energy supplies which China has an insatiable appetite for to keep its export economy growing fast enough to withstand the macroeconomic adjustments taking place around the world.  If the US market goes slow it is something the world will be concern about, likewise if the Chinese economy is in a downward trend it becomes worrisome and require immediate attention.

What different ways can trade barriers be created unintentionally?

One of the ways trade barriers can be created unintentionally is imposing tariff against certain product/s with the intention that such tariff will minimize the importation and create or preserve jobs.  Example of such barriers is when President Obama announced that he would impose a 35 percent tariff on automobiles and light-truck tires imported from China. (The New York Times, September, 12 2012).

This announcement has the propensity to create trade barriers for countries competing for the same product and protecting certain group/industry, such as the Union of American tires and automobile workers, which President Obama wanted to maintain a harmonious relationship with as he win their support when he pushed Congress to overhaul the nation’s health care system. But contrary to this decision was the Tire Industry Association who opposed the tariffs because such tariffs was not certain to preserve American jobs or create new once, protect against cheap foreign lobar, maintained domestic living standard for all, but could instead cause many companies in that industry to relocate their factories to other countries where they can find lower labor cost.  On the political side, it is the responsibility of the government to protect its people by providing national security and sustainable goods or product which they cannot depend solely on foreign companies import but have to enable its citizens to provide.  

Higher safety regulations can be another unintentionally barriers to trade, in which the production of any goods could be more expensive. Some of these safety regulations increase production cost on materials that could have been left out or reduce, but now have to be offered to provide better gas mileage, seat belts and air pollution, just to name a few. With these regulations on foreign companies competing in the same market, they may find it difficult to sell their product for cheaper price as they were hoping for and may have to charge higher price which could lead to them losing their comparative advantage.

Does Paying Portion of Healthcare Benefits Negatively Affects Comparative Advantage?

To answer this question, “whether the obligation of U. S. Automakers, the Detroit’s Big Three to pay a portion of healthcare benefits negatively affects comparative advantage?”  A response to this question is yes, it negatively affects comparative advantage because of the differences in the healthcare programs.

Some foreign automakers have government subsidized national healthcare system with employees and their dependents paying little or nothing into and low labor cost advantage, while the U. S. Automakers have a higher healthcare system that makes them lose competitive advantage in the market. So, it will be beneficial for the US automakers to restructure their priorities and concentrate on those activities that will make them more productive/competitive and respond to the market demands.

http://www.politicususa.com/big-automakers-push-single-payer.html 

The policy issue within the Detroit’s Big Three Automakers is poor management. Management should focus on what part of the production cycle that can be done domestically and restructured their firms to allow those goods and services that are globally competitive be imported. Globalization allow open markets and foreign products will enter that market causing competition among producers which leads to cheaper price.