IDSA01 Chapter 15 Notes.docx

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International Development Studies
Leslie Chan

IDSA01 Introduction to International Development Chapter 15—Free Trade and Fair Trade Introduction  there are two overarching perspectives on trade: free trade and fair trade  free trade:  the removal of barriers to trade and the limitation of state intervention in economic and social interactions will provide greater social gains in the North and South—spurred by neoliberalism  state intervention was bound to be inefficient and inaccurate because of state officials’ limited access to information and their tendency to be biased towards the demands of specific interest groups  free trade (led to successful economic growth of US and UK) by sparking competition, which leads to technological innovation and specialization as nations seek to enhance their comparative advantage  developing countries need to remove their barriers to trade to gain access to northern technology, products and investments while producing and trading those goods for which they have or can develop a comparative economic advantage  fair trade:  market regulation has historically been employed by powerful nations to ensure their dominant position in the global division of labour, demand easy access to raw materials in South while erecting trade barriers to protect key industries in the North from Southern competition  thus, market regulation must be used to protect the weak, not the strong, and to create a more equal international trading system—dependency theory  the history of colonialism has led to the formation of a world system divided into First World and Third World, and rather than south countries being in a position to enhance their comparative advantage through international trade are restricted by the unequal exchange of lower-priced commodities for higher-priced industrial goods and technology  free trade policies do two things: 1) flood domestic markets of the South with TNC produced goods, 2) unleash competition from both the North and South for low-waged industrial and agricultural goods  the poorest regions in the South cannot develop economically, socially and environmentally viable industries without active government support at the national and international level to protect them from overwhelming global market forces Free Trade and Fair Trade Since 1945  both free trade and fair trade suggest that the state remains the essential player in constructing the roles around which markets operate and ensuring they are followed, even for neoliberal free trade thinkers the state must play the role of protecting private property rights and regulate and enforce free trade policies  post WWII, a liberal international trading system was developed which involved the reduction of trade barriers and the establishment of a regulated international monetary system; involved a mixture of state intervention to control capital and investment flows with liberal trade objectives  the system also involved mechanisms for regulating international trade to ensure stability for southern economies (e.g. commodity control schemes which meant countries sold quotes for the amount of product on the market in order to force prices up and keep them stable; most of them later collapsed)  the failure of commodity control schemes called for a greater transfer of wealth from the north to the South through aid, compensation and fairer trade but the representatives from the North voted against every resolutions  the strategy for fairer trade focused on two demands  replacement of financial aid provisions with efforts to ensure fairer prices for southern commodities through a system of direct subsidies for poor producers  northern states should eliminate unfair protectionist policies towards southern agricultural goods  one of more successful UN’s UNCTAD’s effort was the promotion of compensatory finance schemes in which rural producers receive financial compensation when commodity prices drop below agreed-upon levels, e.g. STABEX for 50 goods in ex-colonies  the 1970s were the pinnacle of fair trade ideas after which neoliberal policies of free trade took over focusing on the reduction or elimination of as much state intervention as possible  declining national economic growth rates in the North compelled more powerful nation-states to pry open southern economies in search of new markets and cheap labour, the most powerful of these the SAPs which involved severe cuts to public spending, reducing or eliminating trade barriers and capital controls and devaluing local currencies to make exports more competitive  while these SAPs did not solve the debt crisis they were designed to solve, they dissolved fair trade mechanisms implementing free trade ones in place, one of to phase of preferential trade
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