comparison of basic countries_grp 4[1]

8/9/2019 Comparison of Basic Countries_Grp 4[1]

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March 2010

Group 4 March 2010

Redefining International Trade: the BASIC

countriesA Report Submitted in partial fulfilment of The requirements for the Macroeconomic

analysis and policies subject Under $$$$$$$ University

Kanhaiya Kumar Roll #320

Ritesh Kumar Roll #321Rajesh Kumar Mishra Roll # 327

Richy Yati Mishra Roll # 328

Amit Kumar Singh Roll # 340

Ravi Anand Roll # 350

Mridul Tyagi Roll # 360

Under the guidance of

Prof. xxxxxxxxx


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CONTENTS PAGE NO

Brief history of foreign trade in Basic countries 3

Composition of exports of Basic countries 4

Share in the world market of Basic countries 6

Comparative advantage of basic countries 8

Growth rate of foreign trade of basic countries 9

Tariff regime of basic countries 12

Regional trade agreements and free trade agreements 13

How these factors are changing the landscape of world foreign trade and redefining it. 14


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The group of BASIC countries comprise

of four countries namely Brazil, South

Africa, India and china. These four

countries are the fastest growing

developing countries in the world today.

The ways their foreign trades are growingtoday are redefining the world foreign

trade as a whole. Not only their share in

world market is increasing they are also

changing the terms of the trade.

Brief history of foreign trade in these

countries

Brazil

Brazil has traditionally been exporter of

sugar and coffee. But in last a few decades

their basket of export goods has gone

under sea change. The opening up of the

Brazilian market remains the cornerstone

of Brazil's economic and trade policies.

Over the last few years, most of Brazil's

non-tariff barriers to trade, which for many

years were the hallmark of Brazil's

restrictive trade regime, were eliminated or

drastically reduced. Import duties were

reduced from an average of about 50% in

the late 1980s to 14.2% and a maximum of

35%. Increase in export can be seen in the

chart below.

Brazils trade growth.Source: EconomistIntelligence Unit (EIU), International Monetary Fund

(IMF).

South Africa

South Africa's foreign trade policy was

highly protected, inward looking before

1990 the year they ended apartheid. Their

ability to trade with rest of the world was

limited because of the sanctions imposed

by most developed countries as a protestagainst apartheid. With the end of

apartheid in the early 1990s, international

trade has expanded dramatically and in

2000 international trade constituted 16

percent of the GDP.

India

India foreign trade was also highly

protected till 1991 when due to pressure

from IMF it had to remove manyrestrictions placed on foreign trade. At that

point of time it had foreign exchange

reserve enough only to meet three weeks

import. Since then the situation has

dramatically changed and India today is

one of the growth engines of world trade

apart from china.

China

China's economy during the past 30 yearshas changed from a centrally planned

system that was largely closed to

international trade to a more market-

oriented economy that has a rapidly

growing private sector and is a major

player in the global economy. Reforms

started in the late 1970s with the phasing

out of collectivized agriculture, and

expanded to include the gradual

liberalization of prices, fiscaldecentralization, increased autonomy for

state enterprises, the foundation of a

diversified banking system, the

development of stock markets, the rapid

growth of the non-state sector, and the

opening to foreign trade and investment.


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Composition of exports of basic

countries

Brazil

In addition to coffee, Brazil's exports

include transportation equipment, iron ore,

soybeans, footwear, motor vehicles,

concentrated orange juice, beef, and

tropical hardwoods.

What does brazilexport

What does brazilimport

transport equipmentiron oreiron orefootwearcoffeeautos

machineryelectrical equipmenttransport equipmenttransport equipmentoil

The Trade Statistics ofBrazil in the year2005 are as follows:

Merchandise Trade

Merchandise Imports:US $ 77633million

Merchandise Exports:US$ 118 308million

Share of Brazil inworld's import

0.72

Share of Brazil inworld's export

1.13

Brazil's most important trading

partners (2006)

Leading

markets

% of

total

Leading

suppliers

% of

total

US 17.9 US 16.3

Argentina 8.5 Argentina 8.8

China 6.1 China 8.7

Germany 4.1 Netherlands 0.9

Source: EIU

Top Brazilian Exports/Imports 2006

(%)

Main exports % of

total

Major

imports

% of

total

Transportequipment &

parts

14.6 Machinery& electricalequipment

25.8

Metallurgical

products

10.9 Chemical

products

15.8

Soybeans,meal & oils

7.6 Oil &derivatives

16.6

Chemicalproducts

2.9 Transportequipment &

parts

11.3

Source: EIU


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South Africa

South Africa was a predominantly exporter

or mining produce, particularly diamond

and other precious stones and gold. After

the sanctioned were lifted by the

developed nations the scenario has

changed and now manufactured items

constitutes the majority of export item,

India

Indias basket of export mainly consists of

refined petroleum products, minerals, jems

and jewelleries etc. but softwares services

and business process oursourcing businesshas grown strongly and has become one of

the most important source of export

revenue.

In the import front the lions share goes to

crude oil. Other major imports are capital

goods, ores and metal scrap, raw precious

stones and iron and steel.


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India

Indi share in world trade has

consistentl been increasing. As per WTO

data the total share in merchandise trade

increased from 0.5 % in 1990 to 0.9 % in

2005. The main dri ers of growth were

petroleum products, mineral and chemical

products. The pie chart below explain the

key dri ers of exportin India.

China

Chinas export and import both has trebled from 200 to 2005. The world balance shows how

world trade is heavily tilted in favour of china.


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Comparative advantage of basic countries

Brazil

Brazil's vast territory covers a great varietyof land and climate, for although Brazil is

mainly in the tropics the southern part of

the great central upland is cool and yields

the produce of temperate lands. Brazil is

one of the world's largest economies, with

well-developed agricultural, mining,

manufacturing, and service sectors.

Roughly one fifth of the workforce is

involved in agriculture. vase number of

labour force involved in agriculture give it

advantage in terms of labour availability

and cost. Brazil has vast mineral wealth,

including iron ore (it is the world's largest

producer). Recently discovered offshore

petroleum and natural gas deposits couldalso make the nation a significant oil and

gas producer. Most of Brazil's electricity

comes from water power, and it possesses

extensive untapped hydroelectric potential,

particularly in the Amazon basin. In

addition to coffee, Brazil's exports include

transportation equipment, iron ore,

soybeans, footwear, motor vehicles,

concentrated orange juice, beef, and

tropical hardwoods. Machinery, electrical

and transportation equipment, chemical

products, oil, and electronics are major

imports

South Africa

South Africa is mineral rich too. It is the

world's largest producer and exporter of

gold and platinum and also exports a

significant amount of coal. During 2000, platinum overtook gold as South Africa's

largest foreign exchange earner. The

value-added processing of minerals to

produce ferroalloys, stainless steels, and

similar products is a major industry and an

important growth area. The country's

diverse manufacturing industry is a world

leader in several specialized sectors,

including motor vehicles and parts, railway

rolling stock, synthetic fuels, and mining

equipment and machinery.

The study reveals that South Africa holds a

comparative advantage in agriculturalexports compared to the rest of the world.

South African exports of agriculturalgoods on an annual basis increased by

17% from 2001 to 2005, while total worldimports of agricultural products increased

by 15 percent.

India

India has a distinct advantage in allagricultural commodities except insugarcane, groundnut, sunflower and

pulses. India also has a natural advantagedue to varied agro-climatic conditions for

producing a variety of seeds, crop,medicinal/aromatic plants, fruits and

vegetables. As 40% of our agricultural products are grown without the use ofchemicals, fertilisers and pesticides, theygain a competitive advantage in the worldmarket. Indias factor endowment ofrelatively cheap labour should be used forhigh technology, agricultural exportmarkets production which are labourintensive in nature so that our cost of


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production will be lower and we can offerproducts at highly competitive prices in the

international markets.

Among the items, which could find exporton a priority basis, are the rice, both

bastmati and non-bastmati varieties. Fruitsand vegetables also have a comparativeadvantage. Cotton is another importantitem of the exports. Efforts should

however be concentrated on cotton yarn asagainst raw cotton as most of the

developed countries will go out ofspinning activity when the Multi Fibre

Agreement comes into force. Export ofnon-traditional products like shrimp, fish

and fish preparation, fruits, processedmarine products, mushrooms etc. cantherefore be planned for a larger share inthe world exports.

China

Chinas trading pattern is often seen as anillustration of the power of the Heckscher-Ohlin approach to explaining world trade:labour abundant China specializes inexporting labour intensive goods.

The outstanding performance of theChinese economy in the 1980s and 1990s

has been widely attributed to economic

reforms and open-door policies. This book

provides the first comprehensive and

quantitative assessment of the impact of

reform policies on the Chinese domestic

economy at the detailed sectoral level.

Growth rate of foreign trade of basic countries

Brazil

From 2003 to 2007 Brazil's total merchandise trade grew significantly, at a nominal annual

average rate of 23.3%, reflecting solid economic growth and strong external demand for

Brazilian products. During the same period exports grew at an average annual rate of 21.7%,

partly reflecting higher commodity prices, and imports at an average annual rate of 25.7%.

While the value of exports was over 50% higher than the value of imports during 2003-2006,the trade surplus has been shrinking since 2006 due to faster expansion of imports.

TRADE BALANCE G DS EXP RTS, IMP RTS AND VERALL TRADE

YEAR EXPORTS (US$bn) IMPORTS (US$bn) OVER ALL TRADE (US$bn)

2008 197.9 173.2 371.1

2007 160.6 120.6 281.2

2006 137.5 91.4 228.9

2005 118.3 73.6 191.9

2004 96.5 62.8 159.3

2003 73.1 48.3 119.4

2002 60.4 47.2 107.6


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Source: WT

South Africa

South African economy has seen erratic movement in its foreign trade growth. After 1990 the

integration with world economy helped it increase its share in world trade. But the rate of

growth fluctuated heavily in a few years as can be seen in the chart below.

Average Annual Growth of Exports (Source: WT

)

Average Annual Growth of Exports compared to 1!

4!

1!

4!

1!

50 1!

60 1!

70 1!

80 1! !

0 1! !

5 1! !

6 1! !

7 1! !

8 1! ! !

2000 2001 2002 2003 2004 2005

World 1.83 2.98 6.91 7.98 11.73 10.19 10.00 9.88 9.75 9.51 9.40 9.46 9.19 9.11 9.24 9.44 9.52

South Africa -1.24 -0.84 4.50 4.89 10 .11 7.41 6.98 6.93 6.92 6.43 6.32 6.44 6.26 6.17 6.45 6.77 6.88

Africa 0.47 1.28 4.38 6.22 11.02 7.94 7.19 7.28 7.17 6.62 6.70 7.04 6.77 6.70 6.98 7.36 7.73


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India

Indias export as well as import has been consistently growing over the years. From the table

above it can be seen that during the period of 2004 to 2007 exports has grown from 375

billion rupees to 563 billion. In the same period import grew from 501 bill ion to 820 billion.

China

Unit: US$100,000,000

Month

Export in"

ct. Total Export

ValueSame Period in

2007Increase

#

% ValueSame Period in

2007Increase

#

%

$

an. 1,095.8 865.9 26.5 1,095.8 865.9 26.5

Feb. 873.0 821.3 6.3 1,968.8 1,687.3 16.7

Mar. 1,089.1 835.6 30.3 3,057.9 2,522.9 21.2

Apr. 1,187.2 974.7 21.8 4,245.1 3,497.6 21.4

May 1,205.3 940.7 28.1 5,450.4 4,438.3 22.8$

un. 1,211.4 1,033.6 17.2 6,661.7 5,471.9 21.7$ul. 1,366.0 1,077.1 26.8 8,027.7 6,548.9 22.6

Aug. 1,348.2 1,113.9 21.0 9,375.9 7,662.9 22.4

Sep. 1,364.1 1,122.9 21.5 10,740.0 8,785.8 22.2"

ct. 1,283.3 1,076.%

1%

.2 12,023.3%

,862.7 21.%

Nov. 1,175.2 11,037.9

Dec. 1,143.3 12,181.2


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(Source: Network Center of MOFCOM)

The data shows the growth trend of Chinese foreign trade. It shows that the growth has been

in the range of 15 % to 35 % in the year 2007 and 2008. This figure is quite substantial

keeping in mind the base effect. China already has huge share in world trade and is still

growing at a tremendous pace.

Tariff regime ofBASIC countries

Brazil

Brazil's arithmetic average applied tariff was an estimated 11.8 percent in 2002. For example,Brazil imposed tariffs between 4.5-16.5% on wood products and 22% on motorcycles. InApril 2002, the Brazilian government approved a new tax law that dramatically increased theduty on imported advertising materials and discriminates between domestic and foreign

producers. A number of imports are prohibited, including various used goods such asmachinery, foreign blood products refurbished medical equipment, automobiles, clothing,and other consumer goods.

South Africa

According to its WTO accession commitments South Africa has significantly reduced its tariff.

South Africas average tariff stands at 5.8 at present with an average tariff of 9.1 and

5.3 for agricultural and non agricultural products respectively.

Trade liberalization since the early 1990s has been reduced the average level of tariffs

substantially. South Africa reduced its import-weighted average tariff rate from more than

20% in 1994 to 7% in 2002. These efforts, together with South Africa's implementation of its

World Trade Organization (WTO) obligations and its constructive role in launching the Doha

Development Round, show South Africa's acceptance of free market principles.

India

India tariff regime was highly protected before 1991 when Dr Man Mohan the then finance

minister of India brought huge changes in policy. Many items which were prohibited for

export and import were freed. Custom duties were slashed drastically. And many items

reserved for small scale were freed to be taken up big business. These steps brought new era

for the foreign trade of the country.


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China

China has Agreements or initial frameworks of agreements in place with Hong ong, Macao,ASEAN, Australia, and New Zealand. Discussions on possible FTAs with India, Chile,Singapore, South Africa, and the Gulf Cooperation Council are underway. Possible direct orindirect arrangements involving orea and apan are the subject of speculation. Thus, what

we may be witnessing with China's new regional trade agreements is the emergence of a thirdwave of large power regional agreements which will likely set the precedent for otherChinese regional agreements to follow in future years.

How these factors are changing the landscape of world foreign trade and redefining it.

These all figures, data and statistics with the comparative advantage view give the clear

picture of the role of these Basic countries in the world trade today. They are not only fastest

growing economies but also hold a major chunk of share in the world trade. The growing

importance of these countries can also gauged from the fact that Doha round of trade

negotiation of WTO has been stalled on the agriculture and climate issues and the leading

nation which are against the policies have been these basic countries. India and Brazil are

notably at the vanguard, leading the cause of all the developing countries.

The growing clouts of these countries are going to intensify in the future and they will hold

the key to direction of foreign trade in coming years. No longer will the USA and European

be able to dictate the terms of the foreign trade. Thus we can say that Basic countries are

redefining the terms of the world trade.

comparison of basic countries_grp 4[1]

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