International trade International trade barriersbarriers

Overspecialisation on a narrow Overspecialisation on a narrow range of products range of products

1.1. Dependence on commodity exports. Dependence on commodity exports. Many LDCs still heavily dependent Many LDCs still heavily dependent on primary products for their on primary products for their export earnings: most of Sub-export earnings: most of Sub-Saharan Africa and many in Latin Saharan Africa and many in Latin America receive 50% of their export America receive 50% of their export earnings from primary products.earnings from primary products.

2.2. Missing out benefits of Missing out benefits of diversification and higher VA diversification and higher VA production.production.

Adding value means:Adding value means: More varied production activitiesMore varied production activities Creating employment opportunitiesCreating employment opportunities Establishing new firms involved with Establishing new firms involved with

manufactured goodsmanufactured goods Expanding into activities requiring higher Expanding into activities requiring higher

skill and technology needs.skill and technology needs. Too much specialization: criticism of Too much specialization: criticism of

theory of comparative advantage. A theory of comparative advantage. A country would be limiting its growth country would be limiting its growth and development prospects if it did not and development prospects if it did not diversify into new areas of production.diversify into new areas of production.

Price volatility of primary Price volatility of primary productsproducts

Inability to access int’al Inability to access int’al marketsmarkets

1.1. Tariff barriers.Tariff barriers. DCs impose DCs impose higher tariffs on LDCs higher tariffs on LDCs

importsimports. Tariffs faced by LDCs from DCs . Tariffs faced by LDCs from DCs are 3 to 4 times higher than those faced are 3 to 4 times higher than those faced by other DCs. In this way, DCs limit the by other DCs. In this way, DCs limit the access to their markets needed by LDCs access to their markets needed by LDCs to expand their exports.to expand their exports.

Tariff escalationTariff escalation is used to discourage is used to discourage diversification into higher VA activities. diversification into higher VA activities. Tariffs imposed on raw materials are low, Tariffs imposed on raw materials are low, but rates increase on processed products.but rates increase on processed products.

Examples:Examples:

EU. 9% tariff on cocoa paste, rising to 30% EU. 9% tariff on cocoa paste, rising to 30% on final products made from this on final products made from this material.material.

LDCs produce 90% of cocoa beans but LDCs produce 90% of cocoa beans but export only 44% of cocoa liquor and 20% export only 44% of cocoa liquor and 20% of cocoa powder. The largest exporter of of cocoa powder. The largest exporter of processed cocoa is Germany!processed cocoa is Germany!

LDCs impose high tariff barriers on LDCs impose high tariff barriers on trade with each other, which accounts trade with each other, which accounts for the very low levels of intraregional for the very low levels of intraregional trade observed in sub-Saharan Africa trade observed in sub-Saharan Africa and South-Asia.and South-Asia.

2.2. Agricultural trade and rich country Agricultural trade and rich country subsidies.subsidies.

EU Common Agricultural Policy. Minimum EU Common Agricultural Policy. Minimum price (price (intervention priceintervention price, ip) in order to , ip) in order to support farmers’ incomes. The resulting support farmers’ incomes. The resulting surplus is purchased by EU authorities at surplus is purchased by EU authorities at the ip. Since this is higher than the world the ip. Since this is higher than the world price, the product can only be exported price, the product can only be exported through the payment of export subsidies.through the payment of export subsidies.

US farm policy. Consists of a target price US farm policy. Consists of a target price that the farmer is guaranteed for the that the farmer is guaranteed for the product. When tp is larger than market product. When tp is larger than market price, the farmer receives the latter from price, the farmer receives the latter from the consumer plus a subsidy (=tp-mp). the consumer plus a subsidy (=tp-mp). Farmers receive other subsidies and many Farmers receive other subsidies and many products enjoy export subsidies.products enjoy export subsidies.

Negative impacts of DC farm support:Negative impacts of DC farm support:1.1. Global misallocation of resources. Higher Global misallocation of resources. Higher

prices received by farmers due to price prices received by farmers due to price supports as well as production subsidies supports as well as production subsidies result in overallocation of resources to the result in overallocation of resources to the production of protected goods in DCs. production of protected goods in DCs. Also, export subsidies artificially lower the Also, export subsidies artificially lower the int’al price of goods, making it more int’al price of goods, making it more difficult for farmers in LDCs to compete. difficult for farmers in LDCs to compete. Very low prices force some farmers to Very low prices force some farmers to abandon cultivation of the product leading abandon cultivation of the product leading to underallocation of resources to the to underallocation of resources to the product. So: overallocation in DCs and product. So: overallocation in DCs and underallocation in LDCs.underallocation in LDCs.

2.2. Global inefficiency. Because of Global inefficiency. Because of protection, less efficient DC producers protection, less efficient DC producers continue to produce, capturing global continue to produce, capturing global market shares from the more efficient market shares from the more efficient developing country producers. US is developing country producers. US is the largest cotton exporter in the world the largest cotton exporter in the world yet it also has among the highest costs yet it also has among the highest costs of cotton production.of cotton production.

3.3. Lower X revenues for LDCs that Lower X revenues for LDCs that specialize in the export of products that specialize in the export of products that receive protection in DCs.receive protection in DCs.

4.4. Increased poverty among affected Increased poverty among affected farmers. farmers.

3.3. Other non-tariff barriersOther non-tariff barriers..

Certain non-tariff barriers have been Certain non-tariff barriers have been rising increasingly in recent years and rising increasingly in recent years and are referred to as the ‘new are referred to as the ‘new protectionism’. Although some are protectionism’. Although some are justified (minimum safety and quality justified (minimum safety and quality standards), others (technical standards), others (technical regulations, testing and certification, regulations, testing and certification, labelling & packaging labelling & packaging requirements,...) might be being used requirements,...) might be being used excessively as a mechanism to reduce excessively as a mechanism to reduce imports.imports.