South-Western College Publishing - Economics  
Give Us Your Goods from the Poor and Huddled Masses…
Subject Outsourcing
Topic Developing and Transitional Economies
Key Words Tariffs and Quotas
News Story

The current WTO plan is the biggest trade concession that the advanced industrial economies have ever offered to the world's poorest countries. The WTO intends to help underdeveloped countries compete with China's ever-growing export machine and in the process, transform the lives of many residents of Africa and Southeast Asia. In the past, opportunities to trade goods on world markets have eluded companies and citizens of these very poor countries.

Most developing nations follow a policy of export-led growth, which means that any exports are simply extensions of domestic production and the gains from trade fuel further economic expansion. Traditionally, this policy has offered developing nations the advantage of specialization. Countries can produce as much as they can at the least cost and export the surplus to other countries. This process of each country concentrating its productive facilities on what they do best and at the least cost is what economists refer to as comparative advantage. Tariffs, meant to disrupt trade and neutralize comparative advantages, are taxes levied on goods coming in across national boundaries-as when raw materials like cocoa from the Ivory Coast reach the U.S., effectively raising the price of the goods coming in from the Ivory Coast to the point that the tax gobbles up any gains made from specialization. Tariffs have prevented many poor countries from trading effectively on world markets.

The way the agreement is written, countries like India, China and Brazil are not poor enough to qualify for the new tariff concessions. But textile producers, like Bangladesh and Cambodia, do qualify--along with tobacco and sugar growers like Zimbabwe and Malawi and cotton producers like Chad and Burkina Faso. Eliminating tariffs on products from these poorest of countries will make the price of their exports lower and increase their products' competitiveness on world markets.

Poor countries around the globe see this new agreement as the beginning of new possibilities in world trade, but still feel it needs to go further. "It's just the starting point," said Love Mtesa, Zambia's delegate to the WTO and leader of the 49-member caucus of least developed countries. "We do believe that by 2013, we should be able to reach 99.9 percent of exports free from trade barriers."

(Updated March, 2006)

Questions
1.

Define a tariff. In what circumstances do you think tariffs are fair? When are they unfair and economically unproductive?

2. Expand on the concept of comparative advantage mentioned in the article. Think of several countries and products to show an example of comparative advantage in action.
Source Keith Bradsher, "Ending Tariffs Is Only the Start", The New York Times Online, February 28, 2006.
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