South-Westerns' Economic News Summaries
Why Countries Trade
Topic International Trade
Key Words

Imports, Exports, and Determinants of Trade

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Reference ID: A138382035
News Story

Economists cite three main reasons that nations produce certain goods and trade with each other. First, nations differ in their endowments of productive economic resources; second, nations differ in their development of efficient production technologies; and finally, product differences exist and some people prefer certain imported goods over domestically produced goods. The interaction of these three things go far to explain which goods countries produce for world trade.

The World Trade Organization conference held in London and Geneva intended to work out a deal to reduce tariffs, quotas and other trade barriers on a global basis. Countries like Brazil and Australia have vast amounts of land and can inexpensively produce land-intensive goods such as wool, wheat, and meat. Because of their well-educated and abundant labor force, countries like Japan can produce low cost labor-intensive goods such as digital cameras, portable CD players, and video game players. Industrially advanced countries, because of their large amounts of capital, can produce inexpensive capital-intensive goods such as automobiles, agricultural equipment, and chemicals.

So why does the world need a WTO meeting? So individual countries can come to the table and negotiate current trade positions under the umbrella of the WTO, which seeks to reduce world trade barriers and reduce the inefficiencies of trade protectionism. "World agriculture markets are a mess; we've got all kinds of distortioons and trade-distorting measures,": said an American trade official who spoke at Hong Kong Univeresity on a videoconference link.

The official making the statement requested anonymity, citing policies on the discussion of talks that are in progress. The United States has been pushing for deeper cuts in agricultural tariffs and subsidies than the European Union, although it still has not offered big enough reductions to satisfy developing countries.

Top trade officials from the U.S., European Union, India, Brazil, and Australia will bargain over agricultural issues. Trade ministers for India and Brazil will represent the Group of 20 developing countries, which argue that industrialized nations should do more than developing countries to reduce trade barriers. Australia will represent the Cairns Group of 17 food-exporting countries.

Conspicuously absent from the meeting in London will be the group of 10 countries, including Japan, South Korea and Switzerland, that have been among the biggest winners from free trade in industrial products. Yet these countries have some of the most restrictive barriers on food imports and they consistently oppose any significant dismantling of agricultural product restrictions.

Countries want to sell their products to other countries without trade barriers, but at the same time want to protect domestic production from foreign competition. The outcome of the conference could greatly influence who trades what with whom.

Questions
1.

Discuss the differences in production efficiencies among nations that result in the production of a certain type of good.

2. What is the general goal of the WTO?
Source Keith Bradsher, “Trade Officials to Hold Talks to Save a Global Agreement”, The New York Times Online, November 6, 2005.
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