Tag Archives: Trade

Why Trade is Vital for International Development

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We live in a globalized world where goods and services are traded across international borders and consumers are able to purchase products with components produced in several countries. What is the role then of international trade in development?

Economists such as Adam Smith and David Ricardo articulated the economic advantage of free trade, which was primarily driven by the idea of “comparative advantage.” A country with a comparative advantage can produce certain goods and services more efficiently and cheaply than others. In terms of international trade, countries with comparative advantage will export goods and services they can produce more efficiently, while importing those they produce relatively less efficiently.

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Afghanistan and Pakistan Seek Greater Economic Cooperation

The Afghan-Pakistan border. (Photo: EPA)

The Afghan-Pakistan border. (Photo: EPA)

While most of the coverage of today’s summit meeting in Islamabad between Pakistan’s Prime Minister Nawaz Sharif and Afghan President Hamid Karzai focused on crucial issues of security and the peace process, the two leaders also covered one of the key drivers of long-run regional stability: enhanced trade and economic relations between the two countries.

According to press reports, the sides discussed cooperation on infrastructure, power, and transportation projects. In particular, Pakistan promised to follow through on its pledges under the Afghanistan-Pakistan Transit Trade Agreement (APTTA), which is designed to facilitate the flow of goods from Afghanistan and for export via Pakistan, as well as through customs into Afghanistan, among other provisions. While the agreement is signed and in place, it has long faced an extensive range of issues in practical application.

CIPE has been working with the Pakistan-Afghanistan Joint Chamber of Commerce and Industry on joint advocacy efforts between business leaders in both countries to try to unblock APTTA implementation. Now that such public, high-level support has been given to the process, it will be up to the private sector to maintain the pressure to realize the APTTA vision of free-flowing trade between these neighbors.

Marc Schleifer is Senior Program Officer for South Asia at CIPE.

The Importance of Trade Liberalization for Developing Countries

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Sergio Daga was part of the CIPE-Atlas Corps Think Tank LINKS  Fellowship, and served at the Heritage Foundation.

Countries trade with each other because trading typically makes a country better off. In international trade competition occurs at the firm level, while citizens of every country can benefit from free trade. Citizens enjoy a greater variety of goods and services, and generally at a lower cost.

Imagine a country that decides to isolate itself economically from the rest of the world. In order to survive, the citizens of this country would need to grow their own food, make their own clothes and build their own houses. However, if this country decided to open its border to trade, its citizens would specialize in the activities they do best. Specialization leads to higher productivity, higher income, and better living standards.

Can every country benefit from free trade? A fundamental principle of economics – comparative advantage – holds that when a country produces more of one product, it will create less of some other product. This trade-off occurs because resources are scarce and societies want to get the maximum benefit from them.

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Russian Businesses Learn Benefits of WTO Membership

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The World Trade Organization (WTO) welcomed Russia in August of last year as its 156th member — the last of the world’s large economies to join. The process, taking nearly two decades, had been steeped in anxiety and high expectations within Russia.

Now that Russian firms and their foreign counterparts can better grasp the practical consequences of WTO membership, corporate executives, entrepreneurs, and regional development officials are turning to the nuts and bolts of membership. Moscow-based CIPE partner the International Institute of Management for Business Associations (IIMBA) is at the forefront of these efforts, holding a raft of classes and webinars designed to help Russian businesses understand the promises and pitfalls of WTO membership. IIMBA is helping shape the discussion on the issue, taking a no-nonsense approach free of the sparring which grabs headlines having to do with U.S. agricultural imports and Russian rules benefitting the automobile industry.

betsy-headshotOn March 5, CIPE helped introduce a highly-informed U.S. point of view into IIMBA’s ongoing WTO series with a presentation by Elizabeth Hafner, Deputy Assistant U.S. Trade Representative for Russia and Eurasia at the Office of the U.S. Trade Representative. Hafner, based in Washington DC, first gave a presentation on  the benefits of WTO membership for Russian businesses via webcast from CIPE’s Washington office. She then took live questions from some of the 182 participants connected to the webinar from Kazakhstan, Uzbekistan, and a host of Russian cities including St. Petersburg, Volgograd, Moscow, and Ufa. Watch a webcast of the presentation.

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Ode to a box

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I am writing today in praise of the humble shipping container. Anonymous and hopelessly boring, this simple metal box has transformed international trade and us with it. “Every day, over 15 million containers are moving around at sea or on land, or standing in yards waiting to be delivered. They account for about 90 percent of the world’s traded cargo by value.” The history of these incredible boxes, how they move across the world, and where they go demonstrate the implications of trade and the need for more open trade policies.

Step inside a modern-day shipping container and you’ll find 8’ by 8’ by 20’ of soulless corrugated steel. It is simply a wooden floor, a door on both sides, and a handful of rivets holding it all together. Technically known as the intermodal container, these boxes can be transported anywhere in the world on container ships, tractor trailers, and freight trains through an integrated system of ports, cranes, and warehouses.

A 2008 BBC documentary called The Box tracked the movement of a single intermodal container as it journeyed across the world. Over the course of a year, it was filled with 15,000 bottles of scotch straight from a Scottish distillery, tape measures in China to be sold at Big Lots stores in Los Angeles, auto parts in Singapore bound for Japan, and 95,000 cans of cat food for hungry kittens in Southampton.

A man named Malcolm McLean brought all of this about in 1955 when a simple thought dawned on him: What matters in trade is the cargo, not the transportation. If you want to transform trade, he thought, you had best start by packing goods as efficiently as possible and standardizing their transport across the world. Before what become known as containerization caught on, a quick glance into the hold of a ship would have revealed a vast array of goods in every shape and size, packed and loaded individually. Bulk cargo was a terribly inefficient way of transporting goods that hadn’t changed much since the time of the Roman Empire.

Manufacturers soon realized how a more efficient transport system could drastically cut their costs. Within a few short years, new ports arose, rail lines were refigured, and trucks lengthened to accommodate these intermodal containers. By 2000, the price of bulk sea freight had plummeted by 65-70 percent since its 1950 peak. For less than the cost of a first-class ticket, a 35-ton shipping container can traverse the 11,000 mile distance from a coffee factory in Malaysia to a supermarket warehouse in Ohio.

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Yet it’s never smooth sailing for shipping containers. Ship a container from Mumbai to Los Angeles and you’ll have to fight your way through some 25 different middle-men, from cargo brokers to financiers. Each set of goods in a container comes with about 30 to 40 different papers to sign, which multiply exponentially with each container and customer. 5 agents then spend 3 hours on average inspecting the container, which is a lot of time for a port receiving 330,000 containers a month. Once the container actually moves, different modes of shipping – by sea or land, rail or road – have their own body of regulations, which then differ at each at level of government – local, state, national, and international.

The sheer volume and opacity of container shipments is an opportunity for port administrators and inspectors to seek bribes or kickbacks, and also provides opportunities for illicit or black market trading, which has indeed skyrocketed over past few decades. A whole new network of smugglers has emerged, specializing in the movement of goods across borders rather than producing and selling specific goods. This network poses a major threat to democracy and human rights as documented in Illicit, a book by former Foreign Policy editor Moises Naim.

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Yet the shipping container has delivered plenty of good news for human development. In Southeast Asia, Vietnam cut the percentage of its population living on less than a dollar per day from fifteen percent in 1993 to two percent in 2002 thanks to the shipping container. Vietnam is now a global leader in exporting everything from rice to pepper, while having less poverty than either China or The Philippines.

The effect is further pronounced in Nigeria. The industrial zone in northern Nigeria’s capital, Kano, feels like a wasteland in the day and a gangster’s paradise at night. Kano suffers no shortage of people or potential, not to mention rail lines running past the heart of its prosperous past, the Old City, straight to the sea. Yet it’s choked by red tape and crony leaders who never saw the potential shipping had for the country. Contrast that with Onitsha, where the main bazaar buzzes with traders hawking the latest flat-screen televisions brought in on ship from across the world. While some in Onitsha have built fortunes off the dynamic port, the common man has seen no end of benefit either. Compared to elsewhere in Nigeria, living in Onitsha means 50 percent higher income, a two-thirds increase in literacy rates, and an independent banking system extending credit to entrepreneurs.

And then there’s Santos, the largest port in Latin America both by size and cargo tonnage. Sugar and soya beans emanate from this port as well as the coffee exports that lend the docks an unmistakable aroma, while receiving imports of the fertilizer and natural gas needed to fuel Brazil’s booming economy. The shipping container has provided a tremendous economic boost to Brazil, once the object of constant ridicule due to its consistent failure to fulfill its economic potential.

Shipping containers are seen at the Port Newark Container Terminal near New York City July 2, 2009. (Photo: REUTERS/Mike Segar)

Inventions like the telegraph first bridged the communication divide, but it wasn’t until the advent of the shipping container that the cost of transportation plunged to a level that allowed the process of globalization to finally return to being the political and economic force it once was in the centuries between Christopher Columbus and the Great Depression.

The history, courses, and destinations of the humble shipping container have truly changed the world, casting a bright light on the real benefits and the real dangers of increased global trade, leaving plenty of suspense still to be found in the otherwise unglamorous world of shipping containers.

A Brighter Future for Africa?

In a recent post, Alex Shkolnikov reflected on whether Africa was developing into a globally competitive economy, analogous to those of the emerging BRIC countries, concluding that improved governance was the key to making this a reality. A recent report from the McKinsey Global Institute entitled “Lions on the Move: The Progress and Potential of African Economies” lends significant support to this argument, by underscoring the vast potential of African economies. If properly harnessed, rising productivity, foreign investment, and cross-border trade could lift millions of Africans out of poverty over the next decade. Whether this will happen depends to a large extent on whether African leaders are willing to institute serious regulatory reforms, particularly in ways that encourage increased regional trade within the continent.

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Sand in strange places

There are places in the Atacama Desert where no rain has fallen since such records have existed. Stretching from Peru, across southwestern Bolivia and into Chile, the Atacama Desert is an atmospheric phenomenon, as air circulates down from the upper atmosphere after dumping its moisture over the Amazon Rainforest, on the other side of the Andes. The air is cold, for a desert, typically staying between zero and 25 degrees celsius. It’s also dry; and as it blows down across the Andes Mountains into the Pacific Ocean it siphons up any moisture from the ground. Yes, even air gets thirsty.

In its trail, the evaporated moisture deposits some of the world’s largest salt flats, helping provide economic support to the surprising population found scattered across the fringes of the desert – more than a million people. They have learned how to survive under such harsh conditions, and recently one of their own, Evo Morales, was elected to Bolivia’s presidency. A proudly leftist ally of Venezuelan President Hugo Chavez, Morales is poised to make many of the same mistakes.

Morales has already nationalized Bolivia’s natural gas industry, to the shock of its neighbor and largest customer, Brazil. But the world is quickly fixating on another natural resource, one found beneath the salt flats of Morales’ ancestral home:

In the rush to build the next generation of hybrid or electric cars, a sobering fact confronts both automakers and governments seeking to lower their reliance on foreign oil: almost half of the world’s lithium, the mineral needed to power the vehicles, is found here in Bolivia — a country that may not be willing to surrender it so easily.

“We know that Bolivia can become the Saudi Arabia of lithium,” said Francisco Quisbert, 64, the leader of Frutcas, a group of salt gatherers and quinoa farmers on the edge of Salar de Uyuni, the world’s largest salt flat. “We are poor, but we are not stupid peasants. The lithium may be Bolivia’s, but it is also our property.” Read more from The New York Times….

Quisbert is quite right about property; he and the rest of Frutcas’ members live on land passed down since before rain records were kept, and can likely count on one hand how many times it’s rained since they themselves were born. Most of Bolivia’s estimated 5.4 million tons of lithium

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