Trade Liberalization in China and Brazil Essay Example for Free

Trade Liberalization in China and Brazil Essay Debt crises and financial stability problems had been the major causes why some countries resort into imposing new economic programs such as implementing free trade which is also called trade liberalization. To lessen the limitations of a country on trade industries they have established has been the main point of the process called trade liberalization (Biz/ed, 2007).   Through this process, tariffs or the fee that the government charges to every importer of foreign goods, as well as trade barriers are reduced in order to allow more foreign investments on a country’s economy.   Ã‚   Through this, the host country would have the privilege of acquiring imported products with a lower price.   However, domestic and national industries are also protected and looked after from competitors such as foreign producers through protectionism.   In this way, local industries are protected through tariffs, other non-tariff barriers and quotas. The price of imported goods is increased by tariffs, which make the entry of foreign business competitors a difficult and expensive task.   Aside from tariffs, governments have also devised other ways of protecting their local market, calling these methods as non-tariff barriers.   One kind of a non-tariff barrier are quotas.   These are restrictive and protective moves of nations or local governments against the entry of foreign goods into their local market (Biz/ed, 2007). It would be beneficial, for the academe and all the economy governing bodies in the world to know how a modern economic policy, more specifically the economic trade liberalization policy, affects a previously existing economic body.   Not only would it help the academe and the governing bodies understand the policy even more, but would also make them realize how these policies affect the economy in various levels, both in the macro and microeconomic level. This paper would focus in the trade liberalization policy and how it affects a particular country, or in this case would be called an economic body.   This paper would not be able to mention all the countries that are presently implementing the economic free trade policy, because of practical reasons, so the researcher had resorted into using two well-known countries from two different continents to show how the aforementioned economic policy affects different economic bodies in different geographical and cultural contexts. This paper would not focus on developed countries because it would just defeat the objective of knowing how this said policy would affect those countries that have implemented it because of their need to use it as a means of increasing their economic, and eventually their political power in the international arena.   The two countries to be used as points of comparison, would be China, which is found in East Asia, and Brazil, which is found in the continent of South America. China is one of the most well-known countries when it comes in business.   Historically, it has been one of the world’s greatest political powers, even before the time when the Europeans set out into the unknown.   It has been economically active by trading goods such as garments, oil, spices and jewelries with its Asian neighbors such as the Philippines, Japan, Malaysia, and other more, even before the age when the Europeans discovered the different lands in the region. In the recent past, China had become less economically active because of its experiences of that lead to the minimal decrease of its political power in the international arena.   But today, because of its social, political and economic policies, it is slowly rising back to the top of the list of political and economic powers.   In this country, retailing has grown and underwent rapid changes over the years. And this retail process has played an important role when it comes to food production and/ or selling of food in their culture. China, being the world’s most populated country, having more or less 1.3 billion in population, tried to utilize this kind of capital.   Because they have a very large pool where they can get manpower, they have used this to use labor to their advantage.   Because of the lesser need to use machinery, compared to other countries, they have succeeded in lowering the market prices of the goods they have produced in dramatic rates.   They also used their manpower as their source of political power. But then, people in China are more likely to be savers than spenders and so, their market is steered by the price of their goods.   The price of every local product is where the imported goods have a hard time competing with because the imported products are much expensive than the other (Moustakerski, 2002).   This is because the price of imported goods considers the price of tariffs paid. In addition, China has also signed significant trade treaties under the General Agreement on Trade in Services (GATS).   GATS is one of those contracts or agreements that include rules on investments in services and trade.   It covers services such as water delivery, health care, postal delivery, tourism, road building, municipal services, education and insurance.   The scope and range of GATS is broad and covers the regulation of government with regards to trade and services as well as government services in all levels (Glossary of International Trade Terms). These commitments include distribution services, tourism, telecommunications, banking, insurance, audiovisual and professional services.   Agreements regarding the distribution of goods and services are important, basically for merchandise trades since this kind of commitment would help prevent economic barriers from emerging through the control of distribution (Ianchovichina, Martin and Wood, 2000).   Also, with these, the process of trade becomes quite more complicated.   Again, these commitments entail changes and processes that may be difficult for some foreign country to get into another country and share their products to possible consumers. The commitments concerning the financial services modes may differ across countries and can also change over time.   These may include the following (Kono, et al., 1997): All measures on liberalization should be equal among World Trade Organization (WTO) members The members of WTO can not discriminate foreign and domestic firms, except when it is clearly said at the time by which it joined the GATS. Domestic policies must be available as well as unrestricted to everyone. Continuous process of liberalization or by which affiliated territories be in agreement enhancing the liberalized sectors and reduce exceptions within sectors in such a way that they commit to negotiating rounds in the future. Harmed countries can give authorization against the disturbing or violating country. Despite these, there are also important exceptions that should be taken note of: The different programs of the principal bank and / or other systems associated with the government that transmits money along with policies on convertibility that are not included in the GATS. Economical construct is also not liable to GATS and it is created for making sure governments of the host country may protect their local financial system as well as their participants through the application of prudential standards of the host country. The said measures do not necessarily comply with pledges of the right to use markets, national treatment as well as the preferred responsibility of a nation (Key, 2003). Other government relations that are not related to prudential measures are also exempted from GATS commitments except when they disobey necessary obligations (Kono, et al., 1997). Considering the different limitations, restrictions and qualifications on trading, selling and importing food made from foreign countries has been even more complicated.   The country’s infrastructure and legal systems are underdeveloped and the law or enforcement is often inconsistent and biased.   Thus, corruption among the people and protectionism of the locals has remained to be problems (Moustakerski, 2002). China’s share on exports have consist goods in which the country did not like in relation to their advantage in production.   Hence, the producers of goods that are exported had no economic incentives in order to broaden their international sales.   Also, with that, the ability of China to invest on imports that may involve technology which could have contributed to the country’s economic expansion and growth productivity has been impaired (Lardy, 2003). Considering China’s integration in the global economy and its progressive recognition of the principles of marketing has been encouraged by the United States economic and political engagement.   These developments helped relations grew deeper between the two countries – United States and China.   But these two countries have also caused friction between their relationships. In any case, the relationship between the countries has become essential to the countries’ economy.   Thus, China’s economy has grown closely to investment regimes and open trades of the world’s major economies.   Also, the gross domestic product (GDP) of China accounts 40 percent of their exports and so, the country has depended on its export sector’s growth to stimulate their economy’s modernization as well as to support and improve their standards of living (U.S. China Trade and Relations. 2006). The gross domestic product or (GDP) is the annual total value of services and goods by a certain nation and does not include the net factor income from abroad (overseas investments and interest and / or profits and the wages of workers. GDP is also an indicator of the economy’s status and includes the government purchases as well as total value of the country’s export and investments in the United States.   As what was aforementioned in this paper, countries that undergo economic crises make some alternative ways of coping with their problem, such as what happened with most Latin American countries in the early 1980’s. Most Latin American countries had resorted into having economic changes after they had experienced such problems, but Brazil was one of the latest countries to join the trend of making its national market a free market.     Just like in the case of China and the other countries that are practicing free trade, Brazil has been experiencing many large scope changes since the first time it practiced the said trade policy. With the start of the late eighties to the early nineties, there arose some issues in the political and economic arena about the consequences of the new economic policy.   Trade liberalization had three major environmental effects on Brazil, and on the other countries as well, namely; the scale effect, the composition effect and the technological effect (Antweiller and Copeland, 1998). The first one, the scale effect according to Antweiler (1998), â€Å"measures the increase of pollution generated if the economy were simply scaled up, holding constant the mix of goods produced and the production techniques.†Ã‚  Ã‚  Ã‚   This simply means that the increase or decrease of the amount of pollution produced by a certain economic body can be determined by the economy itself, depending on its course, whether it is scaling up or down. Just like in the case of Brazil, which is one large economic body that is in its course of upscaling its economy, it does not experience radical and abrupt changes in the rate of production of its goods and the techniques of production it has.   However, because of the fact that it had implemented free trade, its economy would be stronger than before, or in other terms scaled up, and also because of that, it would tend to be more polluted at the same time. The composition effect is another environmental effect that can be observed in Brazil.   This effect means that when the economic state of a certain country, as well as the emission intensities at a constant level, then that particular economy would tend to allocate more of its resources to the production of possible pollutants, consequently polluting the environment more. Brazil has an economy that is technically and relatively not scaling up, and the rate of the production of pollutants just stays the same.   Because of this, they are forced to allot more and more of their resources into producing more goods that they have to export like sugar.   This economic move thus increases the scale in which they have to produce the goods, which in turn increases the amount of pollutants produced by the manufacturing and the processing of these goods. And the last one is the technological effect, or what Antweiler (1998) calls the technique effect, claims that when everything else was held constant (emission intensity, mix of goods produced, production techniques, and the scale of economy), a possible increase in the intensity of the emissions would tend to heighten pollution levels.     In connection with the previous effects, and in connection with logic, the more pollutants an economic body produces, the more polluted it gets.   Because of free trade, more imported goods will come into the country.   Without even producing and manufacturing vehicles, one country can acquire a large quantity of those by free trade.   Also, they can acquire these vehicles even without increasing their economy.   And as everybody knows, vehicles that use gasoline and crude oil as their main fuel produce pollutants, because of this, it may become one way of increasing the pollution in that economic body. These three effects are good observations by Antweiler, because these seem to summarize, and in a way quantify some of the effects of the phenomenon of free trading, especially in those countries that had only resorted to the economic policy because of the immediate need to rise from their economic troubles.   Also, these effects can be used to describe and predict the possible effects of free trade policies on a particular economic body. It is known that Brazil is a major sugarcane producing country, having produced 1,324 million metric tons in 2004 (Earley and Earley, 2006).   It also came to a time that it dominated the sugar production in the world in 2004 and 2005.   It had also dominated in the exportation of these sugar products, even leading over the US, Australia and Thailand. According to one policy analyst, who focused on the liberalization of agriculture, the implementation of the trade liberalization as a structural adjustment program had been ideally conceptualized so the lives of the Brazilians would be improved both politically and economically.   But instead of doing what it was supposed to do, according to his analysis, the economic reform program had worsened the case, because not only did it make the poor poorer and the rich richer, it also â€Å"redressed† (according to the author) and widened the inequality between social groups (Cassel and Patel, 2003). Considering the Brazil’s relationship with other countries, it has established connection with that of the United States of America when it comes to ethanol production. The world’s production of ethanol has strongly grown because of the worldwide oil prices increase and thus, ethanol is being considered as one of the alternative fuels (Earley and Earley, 2006). As what was mentioned earlier in the paper, Brazil is among leading sugar producing countries in the world, mainly because it has acres of land area to use for planting sugarcane.   Ethanol can be made by using sugarcane juice, and then by fermentation, distillation, and dehydration of the end product, which is ethanol or E-85. A large number of vehicles in Brazil are now using ethanol as their main fuel.   Ethanol has also become a major fuel in the said country, providing almost 18% of the total amount of vehicle fuel.   Because of this, they have become the world’s leading producer of ethanol producer back in 2005 (Ethanol Fuel, 2007). The policies as a result of both international and national efforts to prevent and reduce greenhouse gas emissions had also increased interest in using such fuel and so, authorization on the use of ethanol helps the industry of the country grow.   Also, because trade liberalization means more products would come in, which would also mean that products would need to be transported from one point to another by means of a particular kind of highly durable and highly powerful vehicles.   And because these vehicles need to have more power, they utilize fossil fuel products as their source of power, which would eventually add up to the pollution problem of the economic body. A study with regards to Brazil has found out that, the country’s trade liberalization had an effect on employment rates. It was noted that there has been a negative effect wherein there has been a decrease in employment in different capital-intensive industries as well as a decrease on the labor-intensive industries in the country. There are some who claim that the decrease in employment is not necessarily attributed to the country’s trade liberalization because the trade reforms has been passed and implemented on a macroeconomic environment which was characterized by recessionary conditions and high inflation rates (Mesquita Najberg, 2000). But looking back at the basics, employment can be and is directly affected by the particular economic body’s economic status at a given time.   Because of this, the aforementioned claim may not be telling what really is happening, but only what is ideally to happen. Considering the stated information above, it can be inferred that China and Brazil both differ in ways of how they manipulate their trade systems in order to increase their economy and be known to their respective fields of interest and products.   Simply, the two countries aim to improve their economy and be able to increase their economy’s status in such a way that they would be able to have connections or be in association with other countries. Also, it may be good to hypothesize that trade liberalization can help an economic body only in the macroeconomic level, but it can also negatively affect the economy in the microlevel in the same time.   It can also be hypothesized that economic trade liberalization policies only serve the benefit of those countries that already have the economic advantage at the first place, because they already have the means of being the first ones to do trade with the countries that implement the economic policy. And last, another hypothesis that can be drawn from the previous premises is that free trade can be one of the modern economic policies that may endanger the previously existing local industries in a country, because it only gives the people more choices in the market, which would mean, greater diffusion and lesser concentration of the choice of goods sold in the market. References Antweiller. W., Copeland. B.R.   and Taylor. M.S. (1998). â€Å"Is free trade good for the environment?†. NBER working paper. Biz/ed. (2007). Trade Liberalisation: A Means of Promoting Growth in Developing Countries? – Activity. Retrieved, July 17, 2007, from http://www.bized.co.uk/educators/16-19/economics/international/activity/liberalisation1.htm. Cassel, A and Patel, R. PhD.   (2003).   Agricultural Trade Liberalization and Brazil’s Rural Poor.   Institute for Food and Development Policy/Food First. Earley, J. and Earley, T.   (2006).   Specific Environmental Effectsof Trade Liberalization: Sugar.   International Policy Council. Ethanol Fuel (2007).   Wikipedia.   Retrieved july 19, 2007 from http://en.wikipedia.org/wiki/Ethanol_fuel#Production_Process. Glossary of International Trade Terms.   Retrieved July 18, 2007 from http://www.afsc.org/trade-matters/learn-about/glossary.htm#wto. Ianchovichina, E., Martin, W. and Wood, C. (2000). ‘Effects of the Vietnam- US bilateral trade agreement’, Mimeo, World Bank. Key, S. J., (2003), The Doha Round and Financial Services Negotiations, (Washington DC: The American Enterprise Institute Press). Kono, M. and L. Schuknecht, (2000), â€Å"How Does Financial Services Trade Affect Capital Flows and Financial Stability,† in Internationalization of Financial Services ed. by S. Claessens and M. Jansen, (London) Kluwer Law International, pp139-176. Lardy, N.   (2003). Trade Liberalization and Its Role in Chinese Economic Growth. Prepared for an International Monetary Fund and National Council of Applied Economic Research Conference A Tale of Two Giants: Indias and Chinas Experience with Reform and Growth. New Delhi. Mesquita, M. and Najberg, S. (2000). Trade Liberalization in Brazil: Creating or exporting jobs?. Journal of Development Studies. Moustakerski, P. (2002). The effect of trade liberalization on China’s retail sector. Retrieved, July 17, 2007, from http://findarticles.com/p/articles/mi_m3723/is_3_14/ai_84879835. Trade Liberalization and Employment (2001).   International Labor Office.   Geneva.   282nd Session. U.S.-China Trade Relations: Entering a New Phase of Greater Accountability and Enforcement. (2006). United States Trade Representative