Many people argue that the best way to alleviate poverty and reduce disparities is to promote global trade. However, many countries are still struggling to trade freely.
Protectionism: Attempts to protect domestic markets by making foreign goods less competitive. This is most commonly done through tariffs and and quotas placed on foreign goods and subsidies given to domestic goods.
WTO: The World Trade Organisation is an organisation aimed at protecting free global trade. It replaced GATT in 1995 and has 153 members. To join the WTO you have to demonstrate how your country promotes and practices free trade.
Free trade zones (Export processing zones or Enterprise zones): A zone or area where tariffs and quotas maybe waivered, taxes lowered, planning relaxed and bureaucracy eased to try and encourage investment and FDI.
Benefits of free trade:
Gives local companies a chance to become global companies (TNC) e.g. Pollo Campero
Countries who participate in free trade grow faster
Protectionism makes products more expensive and may stop normal citizens from buying them e.g. cars in El Salvador are very expensive because of import duties
Local companies can create pollution just as much as TNCs and may not have the money to clean up accidents e.g. BP created a huge spill but had the finances to clean up
Mexico has increased its exports since joining NAFTA
Trading can improve relationships between countries – less likely to go to war.
Jobs are created for local workers
Workers may improve skill and education level
Infrastructure like roads and ports are improved for the whole country
Laws can be put in place to protect worker rights
More money can be made by selling to external markets rather than just domestic market
Residents have access to greater variety of products
Companies will become more competitive and should actually lower prices
Export Processing Zones:
Lowers unemployment in the local area. A larger proportion of people will have jobs.
Depending on the type of employment, locals may gain new skills, reducing the difference of skills known between differing countries.
-> These locals in turn may start up their own businesses, boosting the economy more.
Foreign investment flows into the country, allowing for a multiplier effect. This will improve the general economy of the country.
Infrastructure in the local area tends to improve as new projects increase to support businesses in EPZs.
New technology may be brought to the country, improving its development.
Increases regional disparities (e.g. the western and inland parts of China were sacrificed to promote economic development in the coastal regions.) This is due to the fact that EPZs need to continuously be attractive to foreign companies. Less attractive areas will often be sacrificed in a bid to make this happen.
Human rights are often abused in EPZs.
-> Lack of trade unions.
-> Low wages.
-> Unsafe working environments.
TNCs may not have environmental practices.
EPZs rely on support from external companies and so on in order to be of real use. If these companies decide to move away, people may become unemployed again.
Incheon Free Economic Zone
Incheon is located in NW South Korea, close to the capital city Seoul. The South Korean government started its Business Hub Project in April 1992 and Incheon was one of the free economic zones that it created. The free economic zones enjoyed tax breaks and relaxed bureaucracy in…