2. Neo-colonialism and its relevance for international trade..
3. Empirical analysis of the third world trade.
3.1 Development of the export and import structures of Sub-Saharan Africa
3.2 Development of trade barriers in international trade.
4. The impact of the trade barriers on the export performance of Sub-Saharan Africa
5. Theoretical background
5.1 Free Trade
With the decolonisation starting after World War II African countries became independent from their former European colonisers. While the process of achieving political independence is generally accepted as completed, economic independence remains uncertain. There are various fields in which dependency on former colonisers can be observed.
Many African politicians and Non Governmental Organisations (NGOs) regard supra-international institutions like the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO) as western dominated institutions, which impose their ideas of Politics and Economics on the so called “third world countries”. This can take place in forms of credits to African countries by the IMF. These credits are subject to “Structural Adjustment Programs” (SAPs) the receiving country has to implement. A SAP mainly focuses on the liberalisation of a country’s economy and thereby takes the country’s independence in choosing its own policies.
In the last twenty years NGOs, academics and politicians became aware of an emergent debate on a new world order in trade relations. By criticising the trade policy of developed countries, NGOs, such as Oxfam and Attac, accuse these countries of keeping the third world poor and dependent on the first world (Oxfam 2002). By subsidising the own economy and protecting it through tariffs, developed countries hinder the developing countries to increase exports and thereby national income. This essay focuses on this relationship between the third and the first world in international trade. It aims to prove the statement of the NGOs and thereby figure out whether there is a neo-colonial tendency in trade relations between the first and the third world1) or not.
To approach this question the first chapter deals with the idea of “neo-colonialism” and its relevance in describing the trade relations between developed and developing countries. The following chapter gives an empirical overview of the third world exports and the trade barriers these exports face. This empirical overview serves as the basis for the fourth chapter, which examines the impact of first world trade policy on third world countries and their performance in world trade. The next chapter builds up the theoretical framework for the trade policy alternatives. The explanation of the theories is necessary to understand the different positions of “free-traders” and “Protectors”, which lead to the formulation of contradictory policy advises. The final chapter gives a short summary of the essay’s outcome and draws a conclusion regarding the initial question.
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1) The “third world“ and the term “Africa” is represented in this essay by Sub-Saharan Africa without the Republic of South Africa, because this area inhabits the most “Least Developed Countries” (LDC) and is therefore a major concern of world economics.
2. Neo-colonialism and its relevance for international trade
The term “neo-colonialism” was coined by third world leaders, who found that “the achievement of constitutional independence ... did not give total freedom to the governments of the newly founded states” (Smith 1996, p. 121). They perceived a continuing presence of western financial and economic interest in the third world countries.
At the All-African People’s Conference in Cairo in 1961 a resolution was passed which stressed that neo-colonialism is an “indirect and subtle form of domination by political, economic, social, military or technical means” (Woddis 1980, p. 61). Kwane Nkrumah (cited in Smith 1996, p. 121), the first prime minister of Ghana, spoke of a “not ending economic colonisation”.
Neo-colonialism implies that there can be no political independence while economic dependency still remains. During the Cold War period many socialists and communists dealt with the problem of neo-colonialism. From their point of view neo-colonialism aimed to preserve the “imperialist economic and strategic interests” the western world had in the third world (Woddis 1980, p. 58). Due to the West-East conflict the West attempted to invent the capitalist system in the third world countries for the expansion of the market for western capital and products. Economics, as the core of neo-colonialism, is directed toward assisting the profit-making functions of the monopolies in an effort to provide the Western countries with the necessary economic power. The third world is to remain the producer of goods that are of interest to the first world (raw materials, minerals and foodstuff) and to serve as market for the western manufactured goods. By selling the raw materials under buyer’s conditions and buying the first world products under seller’s conditions, the developing countries could be kept economically weak and dependent on the western world (Woddis 1980, p. 87).
One effect of the colonialism on the economic structure of Sub-Saharan Africa that still coins these countries is that there was no encouraging of the production of manufactures. The colonisers were interested in the production of specific materials (e.g. cocoa, diamonds, coffee beans, etc.) and therefore only focused on the sector of primary goods. This lead to a dependency on these products. The export structure of third world countries is still very concentrated and therefore sensitive to price changes in the world market. Today countries like Ethiopia, Kenya and Zimbabwe supply the West with fresh flowers, one of the most polluting forms of agricultural production. While delivering those flowers Zimbabwe had to borrow $70 million (from western institutions) to import maize, because of the famine the country faced (Smith 1996, p. 122).
Neo-colonialism operates through various economic processes subject to international trade including the terms of trade, the need for aid, the repatriation of profits and technological dependency (Smith 1996, p. 123).
This essay focuses on the determents of the terms of trade. The terms of trade (TOT) is defined as the amount of goods a country can import due to the earnings of its exports and therefore reflect a country’s purchasing power.2) The exchange rate and the conditions under which international trade takes place – namely tariffs, subsidies and non tariff barriers (NTBs) - play a crucial role in the development of a country’s TOT.
“A neo-colonialist economy is one in which the terms of trade operate to its disadvantage” (Smith 1996, p. 123). This means that due to the lower export value the purchasing power of a country declines. The importance of the export for a third world country is based on the fact that developing countries are dependant on manufactures from the developed world (because they are not available in the domestic market) to achieve further economic development. The earnings of the exports serve as foreign exchange to purchase the needed imports. If the TOT works against the third world countries these countries cannot afford the necessary goods and might need loans from western institutions like the World Bank. As this is the fact in many third world countries, the developing world stays dependent on the former colonisers.
This dependency is the core for the dependency theories which evolved out of the thoughts of neo-colonialism.
In order to figure out, whether there is such a dependency on the first world, the international trade flows between the first and the third world and the conditions under which these take place will be examined in the following chapter. Further on the essay will seek to discover whether it is true that the first world tries to maintain this situation by its trade policy towards the third world, and whether it thereby undermines the arguments for the existence of neo-colonialism.
3. Empirical analysis of the third world trade
The empirical analysis is designed to give an overview of the development of the international trade of Sub-Sahara Africa in the period from 1955 to 2000. The first part will show the export and the import structure and performance during this time, whereas the second part will focus on the conditions under which trade takes place. This will be done by describing the development of tariffs and non tariff barriers (NTBs).
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2) A more formal and economic description of the terms of trade is the following:
TOT = p / (p’ * E) , whereas p is the price level in the home country, p’ the price
level in the foreign country and E the exchange rate.
- Quote paper
- Sebastian Weber (Author), 2003, Do international trade relations between the third world and the first world represent neo-colonial tendencies, Munich, GRIN Verlag, https://www.grin.com/document/43056