Jakubowska - Key Idea 2

Question 1

What is trade?

Answer 1

The transfer of ownership of goods and services from one person, company or country to another.

Question 2

What is Neo-colonialism?

Answer 2

A policy whereby a major power uses economic and political means to maintain or extend its influence over underdeveloped nations or areas.

Question 3

What is a comparative advantage?

Answer 3

A natural advantage one country has over another. E.g skilled labour or good climate (David Riccardo, 1817)

Question 4

What is Fairtrade?

Answer 4

A social movement and sustainable market based approach to empower developing countries growers who have traditionally struggled with low free market prices.

Question 5

What is the Background to Jamaica?

Answer 5

• British colony till 1962
• At the pre-industrial stage of the Clark-Fisher model, farming is the backbone of the economy.
• GDP per capita of $5300

Question 6

What happened between Jamaica and the IMF?

Answer 6

• Fell into debt after the OPEC oil price rises
• IMF gave Jamaica a loan attached with a SAP
• Jamaica had to put restrictions on spending on areas such as education and health
• Forced to devalue its currency to boost exports and discourage importing. (Reliant on imported fuel etc) so fell into more debt.
• $800m 1970’s to $7 billion today, pays back 52 cents of each $ earned in debt, leaves it little money to spend elsewhere.

Question 7

What has Jamaican debt resulted in?

Answer 7

• Lack of investment in waste disposal
• Lack of investment in health and education
• Loss of farming subsidies leading to the collapse of industry (Unemployment at 15%)
• Poverty has led to crime which costs the country 4% of GDP each year.

Question 8

How were Jamaica’s farmers affected by the opening of markets to free trade?

Answer 8

• Increased seed costs etc. as a result of the devalued currency, this was passed on to consumers.
• Market flooded by cheap, subsidised products from the US, lower prices for farmers.
• US milk powder flooded the market (subsidised at 137%) which collapsed the 137 million litre a year milk industry.

Question 9

How has the banana industry in Jamaica been treated unfairly?

Answer 9

• 1980’s and 90’s, Jamaica exported 900,000 tonnes of bananas each year to the UK and Europe under the Lome agreement.
• US owned TNC’S Dole and Chiquita (Which account for 95% of world banana trade) pressured the WTO to ban this preferential trade, citing it as unfair and against the WTO’s principles.

Question 10

What was the Lome agreement?

Answer 10

An agreement under which former colonial powers supported newly independent states economies through preferential trade with them allowing tariff free export of their products.

Question 11

How was the banana industry in Jamaica affected by Dole and Chiquita’s complaints?

Answer 11

• The Lome agreement was abolished and UK supermarkets starting buying from the cheapest sources (Dole and Chiquita)
• The TNC’s bananas were considerably cheaper ($4 per 40 lbs compared with $11 per 40 lbs for Jamaican bananas)
• This is because Jamaican farmers generally have small plots of land where machinery could not be used.

Question 12

What were Jamaicas Economic Free Zones (EFZ’s)?

Answer 12

• EFZ’s are areas exempt from local taxes etc., generally in coastal locations which gives countries a way to attract FDI to create jobs leading to a positive multiplier effect etc.
• Jamaica had an EFZ in Kingston which attracted US TNC’s such as Tommy Hilfiger and Brooks Brothers.

Question 13

Were Jamaica’s EFZ’s successful?

Answer 13

• The EFZ’s did create jobs, however these were often low skilled and low paid ($30 a month). Workers were exploited through high taxes and expensive compulsory lunches.
• The TNC’s then brought over 800 Asian workers, defeated the main objective of the EFZ to create jobs for local people.
• As costs in Jamaica have risen the TNC’s have become footloose and moved to locations such as Mexico which has cheap labour, leaving Jamaica with empty EFZ’s and even more debt.

Question 14

Background to Mali

Answer 14

• Landlocked West African country bordering Niger, Mauritania and Algeria
• Gained independence from France in 1960
• In the top 10 poorest countries globally (GDP per capita of $656 and HDI of 0.37)
• 30% of the population rely on cotton. Production averages 550,000 tonnes per year and makes up 7% of GDP.

Question 15

Why did Mali require SAP’s and how did they affect Mali?

Answer 15

• Borrowed money to develop after independence, after the OPEC price rise they fell into debt and was unable to service these.
• In 1993 and 1996 they requested loans from the IMF.
• The IMF set up a SAP, which required Mali to remove all import tariffs and to remove all farming subsidies.

Question 16

How did the SAP’s affect Mali?

Answer 16

• EU + USA still subsidise farmers including cotton farmers (US cotton farmers receive $3.4 billion each year). This encourages over production so the world price fell.
• Malinese farmers don’t get subsidised so were hit by market dumping from the US, in 2002 they received 13 cents per lb of cotton produced, US farmers got 70 cents.

Question 17

Background to South Korea

Answer 17

• GDP per capita increased from $100 in 1960 to $27,500 currently.
• Life expectancy risen from 54 to 67 between 1963 and 2003.
• Exports have risen from $40 million in 1953 to $526 billion currently.
• Government spending on healthcare has tripled.
• 82% of the population now live in urban areas compared with 50% in the 1980’s.

Question 18

A brief history of South Korea

Answer 18

1950’s: Considered an LEDC
1960’s: High levels of debt and poverty, partly due to low wages and PPD. Protectionist approach to the economy and markets.
1980’s: Classed as a NIC after industrialising rapidly.
1990’s: Changed to more neo-liberal economic policies by opening markets.
Now: Is the 12th largest economy globally by GDP.

Question 19

Who are South Koreas main trading partners?

Answer 19

• China (25% of exports)
• US (10% of exports)
• EU (9% of exports)

Trade surplus of $10.4 billion (2005)

Question 20

What are South Korea’s main industries?

Answer 20

• Textiles
• Ship Building
• Electronics
• Steel
• Car Production

Question 21

What have been South Korea’s approaches to trade over the years?

Answer 21

1960’s: Import substitution (replacing imports for domestic production) which is a protectionist approach. This was enforced through the use of import tariffs.
1990 - Today: Once the terms of trade had improved and the country had industrialised and the workforce had been educated, they were able to specialise and shift to an exported orientated market.

Question 22

Why was South Korea successful?

Answer 22

Aid from the US: US gave South Korea $60 billion in Aid to help South Korea rebuild/stop the spread of communism.
Cheap Labour: In 1965 S.Korean workers were paid a tenth of what their Japanese counterparts were.
Education: Literacy rate of 97.9%
Protectionism: Import tariffs sheltered the country from foreign competition. This allowed them to develop before having to compete globally.
Location: Peninsula so has 3 areas of seaport access.
Strong Govt: Autocratic govt till 1998 which put a focus on economic development by preventing trade unions and opposition.

Question 23

What is Fairtrade cotton co-operative?

Answer 23

• Set up in the Dougourakani village in the Kita region of Mali in 1996.
• The co-op allows producers to pool cotton to demand a greater price/share expertise.
• Cotton is grown in rotation with Millet and Peanuts which protects soil fertility and food security.
• Offers access to loans for famers
• Guarantees a price 50% above the national minimum and a social premium for community projects
• Storage facilities so farmers can wait for higher prices
• Pushes for gender equality (with classrooms for women to be educated).

Question 24

What are the criticisms of Fairtrade and the Co-operative?

Answer 24

• Encourages farmers to stay in an industry which is oversupplied.
• Requires certification meaning only land owners can benefit. Poor landless labourers cannot directly benefit, even though these are the poorest people.
• Strict certification requires investment which means the poorest producers cannot qualify.