Microtrade

A New System of International Trade with Volunteerism Towards Poverty Elimination

Yong-Shik Lee, Yong-Shik Lee

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135972776
• Edition: 1
• Topic: Jura
• Subtopic: Internationales Handelsrecht

With contributions from well-regarded scholars of international economic law, this book sets out the case for an innovative solution to extreme poverty which utilizes international trade and its legal framework to relieve populations of the poorest countries around the world of extreme poverty. "Microtrade" is international trade on a small scale, based primarily on manually produced products using small amounts of capital and low levels of technology available at a local level in lesser developed countries.

This book explores the theory, application, and legal framework for microtrade. In the first part of the book the architect of the microtrade theory, Yong-Shik Lee, offers a theoretical framework for microtrade including its basic elements, product demand and operational issues, legal issues, and the global management and facilitation of microtrade. The book then goes on to look at issues including the structure and financing of microtrade, e-commerce, government procurement, and the fair trade movement's possible relationship with microtrade.. The final part of the book considers empirical case studies of microtrade with agricultural products. The book shows how microtrade, if effectively administered on a global scale, can do much to end extreme poverty.

Part I

Theory and elements of microtrade

1 Conceptual framework¹

Yong-Shik Lee

1.1 Poverty, international trade, and economic development

The technological and economic advances in recent times are unprecedented. The increase in production, international trade, and investment has been phenomenal on a global scale after World War II,² which has been translated into the unprecedented wealth of industrialized, developed countries and their citizens.³ Those who live in developed countries benefit from the latest advent of modern technologies which allow them to connect to anyone in the world in a matter of seconds, acquire information that they need in an instant, and enjoy a lifestyle which would have been possible for only a small number of the society’s elite class in the past. These benefits have also been extended to many of those living in the countries that have achieved economic development successfully in the recent decades.⁴

Yet much of the world’s population does not share this prosperity. Poverty remains one of the most serious global problems. Despite considerable efforts by international organizations, governments, and nongovernmental organizations (NGOs), the situation has not improved significantly, and nearly half of the world population lives below the poverty line.⁵ This calls for new approaches that could lead to solutions for poverty problems around the world. I propose a new type of international trade that is designed to improve the economic status of populations in least developed countries (LDCs).⁶ I use the term “microtrade” to describe this new type of trade. Microtrade is international trade on a small scale, based primarily on manually produced products using small amounts of capital and low levels of technology available at a local⁷ level in LDCs.⁸ Microtrade is conceived as a means to raise income to reduce or eliminate poverty when no other con ventional means of economic development is either available or sufficient to accomplish this.⁹

Poverty is most serious in LDCs but also exists in other, more advanced developing countries and even in developed countries. The poverty issue in developed countries is a problem of income distribution, and needs to be approached politically. Thus, it is not within the purview of this book, which focuses on poverty issues in LDCs and addresses ways in which poverty can be reduced or eliminated by improving the income of populations in LDCs. The poverty issue of more advanced developing countries, such as countries such as China and Brazil, is also not covered in this book. Those countries undertake massive economic development programs at the central government level, providing opportunities for substantial poverty reduction within those countries which may not exist in LDCs.¹⁰ Although this does not mean that the concept of microtrade can never be applied in developed countries or advanced developing countries,¹¹ the focus of this book is the application of microtrade to LDCs for their poverty reduction.

The solution for the poverty problem in LDCs should come from economic development, which will provide the majority of LDC populations with the economic capacities to meet the material requirements of daily life above the poverty level. Economic development refers to the process of a structural transformation of an economy from one based primarily on the production of primary products (i.e. a product consumed in its primary [unprocessed] state) generating low levels of income to another based on modern industries that provides higher levels of income.¹² Although aid and donations from other countries, international bodies, NGOs, and private individuals are important sources of temporary relief for impoverished populations in LDCs,¹³ they are not a lasting solution to poverty in LDCs. The countries that have escaped from poverty in the past 50 years (e.g. some East Asian economies, including South Korea, Taiwan, Hong Kong, Singapore, and, more recently, China) did so through successful economic development and not through aid and donations.

In all of the successful development cases, world trade has been a crucial element in their success, which has broken the vicious circle of poverty, as a number of leading scholars, such as Rodrik, Amsden, and Wade, have studied extensively.¹⁴ Poor countries do not have sufficient domestic markets for goods and services to support economic development because of the local population’s low purchasing power. World trade opens up affluent foreign markets for the goods and services produced in developing countries, and economic development has been achieved by taking advantage of those foreign markets through export. This development strategy, called “export-oriented development policy,” has been employed successfully by formerly developing economies in East Asia, such as South Korea, Taiwan, Singapore, and Hong Kong, from the 1960s through to the 1990s, with remarkable success.¹⁵

This success has not been replicated in most LDCs.¹⁶ Various political, social, and economic problems deter LDCs from undertaking the large-scale development initiatives that have been successfully completed in the East Asian countries. Microtrade is proposed as an alternative to overcome the typical supply constraints of LDCs, such as insufficient capital and low levels of production technology. Microtrade allows residents in LDCs to export local products to affluent foreign markets—on a much smaller scale than that achieved by newly industrializing countries¹⁷ —with the objective of generating income that will be beyond the poverty level. In facilitating exports from LDCs through microtrade, there are many questions, including economic feasibility, logistical problems, financial arrangements, regulatory issues, and organizational aspects, that need to be addressed. The remainder of this chapter expounds the concept of microtrade and its relevance to poverty reduction in LDCs.

1.2 Microtrade: a new type of international trade linking world market with local production

According to United Nations’ statistics, more developing countries were poorer by the beginning of the millennium than they were 50 years earlier, and few countries have escaped poverty.¹⁸ Economic development has not been successfully facilitated in most developing countries, particularly in LDCs. The economic and human welfare situation in LDCs is, in fact, dire. Average gross national income (GNI) per capita of the LDCs was a mere US$710 in 2010,¹⁹ and the average proportion of the population living under US$1 a day among 22 LDCs was 43.6 per cent.²⁰ Life expectancy was 60.4 years²¹ compared with 79.2 years in developed countries in 2008.²² The infant mortality rate was 7.8 per cent²³ in 2009 compared with 0.7 per cent in developed countries.²⁴ Diseases kill millions of people in LDCs every year. As of 2007, 9.6 million people in LDCs were estimated to have been infected by the HIV virus.²⁵ Armed conflicts have added to the suffering in LDCs, and millions of people have been killed or become refugees. Attaining political stability and economic development will be necessary to stop such human tragedy.

Promoting economic development in LDCs presents a number of difficulties. The following factors have been cited as reasons for sluggish economic progress and prevalent poverty in LDCs: poor social and industrial infrastructure, insufficient capital and low levels of technology, low literacy and education levels, lack of entrepreneurship and management expertise, insufficient political leadership for economic development coupled with political instability, corruption and weak government institutions with absence of effective administrative support, and even some cultural issues that are deterrents to economic development.²⁶ Most of these problems will be difficult to solve in the short term. Large-scale development initiatives and the subsequent economic development in East Asia were possible because these countries, despite initial capital and supply constraints, did not suffer from some of the cited problems and were strong in certain key elements for development, such as high literacy rate, strong political leadership, and effective administrative support from government.²⁷

The East Asian countries moved beyond poverty by successfully undertaking a series of export-oriented economic development initiatives, which included promoting large-scale export industries.²⁸ The contribution of international trade to economic development and the role of government in successful cases have been widely studied and well documented.²⁹ Leading scholars such as Amsden and Wade have studied the industrial policies adopted by the East Asian countries and concluded that their governments directed investments to certain key industries and intervened in international trade in various ways (i.e. by using subsidies and limiting foreign imports) while engaging in trade and promoting exports.³⁰ Although there is a question as to whether such government interventions have always been successful in promoting economic development, there is little doubt that the development initiatives made by governments and followed by the private sector led to the economic growth that drove the East Asian countries out of poverty.³¹ Given the constraints and the problems discussed earlier, however, it will not be feasible for many LDCs to undertake large-scale development initiatives, either by the private sector or the government. The working institutional arrangement between the private and public sectors as described by Dani Rodrik³² is not found in many LDCs, and it is not likely to occur in the foreseeable future.³³

Microtrade will be an alternative approach to reduce or eliminate poverty when an LDC economy is not supported by a well-functioning government and effective administrative assistance, and when the private sector as a whole does not function to make economic progress. Microtrade will, essentially, be a local initiative that uses the mechanism of international trade but will not require the large-scale industrial initiatives promoted by East Asian countries during their rapid development periods. The essence of this new approach is to enable LDC residents to export locally produced products (LPPs)³⁴ to the more affluent markets of developed countries to generate income that is beyond the poverty level. The distinction between microtrade and conventional trade lies in the use of the price difference, as described subsequently, rather than the economies of scale, which require mass production capacities that many LDCs lack and cannot obtain in the near future. Examples of possible LPPs for microtrade include portable items of everyday use, for ease of shipping and distribution, that can be produced without high-level technology or costly production facilities. Such items may include cups and dishes, utensils, small furniture, musical instruments, art objects, ornaments, and toys....