World trade, commodities and communications

1. World trade, commodities and communications Development

2. Learning outcomes • Understand historical relationship of trade between LEDCs and MEDCs • Know the different trade patterns associated with LEDCs and MEDCs • How the present trade pattern both helps and hinders LEDCs and MEDCs

3. Trade • Trade is the exchange of goods and services between 2 countries • The natural resources of the world are unevenly distributed • Europe has few reserves of minerals nor does it have a suitable climate for growing cotton or coffee

4. Divisions in world trade • There is a major division between LEDCs and MEDCs • MEDCs import raw materials from LEDCs, manufacture them and sell them on • LEDCs export primary goods and these are sold at a much lower prices than manufactured goods • LEDCs lack basic infrastructure, technology ad finance to establish a significant industrial base

5. Problems for developing countries dependent on commodity exports • The main problem for LEDCs is that they are dependent on the export of 1 primary commodity • E.g. • Honduras 76% Bananas • Ghana Cocoa 80% • Cuba sugar 77%

6. 1970s Debt Crisis • The Middle East had put up the price of oil • They invested their income in European and US Banks • In order to pay interest in their Middle East investors, the banks encouraged LEDCs to take out loans • To raise this money LEDCs had to export more commodities • This then pushed down prices resulting in reduced income

7. International Commodity agreements (ICAs) • In an attempt to maintain and stabilise commodity price in the 1970s, the ICA was set up • The agreement encouraged nations to increase their productivity • This led to oversupply • E.g. the price of coffee fell from US $1.4 to US $ 0.70 per pound in just 4 months

8. Oversupply and changing demand • Oversupply affects the price of commodities • When supply exceeds demand- prices go down • Between 1974-76 there was a severe frost in Brazil, fungi in Colombia and Mexico and drought in the Ivory Coast • Coffee supplies ran out • What do you think happened the price then?

9. Commodity substitutes • MEDCs now manufacture cheaper, artificial alternatives for natural products • E.g. cocoa butter, vanilla flavouring, food sweeteners, polyester for cotton • Non- agricultural raw materials have also suffered from synthetic alternatives e.g. tin replaced by substitutes • This decreases the demands for these goods

10. Trading policies • Traditionally it was the MEDCs who established and gained the most from international trading policies • Tariffs were introduced • Tariffs are taxes added to the cost of goods at different stages of production • Raw materials have smaller tariffs than manufactured goods • Who is gaining from the tariffs?

11. Example of tariff costs • Fresh pineapples imported to the EU attracts 9% tariff • Canned pineapples attracts 32% • Pineapple juice attracts 42%

12. World trading blocks • A major feature of world trade is trading blocks • Countries share geographical, political, historical or economic characteristics often form blocks to strengthen trade links • Political links: Organisation of African Unity, British Commonwealth, North Atlantic Treaty Organisation (NATO) • Economic links: EU, UNO, General Agreement on Tariffs and trade (GATT)

13. Recap • Trade is widening the gap in development • MEDCs are benefiting from world trade • LEDCs are not benefiting • The commodities that LEDCs export are not raising the same as the products MEDCs are exporting • The gap between the rich and poor is widening