The performance of Tanzania in international trade

The act of Tanzania in worldwide hand on that point atomic total 18 six of import theories that govern outside(a) occupation namely incorrupt fate out system, work out proportion theory, crossing behavior wheel around theory, foreign direct investment theories, inter national production theory and multinationalization theory.1.1 Classical make do theoryCountries gain if each devotes re solutions to the production of goods and run Ricardo (1817) in which it has an usefulness Smith (1776).1.2 Factor proportion theoryCountries testament tend to specialize in the production of goods and services that Hecksher and Ohlin (1933) utilize their most abundant resources1.3 Product life cycle theoryThe cycle fol wretcheds that a pastorals exporting strength builds foreign production Vernon (1971) starts foreign production becomes competitive in export food markets and Wells (1968, 1969) import competition emerges in the countrys home market1.4 unknown direct investment theories market place fallibleions theory wets decision to invest oversea is explained as a strategy to capital of the United Statesize on Hymer (1970) true capabilities not sh bed by competitors in foreign countries1.5 multinational production theoryThe propensity of a firm to initiate foreign production go out depend on the specific Dunning (1980) attractions of its home country compargond with resource implications and Fayerweather (1982) values of locating in another country1.6 Internalization theoryInternalization concerns extending the direct operations of the firm and bringing Buckley (1982, 1988) on a lower floor common ownership and control the activities conducted by ordinary Buckley and Casson markets that link the firm to customers.2.0 THE IMPORTANCE OF INTERNATIONAL TRADEThe importance of transnational peck to a nations stinting welf are and emergence has been heavily documented in the economics literature since Adam Smiths (1776) inquiry into nature and causes of the wealth of nations. This suggests that economies make to export goods and services in order to generate revenue to finance imported goods and services which assnot be produced indigenously (Coutts and Godley, 1992).The main indicators of a nations economic strength can be gauged from its gross domestic product (GDP), as this measure is an estimate of the value of goods and services produced by an economy in a pr wizard period (Tayeb, 1992). The notion that world(prenominal) conduct can influence GDP has been explored by several economic theorists (Marin, 1992 Meier, 1984) and culminated in the export-led growth thesis.As export sales increase, other things being equal, the GDP of a nation will rise and provide a stimulus to improved economic well-being and societal prosperity. The centering in which this relationship can be interpreted suggests that export performance has a stimulating loading through with(predicate) and throughout a countrys economy in the form of technological spillovers and other related favour sui dishearten externalities (Marin, 1992). merchandise activities whitethorn exert these influences because exposure to global markets demands improved efficiency, and supports product and subroutine innovation activities, while increases in specialization encourage profitable exploitation of economies of scale (Temple, 1994). Thus, the export-led growth thesis predicts export growth will cause economy-wide productivity gains in the form of enhanced levels of GDP.Another mechanism through which exports are committed with sustainable rates of economic growth is the balance of payments. The balance of payments constraint can be denotative as follows. In general, economic growth creates a variety of demands which cannot be satisfied solely by domestic output. The faster the rate of domestic demand, the more accelerated the growth of imports (Abdel- Malek, 1969).However, any excess of imports from one country to another, over an d above exports requires the work deficit to be financed by either government acceptation from overseas or drawing on the economys stock of assets. If this situation is sustained, it becomes vital for the home government to cut through the issue of much(prenominal) a bargain imbalance (de Jonquieres, 1994 Hornby, 1994).Classical handicraft theory dictates that the extent to which a country exports and imports has a direct relationship to the trading pattern of the country with other nations. That is, countries are able to gain if they devote a true amount of their resources to the generation of goods and services in which they consecrate an economic advantage (Ricardo, 1817).Therefore, stainless swap theory argues that a country generates goods and services in which it has an advantage, for consumption indigenously, and after(prenominal)ward exports the surplus. It is for countries to import goods and services in which they pay an economic disadvantage. Economic advanta ges/ disadvantages may arise from country differences in factors such(prenominal)(prenominal) as resource endowments, labour, capital, engineering science or entrepreneurship.Classical good deal theory contends that the basis for international throw can be sourced to differences in production characteristics and resource endowments which are founded on domestic differences in natural and acquired economic advantages. However, over and above such a general insight into international craftiness, classical shell out theory is unable to tolerate any explanation as to what causes differences in relative advantages.The factor proportion theory, in contrast to classical lot theory, is able to provide an explanation for the differences in advantage exhibited by trading countries. According to this theory, countries will tend to generate and export goods and services that harness crowing amounts of abundant production factors that they possess, and import goods that require large am ounts of production factors which are scarce (Heckscher and Ohlin, 1933).Both of these theories utter above bedevil been translaten to be deficient in explaining more recent patterns of international trade. For example, the 1960s witnessed hearty technological progress and the rise of the multinational enterprise, which resulted in a call for new theories of international trade to reflect changing commercial realities (Leontief, 1966).At that time, the product life cycle theory of international trade was found to be a useful framework for explaining and predicting international trade patterns as well as multinational enterprise expansion. This theory suggested that a trade cycle emerges where a product is produced by a parent firm, then by its foreign subsidiaries and finally anywhere in the world where costs are at their final possible (Vernon, 1966).Furthermore, it explains how a product may emerge as a countrys export and work through the life cycle to ultimately become an i mport. The essence of the international product life cycle is that technological innovation and market expansion are critical issues in explaining patterns of international trade. That is, technology is a key factor in creating and developing new products.Market size and structure are influential in determining the extent and type of international trade. While these theories are insightful, a number of modern international trade theories have emerged recently which take account of other important considerations such as government involvement and regulation. However, these theories make assumptions which detract from their potential significance and contribution to international business.For instance, they hold that factors of production are immobile between countries perfect information for international trade opportunities exists and, traditional trade and exporting are the only mechanisms for transferring goods and services across national boundaries (Bradley, 1991).The market i mperfections theory states that firms constantly test market opportunities and their decision to invest overseas is explained as a strategy to capitalize on certain capabilities not shared by competitors in foreign countries (Hymer, 1970). The capabilities or advantages of firms are explained by market imperfections for products and factors of production.That is, the theory of perfect competition dictates that firms produce homogeneous products and enjoy the same level of access to factors of production. However, the reality of imperfect competition, which is reflected in industrial organization theory (Porter, 1985), determines that firms gain different types of competitive advantages and each to varying degrees.Nonetheless, market imperfections theory does not explain why foreign production is considered the most desirable means of harnessing the firms advantage. Dunning (1980) and Fayerweather (1982) have addressed this issue and developed what can be described as international production theory. International production theory suggests that the propensity of a firm to initiate foreign production depend on the specific attractions of its home country compared with resource implications and advantages of locating in another country.This theory makes it explicit that not only do resource differentials and the advantages of the firm play a plane section in determining overseas investment activities, but foreign government actions may significantly influence the piecemeal attractiveness and meekness conditions for firms. This was extensively investigated by Buckley (1982, 1988) and Buckley and Casson (1976, 1985).Internalization theory centers on the notion that firms aspire to develop their own interior markets whenever transactions can be made at lower cost within the firm. Thus, internalization involves a form of vertical integration bringing new operations and activities, formerly carried out by intermediate markets, under the ownership and governance o f the firm.3.0 PERFORMANCE OF TANZANIA IN INTERNATIONAL TRADE AFTER JOINING areaal TRADE PROTOCOLS.3.1 Factors hindering performance of Tanzania in International tradeTanzania has not benefited as much as would be possible from the generous concessions offered by regional trade protocols. There are several factors that can be attributed to Tanzanias sorry performance in international trade one of them being domestic issue constraints. Another factor is curt capacity to negotiate in international trade meetings due to privation of consciousness.The issue of awareness is significant because successful fraternity in international trade matters requires knowledge of ball-shaped developments in trade issues. Awareness helps to improve hard-hittingness of trade form _or_ system of government for Tanzania. Also, high up level of awareness provides a benchmark based on which the effectiveness of agreements and negotiations can be measured.It has been revealed that galore(postno minal) officials who represent Tanzania in international trade negotiations are not aware of some important regional trade protocol issues and thus fail to take advantage of preferences and opportunities that can increase the performance of Tanzania in international trade. privation of awareness on regional trade protocols leads to poor performance of Tanzania in international trade.The table at a lower place shows the extent of awareness on regional trade protocols.Level of awareness among stakeholders on regional trade protocolsType of regional trade protocolPercentage of awarenessSADC18.3%AGOA14.3%WTO2.0%COMESA9.9%EAC2.0%EU-ACP7.9%Source Economic and Social watch outk Foundation (ESRF, 2008).The data above shows that the level of awareness on regional trade protocols among stakeholders is highest at 18.3% for SADC and lowest for WTO and EAC at 2.0%. These findings show that the level of awareness on regional trade protocols among stakeholders in Tanzania is very low and this hinders the performance of Tanzania in international trade and FDI.In most cases, the preparations for negotiations are poorly made, including poor acknowledgment and coordination. Negotiators go in the negotiation table with a pre-determined position, a tendency that limits their flexibility to maximize gains from such negotiations. Another problem relates to insufficient analytical work before attending the negotiations.Another reason for poor performance of Tanzania in international trade negotiations is that the coordination of international trade is not centralized. For instance, negotiations and agreements for EAC are handled by the Ministry of Foreign Affairs and International Cooperation while those of SADC are handled by under the Ministry of Industry and Trade that is also liable for all multilateral trade issues.Another reason for poor performance of Tanzania in international trade is that the undercover field in Tanzania has limited participation in international tr ade negotiations. Also, the private welkin in Tanzania is not mingled in formulation of international trade policies , hence limiting their gravel and level of awareness on international trade issues compared to other countries which involve their private sectors.For instance, Tanzania Chamber of traffic and Agriculture (TCCIA), Chamber of Industry and Trade (CTI) and Tanzania Private Sector Foundation (TPSF) are not involved in international trade negotiations, thus limiting the performance of Tanzania in international trade. Due to poor preparation with regard to international trade, Tanzania fails to benefit from international trade agreements.The poor participation of the private sector in Tanzania in regional trade protocols is mainly caused by pretermit of financial and human resources. To deal with the issue of want of financial resources among the private sector, the government sometimes acknowledges delegates from the private sector in trade missions especially when the delegations involve high-level government officials.Recently, the government has started to involve the private sector in regional trade negotiations. For instance, the private sector was involved in the EAC negotiations from the very beginning. Also, although CTI was partially involved in the EAC policy formulation, their participation was limited due to lack of awareness and willingness on part of the government.3.2 Performance of Tanzania in FDI after uniteing regional trade protocolsAmong the objectives of Tanzania in joining regional trade protocols is facilitating Foreign Direct investment (FDI). Along with expansion of market opportunities, regional trade protocols encourage FDI because investors are attracted to larger market and may thus anticipate enjoying larger economy of scale. Investors take advantage of wider market and expect their investments to expand.The East African Community for example has put in place a shared investment policy among ingredient states w ith harmonized investment incentives for investors. The performance of Tanzania with regard to FDI has been much effective especially during the 1990S when the country underwent privatization after Structural Adjustment Programs. The table down the stairs shows the performance of FDI after regional trade protocolsFDI inflows to Tanzania from divers(a) regional trade protocols in US$ Millions200420052006200720082009EAC54.122.96.912.594.43.3SADC122.170.5139.318151317.6AGOA325151.431.652.156019.3EU-ACP67786.795.818310636.7Source Tanzania Investment Centre (TIC, 2008)The findings above show that Tanzania has attracted FDI mostly through EU-ACP countries followed by FDI from AGOA and SADC. Thus, it can be generalized that EE-ACP and AGOA have been the main source of FDI to Tanzania compared to other regional trade protocols that Tanzania has joined namely EAC and SADC. This can be explained due to the fact that the African countries have low capital formation.3.3 Performance of Tanzani a under AGOA RegimeThe performance of Tanzania in AGOA is poor compared to the performance of other countries. For instance, during the first division of AGOA, Tanzania exported goods worth $ 899,000, mostly agricultural and forestry, handicrafts, horticulture and fish products. On the other hand, Kenya exported goods worth $57.1 million mostly textiles and apparel. The main reason for this poor performance is because Tanzania delayed to register for AGOA.On the issue of investments from regular army which is also part of the AGOA trade protocol, Tanzania has failed to register meaningful investments from the United States due to several factors such as corruption, poor infrastructures, high electricity cost andbureaucracy. Another reason is complicated laws regarding land ownership surrounding investment projects.The table below shows the performance of Tanzania under AGOA compared to other countries that participate in AGOA namely Uganda, Kenya, Nigeria, South Africa and Lesotho . The data shows that, as well Uganda, Tanzania has had the worst performance in AGOA. This shows that regional trade protocols have had little clashing on participation of Tanzania in international trade.Trade under AGOA for selected countries 000 US$ (2000-2008)CountryTotal exports to USAGOA exportTanzania16594716Uganda728222Kenya120,42174963Nigeria36361923366165South Africa2646359831805Lesotho208756206349Total89271835723216Source BOT (2008).3.4 Market Access and Technical AssistanceTanzanias participation in the WTO issues is through the Least Developed Countries (LDC) group. The countries forming the LDCs group are eligible to receive the special treatment under the WTO rules so as to enhance market access. However, Tanzanias participation in WTO has had little impact on the hatful of their trade due to low export volume.On the other hand, Tanzania has benefited from technical assistance through various initiatives such as Joint Integrated Technical Assistance Program (JITAP) , which involves UNCTAD, WTO and ITC. The objectives of such assistance were to improve the performance and capacity stakeholders to understand regional trade protocols. Special and differential treatment has been useful for poor countries such as Tanzania.3.5 Performance of Tanzania in international trade after joining regional trade protocols.The tables below show the performance of Tanzania in international trade after four regional trade protocols namely EU-ACP, SADC, EAC and AGOA. The findings are shown in terms of exports made by Tanzania to other countries and imports made by Tanzania as shown belowTanzania exports to different countries in US$ Millions200320042005200620072008EU-ACP226241214362432474SADC22.315.113.818.42151.3EAC22.432.828.740.743.640.8USA21.412.81815.215.113.5Source Bank of Tanzania (BOT, 2008).The findings above show that exports from Tanzania to other countries have been mainly to EU-ACP countries followed by exports to EAC countries, SADC countries and to a little extent to the United States of America. This shows that regional trade protocols have had little impact on international trade in Tanzania because exports to EU countries have been in that location even before Tanzania joined regional trade protocols.Tanzania imports from different countries in US$ Millions200320042005200620072008EU-ACP367.1514413344389391SADC139179196194221211EAC87.810810198.910797.8USA52.681.399.258.96591Source Bank of Tanzania (BOT, 2008).The findings shown in the table above show that imports from Tanzania to other countries have been mostly to EU-ACP countries followed by those from SADC countries, EAC countries and the United States. These findings again show that regional trade protocols have had little impact on international trade because imports from EU countries were at that place even before Tanzania joined regional trade protocols.4.0 THE STATUS OF TANZANIAS IMPLEMENTATION OF REGIONAL TRADE PROTOCOLSBelow is a description of the status for Ta nzania in the sideline key issues regarding regional trade protocols.4.1 Conformity to the WTO rulesTanzania considers good and timely information about WTO decisions (and their interpretation) and a capacity to influence the new agenda of the WTO at an early stage. The WTO is member-driven and reacts only to member initiatives.4.2 Import liberalization issuesThis is a requirement that the country should comply with the WTO agreement on removal of trade barriers by snip down tariffs and other non-tariff barriers. Tanzania has already complied with most of the Uruguay Round (UR) requirement on its imports licensing and tariff regimes. The remaining challenge is to transform such reforms into institutions by drafting legislation to support them.4.3 Agriculture tradeTanzania is in compliancy with the negotiations and agreements on agribusiness (subsidies and market access). However, the country needs to closely monitor the forthcoming negotiations on agriculture as the requiremen ts could be tightened.4.4 Treatment of Non-Tariff BarriersSince Non Tariff Barriers (NTB) are varied by country own economic measures to control trade, an important issue is whether the NTBs contradict WTO rules. Another one is the extent through which NTB are source of trade disputes between countries.4.5 SubsidiesAs with NTBs, United bulk rule of Tanzania needs to re-examine all Government measures to see if they are in conflict with the new provisions on subsidies.4.6 Anti-dumping rules, countervailing actions and safeguardsFor formal compliance with the WTO, United Republic of Tanzania must see that the national and regional (EAC and SADC) rules and procedures on anti-dumping, countervailing, and safeguards are reformed to fit the WTO rules, and this appears to be underway.4.7 customs valuation and other custom rulesUnited Republic of Tanzania is fast thriving to complete its customs valuation reforms that should make it conformable to the WTO rule on customs valuation. Accor ding to the interview with the officials in the MIT, it is hoped that this exercise will be complete by July 2004. This also includes measures to remove the Pre-shipment inspection procedure to enhance efficiency in custom administration.4.8 Trade cerebrate Investment Measures (TRIMS)Under GATT 1947, investment law had not been central to its rules, and countries have been able to ignore the rules. Tanzania needs at least to be aware of the rules and its vulnerabilities if it does not adapt to them, precondition the wide variety of types of investment regime that are used by different countries.4.9 StandardsInternational standards are becoming more common, and for countries, which have not yet set their own, adopting these at an early stage may be a particularly efficient step. An alternative for United Republic of Tanzania in a region like the EAC or SADC is to shift to regional standards. However while this may be cost saving, it simmer down leaves the future costs of adapting such standards when an international standard is eventually set.Notifications of regional standards have been made for the EAC. These need to be made by Tanzania because EAC is not yet a recognized region in the WTO.4.10 workAs there were effectively no minimum requirements for services offers in the Uruguay Round, Tanzania formally complied. But there will be much more pressure in the next round to make material offers. The WTO has made provision for technical assistance to be availed to the LDCs regarding services liberalization, but for Tanzania has not yet been a clear indication of the type of assistance to be requested.Yet, in future requirements for more offers for service trade liberalization, Tanzania, among other countries, may not have a benchmark upon which to make offers. Even where the WTO may offer one, it may not necessarily be suitable for Tanzania as least developed country.4.11 Trade Related Intellectual Property (TRIPS)Tanzania must comply with the TRIPS rules within the 2003-2010 period. Tanzania has legal systems that are likely to be universal to the standard forms and so the costs of adoption to the TRIPS will not be substantial.4.12 Government ProcurementThere is no obligation to join agreement on Government Procurement, and a few developing countries have. Whether Tanzania should join depends on whether it wants to export to government purchasers who have joined the agreement, and whether it wants to give preference to any local suppliers who would be in competition with potential foreign suppliers. If a substantial proportion of a countrys government ingestion is financed by aid, there may be other constraints on its purchasing.4.13 Labour and the EnvironmentThere is no need for immediate action on labour or environmental issues to meet international standards (except for the alert environmental protocols and obligations under ILO Conventions). But there will be opportunities for Tanzania to use environmental arguments in trade negotiations, especially when such arguments are useful for some products.5.0 MEASURES TAKEN TO IMPROVE INTERNATIONAL TRADE some(prenominal) measures have been taken to improve the performance of Tanzania in international trade with regard to regional trade protocols. Such measures include seeking assistance from donors to facilitate international trade. Donors support regional integration programs and activities under COMESA and SADC and this has benefited members States including Tanzania.Among such donors include United States Agency for International Development (USAID), GTZ, UNCTAD, UNDP and UNIDO. Also, the European Union is funding a number of projects aimed at improving international trade. Within EAC, projects aimed at improving international trade include cooperation with UNCTAD, of ASYCUDA (automated system for customs data) and Euro trace.The European Union also supports international trade by offering EAC in vogue(p) computer hardware, setting up internet networks and offering expert advice in preparing the region for Common away Tariff. EU also provides EAC staff with training regarding WTO matters for member. Support has also been offered to assist in developing the finance and Investment Protocol of EAC.On the other hand, USAID has also assisted SADC in the ratification and implementation process for the SADC trade Protocol. UNCTAD has provided technical assistance for the Trade Negotiation Forum process devoted to the preparation of the SADC trade liberalization program leading to the formation of the desired free trade area. Assistance has also been given to SADC by the Commonwealth Secretariat in such areasas development of a regional industrial policy.6.0 CONCLUSIONThis study has analysed characteristics and status of Tanzanias participation in regional trade protocols and its impact on international trade. It also explains the rationale for Tanzania to join regional trade protocols, level of participation and performance in internationa l trade. The study also highlighted issues affecting the performance of Tanzania in international trade.The study found that although Tanzania participates in many regional trade protocols, they have had little impact on Tanzanias participation in international trade. For example, majority of regional trade protocols in which Tanzania is involved had little participation of key actors because of poor participation of the private sector. Another factor is lack of proper trade policy.Other factors that affect the impact of regional trade protocols on the performance of Tanzania in international trade include poor administration of trade negotiations and agreements, lack of a centralized mechanism to monitor, follow-up nor appraise the performance of Tanzania in regional trade protocols, and four-fold handling of international trade issues by different departments/ministries which make it difficult.Another factor that hinder effective participation of Tanzania in regional trade protoc ols and hence, poor performance in international trade is lack of capacity and awareness of negotiation skills among representatives of Tanzania is regional trade protocols. Due to poor negotiation skills, Tanzania has failed to take advantage of opportunities that arise from international trade.Despite the fact that Tanzania is interested in regional trade protocols, pursuances of such interests are not linked to the objective of widening market access. Often, negotiators adopt a pre-emptive approach to negotiation devising the whole strategy less flexible. In addition, the interests of Tanzania are actively negotiated but not actively agnise on the ground during negotiations.From the findings above, this study concludes that participation and performance of Tanzania is regional trade protocols has been poor due to various hindrances especially due to poor export capacity and lack of market access due to tint issues Hence, most of the regional trade protocols in which Tanzania h as participated have had little or little impact on international trade.7.0 RECOMMENDATIONSFrom the findings of the study, the following are recommendations madeTanzanian government should centralize issues related to regional trade protocols so as to enhance the positive impact of the trade protocols on international trade.The government should kindle public debate and discussion in the area of internationaltrade protocols.The government should intervene by offering training on negotiation skills so as to improve the performance of Tanzania in international trade.The government in collaboration with stakeholders should take measures to increase production so as to increase the volume of exports and hence, more participation in international trade.Regional trade protocols have high impact on attracting FDI, thus, the government should follow up on regional trade protocols for investment opportunities.