Microtrade

Microtrade (미소무역/微小貿易) is defined as international trade of small quantities of locally produced products (LPPs) produced on a small scale, as an alternative way to provide those living in least-developed countries (LDCs) with income sufficient to reduce or eliminate poverty. Microtrade, unlike the export-driven development policies undertaken at a national level, is not based on the development of large-scale export industries, which cannot be initiated by many LDCs. This article provides a discussion of the theoretical basis of microtrade and its regulatory framework from the perspective of international trade law.

Key words
microtrade, poverty, LDC, microfinance, locally produced products

Poverty to overcome
Poverty remains a serious global issue, and nearly half of the world’'s populations are still living below the poverty line.

International trade has been a vehicle for successful economic development for some developing economies in East Asia, including South Korea, Taiwan, Hong Kong, Singapore, and more recently, China. With the success of their trade-based economic development policies and the export-driven development strategy, all of these countries escaped from poverty.

Can other developing countries duplicate this success and also bring their populations out of poverty?

Some factors, including political stability, organized government support, educated workforce, availability of foreign markets, and financial resources such as foreign loans, have been considered essential for the success of this export-driven economic development strategy. These factors are not present in many developing countries, particularly LDCs, thus making it difficult for them to pursue successful trade-based development policies to break the circle of poverty.

Huddles to Economic development
There are a number of difficulties with promoting economic development in LDCs. 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 rate and education level, 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 deterrent to economic development.

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 those countries, despite the 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.

The East Asian countries have moved beyond poverty by successfully undertaking a series of export-oriented economic development initiatives, which included promoting large-scale export industries. Contribution of international trade to economic development and the role of government in successful development cases have been widely studied and well documented.

Microtrade as an alternative for LDCs
Microtrade will be an alternative approach to reduce or eliminate poverty where an LDC economy is not supported by a well-functioning government and effective administrative assistance, and where the private sector as a whole does not function to make economic progress. Microtrade will be essentially a local initiative which uses the mechanism of international trade but will not require large-scale industrial initiatives promoted by the East Asian countries in their rapid development periods.

The essence of this new approach is to enable LDCs residents to export locally-produced products (LPPs) to the more affluent markets of developed countries and thereby generate levels of income that will be beyond the poverty level. The distinction between microtrade and conventional trade lies in the use of the price difference as described below, rather than the economies of scale, which require mass production capacities that many LDCs lack and cannot obtain in the near future.

Financing and Production
Those in LDCs who are interested in producing LPPs for microtrade may not be able to do so because they do not even have the small amount of resources required to produce LPPs or sufficient credit or assets to borrow from commercial lenders. Microcredit, devised by the 2006 Nobel Laureate Muhammad Yunus, has attained considerable success in providing small capital to those in developing countries who cannot otherwise borrow from commercial lenders.

Alternative credit devices such as microcredit can provide financial assistance for the production of LPPs and perhaps for the other steps of microtrade as well. Governments that have available capital can also provide financial support for microtrade in the form of grants and other subsidies. Lenders can help LPP producers by advancing money to the local LDC producer on credit of the buyer who places an order and agrees to pay the lender and subsequently collecting money from the buyer.

As LPPs are likely to be labor-intensive rather than capital-intensive, microtrade will be an ideal venture for small capital lending available by financial devices such as microfinance. The aim of this lending will be to enable those in LDCs with limited capital resources to gain maximum benefit from microtrade. As mentioned, small, portable products that can be produced with simple tools and relatively brief training will be ideal for financing. However, products that require considerable skills and production techniques, such as sophisticated tapestries and art pieces, can also be good LPP candidates for microtrade where local residents already have the necessary skills to produce them. Where possible, governments, NGOs, and international organizations can help train local residents in LDCs to produce LPPs that can attract consumers in the markets of developed countries.

Regulatorty issues
Regulatory issues will also be important for the facilitation and promotion of microtrade.

The proposed preferential treatment in favor of microtrade may be authorized under the existing exceptions to the MFN requirement of WTO disciplines, such as GSP schemes. Furthermore, imposing affirmative obligations on developed countries to facilitate microtrade can also be considered in the context of SDT provisions in WTO disciplines, including the proposed WTO Agreement on Development Facilitation.

A newly proposed institutional apparatus in the WTO, the Council for Trade and Development, can also be devised to facilitate and promote microtrade in cooperation with the proposed microtrade organization. Indeed, the current environment in international trade shows considerable emphasis on development, as reflected in the Doha Development Agenda (DDA), and it is also hoped that support can be found for microtrade in this new environment.