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We are in the era of Globalisation, a process that facilitates the integration of all economic activity into a global market place (Guttal, 2007). One of the main tenets of globalisation therefore is the practice of free trade. Free trade is defined as the import and export of goods and services without tariffs or quotas being imposed (Kishtainy et al., 2012). Many have argued that free trade makes economies competitive through the development of industries, creation of jobs and the reduction of poverty; and allows countries to benefit from their comparative advantages (Birdsall, n.d.; Streeten, 2001; Woods, 2014).
In spite of its many benefits, free trade is seen as a liberal approach, often practised by wealthy liberal countries in the global north and is advantageous to their goal of economic liberalisation (Goldstein & Pevehouse, 2014). The question we must therefore ask is, is free trade beneficial to developing countries? The answer unfortunately is no.
In the developed world, free trade among liberal states, particularly the United States (US), has allowed them to increase their economic gains exponentially, which they have done by exploiting their comparative advantages (Dunn, 2009).
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However, less developed and developing countries find it difficult to do so. Their comparative advantages are minimal to non-existent in comparison to advanced nations, and they have often times been hindered by rules and regulations enforced by the World Trade Organization (WTO), of which many are members. The organisation’s aim is to ensure stability within the global trade markets by lowering trade barriers, which guarantee trade rights among its members and results in transparent and predictable trade policies that benefit everyone (WTO, n.d.).
Lowering trade barriers is beneficial to countries with greater comparative advantages, since it allows them to produce more and flood global markets with their goods and services and sell them at relatively cheaper prices when compared to developing nations, whose costs of production limit their chances of doing so. Developing countries are then faced with the repercussions of lowered trade barriers like in the case of the Jamaican dairy industry in the early 1990s. Due to a removal of tariffs on imported milk, Jamaica’s economy was inundated with cheaper imported milk powder that ultimately led to the destruction of the local dairy industry because dairy farmers could not compete with the foreign imports (Rendleman, 2011). Higher costs of production for local businesses in developing countries therefore limit their chances of successfully participating in free trade, since they are unable to build viable industries that can compete with advanced nations.
Secondly, free trade is seen as relatively one-sided, since developed nations benefit greatly from trade liberalisation and developing countries very little. Free Trade Agreements (FTAs) are common between industrialised and developing countries, and have resulted in the implementation of lowered trade barriers, particularly the eradication of tariffs. In spite of this, many developed countries have utilised Technical Barriers to Trade (TBT) to regulate markets (Anyanwu, n.d.). According to the WTO, TBT are non-discriminatory and are not obstacles for trade, they are used to ensure that technical regulations and standards are maintained (WTO, n.d.). However, critics have argued that TBT have in fact led to the discrimination against less technologically advanced countries, like those in Africa and the Caribbean, since they often lack the Trade-Related Capacity to implement the technical requirements to export their products, particularly for food items which require product weight, size and nutritional labelling, which can be refused at points of entry should products be noncompliant (Anyanwu, n.d.). The use of TBT by developed nations can therefore be seen as a nonreciprocal response to free trade since they have been used to discriminate against developing nations’ exports, discouraging their importation in favour of developed nations’ local products. These restrictions can therefore limit developing nations’ economic gains since trading partners from developed countries will be less likely to buy their goods.
Thirdly, although free trade presumes that developing countries would experience increased income gains if they reduce their trade barriers and would collectively experience large income advantages if rich countries removed barriers to their exports (Hunter-Wade, 2005), one may argue that trade liberalisation has been proliferated in order to maintain First World economic hegemony. Through the establishment of the WTO, developed countries, particularly the US, have realised their goals of lower tariffs and freer trade (Frieden and Lake, 2003). In doing so, they have maintained colonial practices, which relegate developing nations in Africa, Latin America and the Caribbean to being commodity exporters – raw materials (Birdsall, 2006), ensuring the retention of the metropole-periphery economic structure, while simultaneously creating a market for their expensive finished goods (Nnamdi, n.d.). Liberalised trade markets support countries with human and financial capital and entrepreneurial skills (Birdsall, 2006) which are most often First World countries. The WTO, a tool of the developed nations, remains an active force for trade liberalisation, where regulations often favour the First World, since they turn a blind eye to advanced countries subsidising their agricultural sectors, which creates a surplus of produce that is sold in foreign markets, and reduces the need for foreign imports, resulting in trade barriers being created (Freiden and Lake, 2003). With the success of free trade, developed countries are experiencing more competition from emerging economies and have therefore begun to enforce protectionist measures, like nontariff barriers (NTB) to ensure their markets and local industries are safeguarded, while at the same time threatening the free trade of goods from developing nations (International Relations, 2014).
Free trade, for all of its advantages in increasing economic growth, the development of industries and the reduction of poverty, has in fact only benefited developed countries. The global market favours wealthier nations and free trade has delayed the building of developing nations’ comparative advantages to compete in a liberalised global economy. WTO regulations and practices have been a major enforcement tool for free trade, which has elevated the influence of First World countries in the global economy. This has ultimately been unbeneficial to the developing world.
Free Trade And Its Role In The Economic Development In The Usa. (2024, Feb 03). Retrieved from https://studymoose.com/free-trade-and-its-role-in-the-economic-development-in-the-usa-essay
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