Does Free Trade retard or advance the development in poor countries

Free trade and globalisation have become one of the debated issues or topics with reference to development especially that of poor countries. This essay takes into account free trade and the development of poor countries. It analyses some of the arguments in favour of and against free trade to conclude whether it helps to advance or retard the development of poor countries. It also gives some facts about the gap between rich and poor countries.
Globalisation according to Kaviraj (2004:140) refers to “the process of intensifying interdependence and emergence of networks of regular transaction between and across the borders of economies and states throughout the world”. Globalisation in this sense is the integration of states in terms of economy, politics, finance and others. Globalisation in this essay is considered with reference to trade and politics.
Free trade is the trade between two or more countries without any restrictions imposed by the governments or other regulators; thus the free movement of goods and services across national frontiers (O’Brien and Williams, 2007:139; Vander Weyer, 2005:24). It leads to the liberalisation of the markets of countries through the removal of tariffs, quotas and other form of barriers to allow the free flow of products beyond national frontiers.
The disparity between rich and poor countries today is very pathetic and there is the need to reduce this disparity. According to the World Bank (2000:232-33), the Gross National Income of poor countries was between US$500 and US$800 inclusive while that of the developed countries ranged from US$23,000 to US$34,260. Also, 2.1 billion people in poor countries live on less than US$2 and 880 million on less than US$1 a day (ibid, 2008:1) but this is different in developed countries like US and UK where most people can afford the basic necessities of life. Free trade is considered as one of the tools for development in poor countries (Bhagwati, 2004).
According to WTO (2002a; cited in Mackintosh, 2004:46 ), “The economic case for an open trading system based upon multilaterally agreed rules is simple enough, and rests largely upon commercial common sense… According to the principle of comparative advantage, countries A and B still stand to benefit from trading with each other even if A is better than B at making everything”.
The theoretical catalyst driving free trade has been the Comparative Advantage developed by David Ricardo in the 19th century. According to this theory countries engaged in free trade tend to benefit based on specialisation on production of the products they produce at the least cost. He, Bhagwati (2004) and other liberal political economist see free trade as a positive-sum and not a zero-sum outcome. Some of the benefits of free trade include increase in export and import as a result of the reduction in or removal of tariffs, increase in competition from abroad to the domestic market which will increase efficiency and cut cost thereby preventing domestic monopolies from charging high prices. It also brings about investment due to the importation of goods from other countries and this brings about revenue into the economy. In poorer countries, the only provider of public and merit goods like health care is the government which is the main political unit in a country. The government can translate this improvement in revenue into investment in these merit goods raising the level and access to healthcare, raising social standards. For countries to benefit from free trade there should therefore be rules and regulations governing how trade should be conducted. This is what the WTO claims to do;
“The world Trade Organisation (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters and importers conduct their business”. (WTO, 2002b; cited in Mackintosh, 2004: 69).
Majority of WTO’s members are from these poor countries according to the Doha Ministerial Declaration of 2001, which emphasizes how important the development of these poor countries is at the heart of the organisation. It seeks to ensure that these poor countries benefit from trade globalisation and secure a fair share of growth (WTO, 2001: para. 2 & 3). Poor countries remain poorer and this is due to the difficulties the governments of these countries face in exporting their products to the developed world. As Bhattacharjea ( 2004: 14-17) argues the promises of benefits to governments of poor countries by WTO for joining the organisation remain illusory due to the loopholes in the rules that govern it.
The World Bank (2008) prescribes the concentration of government efforts in the agricultural sector, which is a key area for development in poor or developing countries. The governments of these poor states whose economy are mostly agriculturally based will be able to developed properly if they have equal access to the markets of the developed countries by exporting their agricultural goods which they possess comparative advantage. However, negotiations with reference to agricultural trade liberalisation have mostly ended up with no agreement but disappointments on the side of these poor countries. Agriculture trade liberalisation was a pivotal among the former countries during the 2001 Doha Ministerial Conference but no positive outcome was reached as the conference ended without their concern being addressed. As argued by O’Brien and Williams (2007:161) “The failure to make significant progress on the talks reflects both the continued weakness of developing countries and the veto power possessed by the EU and the United States in trade negotiations”.
Liberia had a GDP share of 76.9% in agriculture as at 2006 (O’Brien and Williams, 2007: 162) and if she is unable to have access to the markets of the rich countries, how would she develop based on its comparative advantage? As argued by Chang (2008:75) the “West” “tends to disproportionately protect products that poor countries exports, especially garments and textiles”.
Free trade retards the development of poor countries since they lack the necessary technological know-how and skills to compete with the developed world. Poor countries may be endowed with lot of natural resources and to benefit from them there is the need to add much value to these goods. Adding value to these resources promote them from their raw state to finished or semi-finished goods which will attract more capital than when they are exported in their natural states. Governments of poor countries judging from factor endowment theory may have a lot of land enriched with lot of natural resources and as a result should engage in the exportation of these natural resources where they have comparative advantage. Poor countries based on their level in terms of industrial and technological development are not equipped to enable them compete with the developed countries to benefit from free trade. Free trade like any other competition, favours the rich over the poor and the strong over the weak (Shaikh, 2005:43). This is due to the advancement and industrialised nature of the rich countries. For poor countries to enjoy the economies of scale in free trade, they should not be exposed to fierce competitive international market in their early stage of development but be allowed to develop their industries and technology. As argued by Chang (2008:66), ‘they need time to improve their capabilities by mastering advanced technologies and building effective organizations’.
Even the developed countries like UK, US and China were protective during the early stages of their development. They protected their manufacturing industries and other products that they had comparative advantage from external competition till they were well developed to compete with the external market.
According to Chang (2002:2), “the developed countries did not get where they are now through the policies and the institutions that they recommend to developing countries today. Most of them actively used ‘bad’ trade and industrial policies, such as infant industry protection and export subsidies – practices that these days are frowned upon, if not actively banned, by the WTO (World Trade Organisation)”
Liberia’s 76.9% GDP in agriculture would benefit Liberia if raw materials from this sector are transformed into finished products by industries in the country to be exported to gain more profit than they will gain in their raw state. This can be achieved when factories are shielded from fierce competition for sometime as was done in the case of the UK and the US.
Ivory Coast suffered massively from free trade when she clinched to it at its development stage in 1986 where her chemical, textile, shoe and automobile industries virtually collapsed due to the 40% tariff cuts. Unemployment rate in Zimbabwe in 1990 also increased from 10% to 20% as a result of trade liberalisation (Chang, 2008: 62).
In concluding, it can be argued from the above that free trade can help to advance poor countries development but not in their early stages of growth where they should be shielded from fierce competition. They should be left to compete when they are strong enough and at this stage also the rich should open up to them so that they can benefit from the benefits of free trade.

BIBLIOGRAPHY

 Bhattacharjea, A. (2004) ‘Playing by the Rules? Developing Countries in the World Trade Regime’, in Bromley, S., Mackintosh, M., Brown, W., and Wuyts, M. (ed.) A world of Whose Making? Making the International: Economic Interdependence and Political Order. London: Pluto Press, pp. 11-31

 Bhagwati, J. (2004) In Defense of Globalization. Oxford: Oxford University Press

 Chang, H.-J. (2002) Kicking Away the Ladder: Development Strategy in Historical Perspective, London: Anthem Press

 (2008) Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. New York: Bloomsbury Press.

 Kaviraj. S (2004) ‘The Politics of Liberalization in India’, in Bromley, S., Mackintosh, M., Brown, W., and Wuyts, M. (ed.) A world of Whose Making? Making the International: Economic Interdependence and Political Order. London: Pluto Press, pp.131-171

 Mackintosh, M. (2004) ‘Gaining from Trade?’, in Bromley, S., Mackintosh, M., Brown, W., and Wuyts, M. (ed.) A world of Whose Making? Making the International: Economic Interdependence and Political Order. London: Pluto Press, pp. 33-71

 O’Brien, R. and Williams, M. (eds.) (2007) Global Political Economy: Evolution and Dynamics. 2nd edition. Basingstoke: Palgrave.

 Shaikh, A. (2005) ‘The Economic Mythology of Neoliberalism’, in Saad-Filho, A. and Johnston, D. (ed.) Neoliberalism: A Critical Reader. London: Pluto Press, pp. 41-49

 Vander Weyer, M. (2005) ‘Can Free Trade Be Fair Trade?’ New Statesman (London, England: 1996), V. 134, pp. 22-25. WilsonWeb [Online]. Available at: http://vnweb.hwwilsonweb.com (Accessed: 10 February 2009).

 World Bank (2000) World Development Indicators 2000. Washington D.C: World Bank [Online] Available at http://www.worldbank.org/data/wdi2000/index.htm (Accessed: 26 March 2009)

 (2008) World Development Report: Agriculture for Development. [Online]. Available at: http://siteresources.worldbank.org/INTWDR2008/Resources/2795087-1192111580172/WDROver2008-ENG.pdf (Accessed: 27 March 2009)

 World Trade Organisation (2001) Doha WTO Ministerial 2001: Ministerial Declaration. [Online]. Available at: http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.pdf (Accessed: 18 March 2009)