Trade liberalisation is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. These barriers include tariffs, such as duties and surcharges, and non-tariff barriers, such as licensing rules, volume of goods that can be exchanged and expatriate quotas. After World War 2, which took place between 1939 to 1945, most especially, since 1950, in the world economy, we have witnessed a massive liberalisation of world trade, initially under the promotion of the General Agreement on Tariffs and Trade (GATT), established in 1947, and now under the support of the World Trade Organisation (WTO), which replaced GATT in 1993.
As a sign of improving trade between advanced countries’ economies, tariff levels in high-trade-volume developed countries have come down dramatically, and now average approximately four percent, except in countries where there are international sanctions and total severance of international relations. Coincidentally, tariff levels in developing countries have also been reduced, although they still remain relatively high, averaging 20 percent in the low-, and middle-, trade-volume countries. Non-tariff barriers to trade, such as volume quotas and items-fixation, licences and technical specifications, are also being gradually broken down, but rather more slowly than tariffs due to the direct relation of tariffs to income. Regional Trade Agreements (RTAs) are now very vogue in the form of Free Trade Zones (Areas) and Customs Unions.
Since 1948, seventy-six RTAs have been established or modified worldwide. These RTAs are listed by the WTO. The major ones are the European Union (EU); the North American Free Trade Area (NAFTA); Mercosur – covering Argentina, Brazil, Paraguay, Uruguay and Chile; APEC – covering countries in the Asia and Pacific region; ASEAN – covering South-East Asian countries, and SACU – covering countries in southern Africa. African Continental Free Trade Area (AfCFTA) was founded on 21st March, 2018. The AfCFTA objectives include to progressively eliminate tariffs on intra-Africa trade; making it easier for African businesses to trade within the continent and benefit from the growing African market. The AfCFTA is expected to expand the size of Africa’s economy to $29 trillion by 2050.
The liberalisation of trade between nations, a direct result of globalisation, has led to a massive expansion in the growth and development of world trade relative to world output. Globalisation is a variety of economic, cultural, social, and political changes that have shaped the world over the years. While world output (or GDP) has expanded fivefold, the volume of world trade has grown, at least, sixteen times at an average compound rate of just over seven percent per annum, according to Anthony P. Thirlwall of University of Kent at Canterbury in Economic Research Paper No. 63 titled “Trade, Trade Liberalisation and Economic Growth: Theory and Evidence”. In some individual countries, notably in South-East Asia, the growth of exports has exceeded ten percent per annum. Exports have tended to grow fastest in countries with more liberal trade regimes, and these countries have experienced the fastest growth in their GDP.
While countries in the western world are having higher export than import, it is not so for most countries in Africa which have lower export than import. Some countries have allowed their economies to become ‘dumping ground’ for consumable and capital goods. In “An Inquiry into the Nature and Causes of the Wealth of Nations” written by Adams Smith in 1776 and popularly called “The Wealth of Nations”, Adams Smith posited that “Mercantilism” or “Mercantilist Theory” held that wealth was fixed and finite. The only way to prosper was to hoard gold and place tariffs on products from abroad. According to this theory, nations should sell their goods to other countries while buying nothing in return. Adam Smith suggested countries should choke international trade by introducing high tariffs on imported goods to encourage local productions of goods and services and ensure surplus balance of trade.
Invariably, nations cannot survive for long as an ‘island’. Nature has made nations dependent on each other. Successful nations must look at the area where they have comparative advantages over others and exploit the areas for a favourable balance of trade. This phenomenon, called “trade war” has been going on for decades. A ‘trade war’ is an economic conflict often resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. A serious leader must not allow his country to be turned into a dumping ground and his industries become moribund. Yes, people must be able to exercise their freedom of right to eat what they like that money can buy, but the national economy should not suffer at the detriment of people’s choice to buy goods and services anywhere in the world. While nations are aiming to reduce importation, they should also aim to increase exportation to earn foreign exchange.
In the first trade transaction under AfCFTA, Kenya exported tea to Ghana in October, 2022. Ghana should either strive to export yam or gold to Kenya to have a good balance of trade or remain a trade-deficit-state to Kenya. While Donald Trump’s trade war, which started in July 2018 was because Trump did not like the trade deficit, the legal justification was a Section 301 investigation that found American companies were subject to unfair Chinese trade practices, intellectual property theft and forced technology transfer. Britain and other few European countries undertook the opium trade because of their chronic trade imbalance with China. There was tremendous demand in Europe for Chinese tea, silks, and porcelain pottery, but there was correspondingly lower demand in China for Europe’s manufactured goods and other trade items. African countries must desist from importing toothpick and furniture if they are serious about industrialising the region.
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com
