Free Trade as an Anchor for Sustainable Development

By Dr. Sundjo Fabien & Dr. Sunjo Tata (Download pdf version)

Free Trade as an Anchor for Sustainable Development

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Executive Summary

Does trade enhance or jeopardize sustainable development? This brief answers this question by debunking the myth that protectionism is a driver of sustainable development. It then outlines the ways in which free trade can lead to sustainable development. This brief finds that free trade is a boon for GDP growth, value chains, and better productivity. It will equally lead countries to specialize and become more competitive. This brief pithily finds that free trade will anchor sustainable development if countries synchronize trade facilitation measures and lower non-tariff barriers such as indiscriminate checks at land borders.

Introduction

COVID-19 has reiterated the need for countries to advocate policies that will boost sustainable development and bolster their resilience to external shocks. In order for countries to develop sustainably, they must trade with each other. However, international trade has negative effects on the environment, but it is a prerequisite for economic growth. In order to alleviate poverty across the continent and boost standards of living for the average African, it is important to illustrate the links that exist between free trade and sustainable development. Free trade boosts welfare then rises when the surplus is exchanged for those it does not produce in sufficient quantity. Sustainable development is that development that meets the needs of the present without compromising the ability of future generations to meet their own needs (Shaker and Ross 2015).

The objective of this paper is to investigate the nexus between trade and sustainable development. Does trade enhance or jeopardize sustainable development? To answer this question, we shall first indicate the importance of trade,  debunk the myth that protectionism is a driver of sustainable development then present the nexus through which external free trade policy can lead to sustainable development before giving way forward.

The Importance of Sustainable Trade

Anti-Free trade advocates pose under the so-called infant industry argument to deny free trade policies. According to them, agreements that support free trade and lower tariffs hurt domestic infant industries, and this is what is referred to as the infant industry argument. The claim stipulates that infant industries need to be protected from foreign competition by the government, using tariffs and other taxes on foreign products, including investment by the government to protect infant industry from foreign invaders.

In effect, shying away from the competition using the infant industry argument will make them even more nascent, as evidenced by the fact that some continue to require additional years for infant industries to be mature. Trade openness is a sure path to make sub-Saharan African companies be competitive as competition will promote productive efficiency, thanks to the specialization mechanism, technology transfer, and exploitation of economies of scale. Better use of resources thought efficiency will stimulate economic growth and hence income, which can be used to acquire more skills and techniques that will make SSA countries more competitive.

Competition is, therefore, a stimulus for growth in itself. Trade openness causes greater competition between local and foreign suppliers. This causes the price of inputs to fall and gives local producers access to a bigger market. In addition, trade plays an important role in helping the environment since it serves as a channel for green technology transfer.

Protectionism as a Constraint to Sustainable Development  

In the context of globalization, protection cannot propel the attainment of the UN Sustainable Development Goals. In an increasingly turbulent world, there have been growing criticisms of free trade and globalization in favor of protectionism as a number of countries embarked on increasing tariffs and trade barriers. The rise in protectionism in recent times is traced following the 2008-2009 global economic recession. According to Généreux (2017), ‘several trade restriction measures were implemented, which may be tariff-based, but are frequently regulatory.’ The rise in protectionism became more conspicuous, particularly with the coming of Donald Trump as the President of the United States of America.

With regard to the African continent, the economies of its countries have lagged behind largely due to the limited trade and movement of people and ideas among these countries. It is in recognizing the importance of free trade that the African Union came up with the Continental Free Trade Area Agreement, which entered into force on May 30, 2019. Prior to this, what existed amongst member states were more bilateral and multilateral linkages, especially amongst countries with common linguistic, cultural and ethnic identities.

Free Trade Policy as a Contributor to SDG Attainment

After the implementation of bilateral and regional free trade zones and the creation of the World Trade Organization in 1995, trade accelerated. In the 1990s, about 30 free trade agreements were signed a year. The proportion of global GDP covered by free trade agreements went from just under 10% in 1980 to 25% in 2015. This trend shows that even though free trade, when poorly implemented, might disfavor some economies, it remains an important condition for the attainment of SDGs.

The importance of trade in the global economy is captured by Haugh et al. (2016, cited in Généreux (2017) when they note that “trade, and the related expansion of global value chains, boosts growth through increased productivity. This works by improving resource allocation, increasing scale and specialization, encouraging innovation activities, facilitating knowledge transfer, fostering the expansion of more productive firms and the exit of the least productive ones.”

Policy Implications

For a long time, Africa had practiced trade with the rest of the world, especially the West; however, this has not led to any meaningful development of African states due to the lack of sufficient and well-thought strategies to stimulate production and maximize trade gains. In the words of Nahanga (2017), an essential factor for trade policy to advance industrialization is the inevitable balancing between the promotion of relatively well-developed sectors and simultaneous protection and support infant or fragile sectors in economies in Africa. As a result, subsidies and technical support will boost nascent tech and energy sectors, which will improve the value of Cameroon’s exports and address social needs in a sustainable manner.

African countries should emancipate their regional and economic fragmentation to apply logical ‘rules of origin’ and lower tariff and non-tariff barriers.  For example, indiscriminate checks across land borders should be harmonized to address security risks whilst supporting trade across land borders.

By lowering the sulfur component of crude oil, Cameroon could lower its contribution to global carbon emissions. The International Maritime Organization has outlined the need to keep sulfur contents below 0.5% in order to reduce the pollutants that result from burning crude oil. This will not make free trade green but will lower the rate of pollution.

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