The World Economic Forum is quickly approaching. It takes place once again in Davos, Switzerland and presents an opportunity for new trade relationships to be formed between countries.
When thinking about who will forge these deals, it’s common for the big players to come to mind: China, the US, Russia, the UK and Canada.
But the most interesting deals involve developing countries, because they tend to be newer to the trade scene.
More developing countries are signing on to trade deals, including free trade agreements that limit barriers to trade such as taxes and tariffs.
Economists are divided on the effects of trade deals, especially when it relates to the world’s poor. Some argue that it empowers those living in extreme poverty with new opportunities, while others argue it only deepens their hardship.
The argument against free trade agreements
Organizations including Oxfam and Alliance Sud have warned that free trade agreements are likely to have minimal benefits and enormous risks. Oxfam states that trade can be an engine for improving the lives of those living in extreme poverty, but not in the form of free trade agreements.
Oxfam and Alliance Sud both point to negative outcomes from the North American Free Trade Agreement, which is involves the US, Canada and Mexico. The agreement led to a reported 1.3 million job losses in Mexico’s agricultural sector leaving millions of families more vulnerable.
Alliance Sud also points out that NAFTA was structured in a way that harms Mexican companies. While companies in Canada and the US take advantage of favourable trade conditions, Mexican companies are barred because they do not meet certain criteria.
Free trade agreements also make it very difficult for signatories to protect fledgling industries and take other actions to help shape their own economies. They can also disrupt trade relationships that exist between developing countries. Alliance Sud points to an example of this when the US entered a trade agreement with Colombia. Suddenly, Bolivia found itself without a major buyer for its soybean crops.
The argument for free-trade
So, free trade agreements have some pretty big drawbacks for developing countries, but that doesn’t mean that all trade is bad. In fact, when structured the right way, trade has the potential to empower developing countries and their people.
Lifting millions of people out of poverty through fair trade agreements would be much more than a charitable thing for more powerful countries to consider. More favourable trade conditions that help lift people out of poverty mean more people worldwide with greater purchasing power.
Oxfam argues that trade deals should be negotiated in a way that is fair to developing countries and recognizes the unique challenges that they are facing. Oxfam also suggests that essential items such as medicine not be included in these deals, to avoid creating a lack of access for people in developing countries. This is due to more stringent protections of intellectual property rights that make certain vital medicines inaccessible due to cost. The World Health Organization has written about the issue in depth.
What it all means
Free trade agreements create conditions that can be predatory to developing economies and haven’t been shown to provide substantial benefits in return.
But that doesn’t mean they’re inherently band. When crafted in a way that benefits both developed and developing countries, all parties can be winners.
Trade isn’t good or bad in itself. It depends on how it’s used, managed and negotiated. It can exacerbate or alleviate poverty.
So going forward, the world must make enact trade deals with poverty in mind.