Why Selective Trade Liberalization Hurt the Global South

Collective assertiveness by developing countries in multilateral fora has mitigated some adverse consequences of international economic integration under Western auspices. Partial and uneven trade liberalization has constrained Global South industrialization. Recent deindustrialization has reduced manufacturing's share of national output in many developing countries. Little new manufacturing capacity has developed in Africa beyond some minimal import-substituting and resource-processing activities protected by high transport costs.

Economic concessions to developing countries, such as trade preferences, have been used to divide the Global South, including the "least developed countries" and "small island developing states," effectively weakening their collective negotiating strength.

Trade liberalization has also reduced tariff revenue, especially important for the poorest developing countries, where it often accounted for up to half of total tax collected. Additional taxes from consumption or income have never compensated for tariff revenue losses. This has undermined their already weak fiscal capacities, often requiring them to borrow even more.

Promoting food agriculture in supposedly "land-abundant" African countries was supposed to make them more food-secure and even export-competitive but there is no evidence this has happened. Developing nations have long unsuccessfully asked the Global North to eliminate agricultural subsidies, tariffs, and non-tariff import barriers that protect their output. This would make food production in developing countries more competitive. Rich countries have long insisted that developing countries must first "reciprocate," for example by eliminating their manufacturing tariffs.

Structural adjustment has also undermined agricultural infrastructure and smallholder productivity in many developing countries. Lower farm subsidies in Europe have raised many food import prices in the South.

Purported gains from trade liberalization are often either merely theoretical or one-time gains from static understandings of comparative advantage, with no cumulative potential. Claims of gains from trade liberalization presume internationally competitive productive and export capacities capable of generating a strong positive supply response. Such preconditions are unlikely in most developing countries, especially the poorest, and need to be developed, typically by protecting against external market pressures.

Most studies of realistically achievable outcomes of WTO Doha Round negotiations from 2001, including those for the World Bank, projected net losses for most developing economies, except for a few Asian economies. There is also no robust evidence of trade liberalization significantly reducing poverty and hunger. Developing countries, especially the poorest ones and those in sub-Saharan Africa, would be worse off.

Jomo asked why developing countries have to be bribed with "aid for trade" if it is in their own best interests to commit to trade liberalization, multilateral or otherwise. Trade liberalization has made sustainable development nearly impossible by significantly reducing policy options for aspiring developmental states, especially for trade, industrial, investment and technology policies.