Is Trade a Fair or Free Concept?

By Dr. Robert Darko Osei

Citing seminal figures in economics such as Adam Smith and David Ricardo, Dr. Robert Osei reiterates the essence of trade being tied to productivity and specialization. In simple terms: trade has the potential to make a country produce more and do so in more sophisticated ways.

The reason is simple: where the ability to trade is not constrained the geographical extent of the country does not matter very much: any surplus generated goes abroad. Nor does the country’s population have to worry that they cannot meet all their needs from within their own national boundaries: any deficits are met with produce from abroad. Thus the country can concentrate its resources – material and human- on those areas where it has a clear advantage.

In fact, it does not even matter too much that the country has a clear advantage in the production of some goods compared to its trading partner for trade to happen. So long as its trading partner can obtain relatively more in the common market by specializing in some product, it will still be worth its while not to produce everything internally and instead to buy certain goods from abroad. Ricardo formalized this in his ‘’Theory of Comparative Advantage’’.

Given the above logic, then, it is inconceivable that a nation could lose out in trade. The phenomenon is supposed to be a win-win situation in every case for both parties to any trade. Yet it is widely acknowledged that Africa has gained far less from trade than has most continents. Why is this so? Reading the above paragraph again shows that there are a number of conditions attached to the prospects of universal trade benefit, all of them connoted by the use of the word ‘’should’’. For instance where a country wishes to sell its output but has no desire to purchase anything from abroad, then clearly the ‘’symmetry of interests’’ is broken and the ensuing situation cannot be a ‘’win-win situation’’.

What the world has thus seen in this era is that not all countries have benefited equally from trade. Some countries have used various policies to appropriate more of the gains from trade. Typical examples are the indirect subsidies, tariffs, sanitary and ‘’phytosanitary’’ measures employed by the more developed countries under the guise of protecting domestic industries and jobs. Proponents of free markets have argued, and continue to argue, that the world as a whole will be the beneficiary if trade becomes freer. In particular developing countries will be able to participate more in the global market and reduce their dependence on handouts (foreign aid). This position is the converse of what Fair Trade proponents believe is the way to address a genuine concern. They believe in the use of ‘directed measures’ that will balance the relationship between developed and developing countries through, for instance, the use of price controls but on an international scale.

But there is reason to believe that Fair Trade logic is at best partial. What about trade between African countries themselves that is just as stunted as trade between Africa and the West? Is this situation too one to be addressed by the use of fair trade premiums and price certification?
By the end of the course Dr. Osei competently addressed the following questions.

· Will Developed Countries be net losers if they allowed freer trade?

· Is the ‘second-best’ solution for developing countries some form of protection for their domestic industries?

·Is ‘fair trade’ a solution for unfair trade practices?

Please see Dr. Osei’s power point presentation here. Express permission for citing any of Dr. Osei’S works should be sought from Franklin Cudjoe franklin@imanighana.org Editor, African Liberty & Executive Director, IMANI.