International trade and sustainable development

Every economy in the world is involved, to a greater or lesser extent, in international trade. Trade, and the competitive pressures it creates, can help improve the productivity of natural and human resources, particularly land and labor, and the efficiency of local production, generating employment and income. According to the United Nations Conference on Trade and Development (UNCTAD), “trade remains the most reliable and productive way of integrating into the global economy and of supporting the efforts of poorer countries to become less aid dependent”[2].

The experience of countries that have successfully used trade to achieve and sustain high rates of economic growth over a long period illustrates the high potential pay-offs to pursuit of a trade-oriented development strategy that exploits international trade and investment opportunities. In today’s highly integrated world economy where value chains span many countries, the level of trade-related transactions and operating costs is a major determinant of the ability of the most efficient firms to expand their market share. High trade costs increase what firms have to pay for critical inputs of goods and services and decrease the returns they obtain from engaging in exports. Indeed, high trade costs may simply bar productive firms from trading at all, thus precluding them from leveraging the opportunities that are offered by world markets[3].

How Trade Market Works, Hoekman, 2016

WTO, 2018

In the past several decades, however, many developing countries witnessed that trade growth contributed to aggregate economic growth, and also increased the within-country income inequality.

Historically, market access conditions in international markets were determined by the level of tariffs on imported products. However, tariff barriers have fallen significantly across countries: the trade-weighted average tariff rate in the world fell from just over 5% in 1995 to 2.5% in 2014-2015. Against the trends of falling tariffs, the influence of NTMs (non-tariff measures) upon trade costs has increased. In 2014, around 70% of agricultural products traded in the world market faced sanitary and phytosanitary (SPS) measures, and over 60% of manufactured products faced technical barriers to trade (TBT), such as technical regulations and product standards.

Because the vast majority of NTMs directly target key determinants of sustainable development, such as food security, health and environmental protection, countries are likely to implement more such measures for the achievement of the SDGs. That is, the number of NTMs in world trade may be increasing fast.

There are numerous evidences that free trade and low barriers to trade contribute hugely to economic development of the developing world. It has two type of impact, short and long term. In some cases of barriers such as subsidies may have short term positive impact, but in longer term it is inefficient resource allocation and at the end not all the potential of the country is used. In terms of import barriers, the lower barrier will right away impact internal prices, which will directly affect economic welfare, in other hand the exports of developing country will not have import duties elsewhere thus high amount of export money will flow into the country.

  Usually tariffs are two sided inefficiencies, e.g. if one country has an import duty for certain product, the other country will have another tariff for another product that is imported from the first country. Free trade will attract a lot of foreign direct investment, which will change the quality of economic activity and create extra jobs. There is other important evidence that free trade creates better competition and even local monopolies are destructed. We all know that monopolies create income distribution problems, so the free trade will have also direct impact on income distribution by creating more businesses instead of one big monopoly.

In most cases the other part of the trade is developed countries, who have the understanding, ability to handle the issue of free trade. Developed countries spend huge amount of money to help others to develop, but apparently it is not enough so there is a need for more cooperation and more coordination.

Organizations involved

WTO (World Trade Organization) - an intergovernmental organization that regulates international trade.

UNCTAD (United Nations Conference on Trade and Development) - the part of the United Nations Secretariat dealing with trade, investment, and development issues.

G20 (Group of Twenty) - is an international forum for the governments and central bank governors from Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States.

G7 (Group of Seven) - is a group consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. These countries have the largest advanced economies in the world.

World Bank - is an international financial institution that provides loans to countries of the world for capital projects.

OECD (the Organization for Economic Co-operation and Development) - an intergovernmental economic organization with 36 member countries, founded in 1961 to stimulate economic progress and world trade.

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