Unfair trade

You probably know what fair trade is. But what about unfair trade? Unfair trade is an important reason why aid often doesn't work. Trade barriers keep poor countries poor. According to The World Bank, the case for trade openness leading to growth is strong and barriers need to be reduced so that trade can bring new opportunities to the extreme poor

The US-based think tank Global Financial Integrity has analysed all the financial resources transferred between rich and poor countries. These include:

• Foreign aid
• Foreign investments
• Trade flows
• Debt cancellation
• Capital flight
• Interest rates
• Extraction of profits (e.g. profits BP extracts from Nigeria’s oil reserves)
• Fraud

The biggest chunk of these outflows are from fraud and illegal capital flight and invoicing practices such as trade misinvoicing, same-invoice faking, and  shifting profits illegally.

All put together, these financial transfers make up a 24-fold disadvantage for developing countries. In other words, for every $1 of aid that developing countries receive, they lose $24 in net outflows.

“What this means is that the usual development narrative has it backwards. Aid is effectively flowing in reverse. Rich countries aren’t developing poor countries; poor countries are developing rich ones”.

- The Guardian, 14 January 2017: “Aid in reverse: how poor countries develop rich countries”.

An unrealized potential for fair trade

Trade has the potential to be a powerful catalyst for human and economic development. However, the potential remains unrealized due in large part to unfair trade rules. The world’s highest trade barriers are erected against some of the poorest countries.

Developing countries lost $16.3 trillion from 1980 to 2016 from fraud and financial transfers.

“We are asking for the opportunity to compete, to sell our goods in western markets. In short we want to trade our way out of poverty”.

- President Museveni of Uganda, 1999

According to The World Bank, reform of international trade rules could take 300 million people out of poverty. And a lot has in fact already happened. The participation of developing countries in global trade has increased significantly and in the 25 years between 1990 and 2015, the number of people living in extreme poverty was cut in half. To a large extent because of increased trade. But much more is needed to improve the lives of the billion people still living in extreme poverty.