Thomson Ayodele : Trade Liberalization and Trade barriers

Inhabitants of the world today live in the age of material prosperity. Yet multilateral trading system largely responsible for the creation of this wealth and prosperity is increasingly under threat. It is quite puzzling, considering the increase in the well-being of greater percentage of world population, why protests against economic meetings are so vehement and clearly well-accepted by so many. Trade meetings are disrupted by protesters who are " armed" with stones, cudgel and placards. Their trademark is violence. They smash windows, burn cars, cause commotion and harass security officials.

From the World Trade Organization (WTO) Meeting in Seattle, the United States, to the International Monetary Fund (IMF) Meeting in Prague, Poland, the European Union (EU) Meeting in Gothenburg, Sweden, the World Economic Forum in Durban, South Africa, and the G8 Summit in Genoa, Italy, protesters made their presence felt. Now with the gruesome attack on the World Trade Center in New York, the heart of global financial system, it is crystal clear that anti-trading force is gathering momentum. However, should the threat continue this could lead to a serious backlash against the international economy.

Back home in Nigeria, anti-WTO groups, led by trade unions and a handful of lawmakers, are rising. They are hostile to multilateral enterprises, freedom of cross-border trade and capital flow, and idea of a market oriented economy. Hence they are bent on Nigeria’s reverting to illiberal forms of trade protection. Some members of the House of Representatives have publicly maintained Nigeria membership of the WTO must be reviewed. They believe the WTO tenets kill local industry while at the same time encourage economic imperialism.

Honourable Adamu Mohammed, a member of the House Committee on Commerce and Industry (the committee saddled with the responsibility of assessing Nigeria’s gain or otherwise from the body) has this to say: "WTO is a neo-colonialist organization that does not want the developing world to catch up with the industrial nations. The level playing field that goes with liberalization injures the local economy." Mohammed is simply just either being economical with the truth or does not have some facts and data at his disposal. Contrary to what he holds tenaciously, developing nations with genuine passion for integration through trade have accelerated growth and development which inadvertently result in poverty rate reduction.

One of the striking features of developing countries that embrace trade liberalization is the acceleration of growth while at the same time on the road to catch up with the rich countries. Countries that chose to pursue inward-looking policies are on the bottom rung of the economic ladder. Developing countries that espoused trade liberalization have had large increase in trade: 104 percent, compared to 71 percent for rich countries. Trade liberalized countries have experienced growth rate from 1.4 percent in the 60s to 2.9 percent in the 70s, 3.5 percent in the 80s and 5.0 percent in the 90s. Developing nations that failed to pursue trade liberalization had a decline in the average growth rate from 3.3 percent per year to 0.8 percent in the 80s and 1.4 percent in the 90s.

A brief summary of economic performance in some countries will also be instructive here. The liberalization policy vigorously embarked upon by Mauritius has strengthened its economy. The economy which once relied on sugarcane has transformed into one that is resilient and more diversified. Chile has strong markets, and its impressive economic performance over the past 10 years has been fostered by decades of consistent trade liberalization policies, political stability and a strong commitment to democratic institutions. Today it is quite easy for manufacturers across the world and retailers as well to do business in Chile. For five decades, New Zealand pursued an economic policy of protectionism. The New Zealanders were worse off. Between 1984 and 1999, the economy was restructured thus transforming it into a open globally competitive economy that is both increasingly modern and technologically advanced. The economy growth in New Zealand has raised real incomes and amplified the industrial sector’s technological capacity and the sound monetary policy has consistently held down inflation.

As a result of the piteous state of domestic industries trade liberalization is blamed for developments in which it played no part and which its embrace might have helped to mitigate or prevent. Admittedly, domestic industries performance has deteriorated, but this cannot be attributed to Nigeria’s membership of WTO. Rather it is attributable to lots of factors: Agriculture, the mainstay of the economy before oil, which ought to have provided the backbone for the local industries is largely neglected. Farmers cannot easily get loans from banks. Raw materials are not locally available for these industries to produce. When they manage to produce it is usually at a huge cost. The basic infrastructure is in tatters. The business environment lacks transparency. Industries are shut down due to inter-ethnic conflicts and religious crises. Corruption is rife and there has been considerable backsliding in institutional quality.

But let us hear Honourable Hamisu Shira also of the House Committee on Industry: "Local industries are not finding it easy because of our participation in WTO." However, given the above prevailing conditions, can the local industries find it easy? It will in fact require superhuman feat to make the local industries find their level. With these apparent problems, one would have expected the likes of Mohammed and Shira to clearly pursue the path of reviving the agriculture sector, to initiate Bills that will make it easy for farmers to get loans and make the clime more conducive for local industries to thrive.


Critics of Nigeria’s membership in the WTO seek to protect the local industries. This is based on the erroneous belief that without protecting the domestic manufacturing base there will be no economy left and consumers will be at the mercy of foreign companies. Trade liberalization instills competition and implicitly it favours the consumers because of low prices. Obviously some local manufacturer may be affected, but this will help them to innovate and find ways of improving their productivity to meet this challenge.

Pro-protectionism ought to have learnt from past experience. Protection of domestic industries was a deliberate policy in the 70s till mid 80s. Ironically, all the goods that were banned from entering Nigeria’s shores "mysteriously" found their ways into local markets. While the smugglers were smiling to their respective banks, government deprived itself of getting the necessary tariff.

We should prepare the domestic industries for competition. Competition needs not be portrayed as something to be avoided. We do that clearly at our own peril. Industries can only grow when it is certain there are other competitors out there striving for the same market. When this happens, innovation and standard products will be paramount in order to get their market share. Erecting unwarranted barriers in the name of protection will further prevent the domestic industries to brace up for the challenges ahead in the 21st Century. The unbridled clamour to protect the local industries will ultimately be seen for what it is: a pernicious policy that inhibits industrial and economic growth.

Thompson Ayodele is of the Institute of Public Policy Analysis in Lagos.

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