Trade agreements have yielded undeniable benefits for developed economies, including higher growth rates, better market access, and expansion of global value chains. However, several clauses and real-world case studies demonstrate how these deals frequently disadvantage low-income countries, often leading to harm rather than help. Developed nations and that too, mostly the United States have various mechanisms like the United Nations, IMF, WTO and World Bank to seduce the poorer nations with dole outs or reports on their ‘dream growth strategies or with institutional reforms’ or to cajole them into submission, and finally, grab their resources and if nothing works, change the regimes to get what they want through institutions like the CIA & earlier the USAID or the US Embassies in various parts of the world.
Of course, there are promising alternative strategies for poorer nations to foster prosperity outside conventional trade agreements.
Data: How Trade Deals Benefit Developed Nations
- According to BCG’s Trade Engagement Index, countries like the United States, Germany, and Japan possess the most extensive preferential trade access, enabling their companies to manufacture at lower costs and dominate global markets.[1]
- About two-thirds of estimated annual gains from eliminating all merchandise trade barriers, roughly $250 billion to $680 billion, would accrue to industrialized countries.[2]
- Foreign Direct Investment (FDI) trends reveal that developed economies receive the bulk of investment flows stemming from trade deals, amplifying their competitive advantage and reinforcing existing economic structures.[1]
- Rich countries also utilize trade deals to secure access to strategic sectors and advanced technology, further entrenching their lead over developing economies.[1]
Clauses That Favor Developed Nations
Tariff Escalation: Developed countries frequently implement tariff structures that increase with value addition. For example, raw coffee from Africa might enter Europe at low tariffs, but processed coffee incurs heavy import taxes, restricting industrial development in exporting countries.[2]
Restrictive Quotas and Subsidies: Agricultural subsidies in the US and EU make it impossible for developing countries to compete. High quotas ensure poor nations cannot export significant volumes beyond set limits.[2]
Intellectual Property Provisions: WTO’s TRIPS agreement demands high patent protection, which blocks affordable medicine access and technology transfer for poorer nations.[3]
Labor and Environmental Standards: Some agreements impose complex standards that poorer nations struggle to meet, effectively keeping their goods out of developed markets or increasing compliance costs.[4]
Dispute Resolution Mechanisms: Investor-state dispute settlement (ISDS) clauses often allow multinational corporations, mostly based in rich nations, to sue poor countries in international courts, further tilting the balance of power.[3]
Evidence: Trade Deals Harm Low-Income Countries
US Cotton Subsidies: American farm subsidies drove down cotton prices, with West African producers (Benin, Burkina Faso, Mali, Chad) losing billions in export revenues and facing rural poverty spikes.[5][2]
G20 Financial Barriers (2008-2010): 692 new trade barriers disproportionately hit poorer nations, with 40% of the global impact hurting the most vulnerable economies, costing 141 nations significant growth opportunities.[6]
Costa Rica and Asia: Poor countries like Costa Rica, Bangladesh, and Sri Lanka have suffered when free trade agreements forced domestic industries to compete with subsidized goods from richer countries, leading to layoffs, lower wages, or collapse of local businesses.[6]
Textile Sector Losses: OECD quotas and tariffs resulted in annual welfare losses of nearly $20 billion for developing countries, triple the losses from import restrictions on textiles and clothing.[7]
Alternative Pathways: How Poor Nations Can Prosper
We must consider the fact that Africa is rich in natural resources, right from diamonds to cocoa and yet, it is labelled a ‘dark continent’ and still remains in the category of LICs / LMICs. Same for most part of the world outside this block of these ‘bullying nations’ desperate to sign these ‘trap deals’. One should look at the press releases of the leaders from these countries after the trade deals are signed
Look at the data of the global GDP and global debt.
- The estimated global nominal GDP is about US $117.17 trillion.
- Total global debt (public + private) reached approximately US $251 trillion at end-2024, which is over 235 % of global GDP.
The western economic model has created at ‘debt fuelled’ economy and not a ‘demand driven & sustainable’ economies. These economic models are not sustainable. So, we have to move on from the theoretic economic models of the west and create a new ‘Distributed Growth Model’ that is demand based. (Ref: book; Your Vote is Not Enough, Dr. Rajendra Pratap Gupta, 2019).
Every LMIC must develop an economic model that suits its strengths and weaknesses. The model should be a decentralized one, that caters to the local community and provincial needs in a collaboration manner.
Domestic Priorities: Countries should focus on raising domestic productivity and income (GDP per capita). Then, creating an ecosystem that supports entrepreneurship.
German Mittelstand is a good model to look. (Reference: https://swarajyamag.com/economy/make-in-bharat-is-the-need-of-the-hour)
Plan for capital and improving financial markets to reduce reliance on external aid or unfair trade deals.[8]
Regional Economic Integration Forming regional blocs (like the African Continental Free Trade Area) empowers developing countries to negotiate better terms collectively, diversify economies, and build shared infrastructure.[9]
Strategic Protectionism: Temporary tariffs and subsidies to nurture infant industries—as South Korea successfully did—can help countries grow competitive sectors before opening to global competition.[9]
Promoting Remittances and Investment: Encouraging foreign remittances and direct investment outside trade deals can stimulate sustainable development.[8]
Strengthening S&D Provisions: Advocating for enhanced “Special and Differential Treatment” clauses at the WTO would provide low-income nations the policy space needed for long-term economic planning.[9]
Data and Knowledge Building: Investing in trade analytics and capacity-building empowers policymakers to make informed decisions, ensuring better negotiation and utilization of available trade frameworks.[10][4]
Developed countries reap an outsized share of trade deal gains, while clauses embedded within agreements often act as stumbling blocks for poorer nations. Real-world cases show that low-income countries can be harmed by unbalanced deals, but alternative steps—focusing on strategic internal development, strategic regional alliances, and selective protectionism—offer pathways to true prosperity. Equitable reforms to the global trade system are essential if trade is ever to fulfill its promise as a genuine engine of shared growth. For every developing country, the choice is between; Choosing a broken economic model or creating a robust development model!
Sources
[1] Economies Benefiting Most from Free Trade Agreements https://www.bcg.com/publications/2024/economies-benefiting-most-from-free-trade-agreements
[2] Global Trade Liberalization and the Developing Countries https://www.imf.org/external/np/exr/ib/2001/110801.htm
[3] Negotiating free-trade agreements: a guide https://www.oas.org/dsd/Tool-kit/Documentos/ModuleV/Goode%20Reading%20Chapter%203.pdf
[4] 5 ways to make global trade work for developing countries https://www.weforum.org/stories/2016/09/global-trade-developing-countries-unctad/
[5] Do Poor Countries Lose Out as a Result of Free Trade Agreements? https://www.ijraset.com/research-paper/do-poor-countries-lose-out-as-a-result-of-free-trade-agreements
[6] [PDF] The Detriments of Free Trade on Developing Countries https://theartsjournal.org/index.php/site/article/download/2131/1012/8724
[7] Trade and development https://en.wikipedia.org/wiki/Trade_and_development
[8] A Tale of Two Paths https://www.csis.org/analysis/tale-two-paths-0
[9] Alternatives to the Current Global Trade System and Regime https://www.tni.org/en/article/alternatives-to-the-current-global-trade-system-and-regime
[10] How countries are using better data to increase trade https://www.worldbank.org/en/news/feature/2019/06/27/how-countries-are-using-better-data-to-increase-trade
[11] International Trade: Commerce among Nations https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Trade
[12] Trade and Globalization https://ourworldindata.org/trade-and-globalization
[13] International (Global) Trade: Definition, Benefits, and … https://www.investopedia.com/insights/what-is-international-trade/
[14] Enabling clause https://en.wikipedia.org/wiki/Enabling_clause
[15] India–UK CETA https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=154945&ModuleId=3
[16] 6. The Status of Trade Preferences in WTO https://www.fao.org/4/y2732e/y2732e08.htm
[17] Globalization and the Benefits of Trade https://www.chicagofed.org/publications/chicago-fed-letter/2007/march-236
[18] Trade Agreements – Benefits, Types & Global Impact Guide – Zonos https://zonos.com/docs/guides/country-guides/trade-agreements
[19] The Impact of Trade on Inequality in Developing Countries https://www.kansascityfed.org/documents/7003/PavcnikPaper_JH2017.pdf
[20] Development Dialogues: How can emerging economies break … https://egc.yale.edu/news/241217/development-dialogues-how-can-emerging-economies-break-free-sidelines-global-trade
Dr. Rajendra Pratap Gupta played a key role in drafting the National Health Policy, National Education Policy, and ideated the Viksit Bharat Abhiyan. He is the former advisor to the Union Health Minister, Member of the NEP, and Member of the Khadi & Village Industries Commission. X.com/rajendragupta