Trading is one of the pivotal ways of growing a country’s economy and generally ending global poverty. Most countries that are participants in the international trade tend to grow technologically, and socially, with an improved productivity and opportunity for its people. When a country practice open trade, lower-income household tend to benefit as it offers customers more affordable goods and services.
Integrating with the global economy through trade and global value chain help drives economic growth and increase wealth, allowing a win – win game from the countries involved. Foreign trade is known as the oldest and vital part of a country’s external economic relationship. Its influence on growth and development of countries all over the world as greatly increased as significantly contributed to the advancement of the world’s economy.
The Nigerian government basically considers foreign trade as its main engine of its development and strategies, because of the idea that trade can create jobs, expand markets, increase incomes, ease up competition and transfer technical-how.
However, despite the growth and benefits trade partnership provides, there’s no guarantee that it aggregate benefit are equally distributed among trading partners. In any trading relationship, there are winners and losers. Although, trading partners may gain, but in differing degrees. Many factors determine the extent to which a country may benefit from a trading relationship.
There are some factors that determine the extent to which a country may benefit from a trading relationship which includes.
1. Terms of trade
This refers to the rate at which the goods of one country exchange for that of another country. It is expressed as the relation between export prices and import prices of goods. In other words, When the export price of a country rises relative to it import price, it terms of trade will be high and vice versa.
2. The market characteristics of the country’s exportable goods.
A country which exports mainly primary products has unfavourable terms of trade. Consequently, its gain from trade will be smaller. On the contrary, a country exporting manufactured goods has favourable terms of trade and its gain from trade will be larger.
3. Level of Income
A country whose goods are in high demand in other countries will attract more level of income. If the demand for its exports is high, it exports industries will expand. And as a result, the level of money wages will rise in these industries. Which eventually still determines the amount of benefits the country will reap from any trade partnership.
4. Technological condition.
A country which is technologically sound and with an abundance of capital, its volume of foreign trade and international gains from its trade partnership will be large. On the other hand, if a country is technologically backward with abundant labour, its volume of foreign trade will be small and so will be its gain from trade.
This has been the experience of Nigeria since the post-colonial era, though the composition of trade has changed over the years. Foreign trade has been an area of interest to decision makers, policy makers as well as economists. Over the past decades, the economies of the world have become connected through international trade and globalization.
TRADE POLICIES
Nigeria basically has a bilateral trade agreement with about thirty-one countries. The country also has double tax treaties with thirteen countries and is a signatory to twenty-one investment-related instruments.
In 2000, Nigeria and the United States signed a Trade and Investment Framework Agreement (TIFA). This agreement provides for dialogue on improving and enhancing trade and investment opportunities between the two countries.
Now, from our understanding on how benefits from foreign trade partnership defers, where one country tends to gain more than the other country in a trade partnership, especially in a bilateral trade partnership. Apart from the huge gains from petroleum exports Nigeria enjoys in the bilateral trade agreement, the U.S still gains higher based on the terms of agreement, economic and technical difference between them.
Every trade agreement has it pros and cons in the partnership, but when the cons outweigh it pros it tends to be unfavourable. Like in the case of a bilateral agreement between advanced countries and developing countries. Any trade agreement will cause less successful companies to go out of business. They can't compete with a more powerful industry in the foreign country. When protective tariffs are removed, they lose their price advantage. As they go out of business, workers lose jobs.
A Multilateral trade policy on the other hand, entails a trade partnership agreement between two or more countries. The agreements reduce tariffs and makes it easier for businesses to import and export. However, it quite challenging to solidify or negotiate a multilateral agreement as it includes two or more countries simply because of the complexities of each country. Multilateral trade agreements strengthen the global economy by making developing countries competitive. A multilateral trade policy is the best trade policy for developing countries like most of the African nation Multilateral agreements make all signatories treat each other equally. No country can give better trade deals to one country than it does to another. That levels the playing field. It's especially critical for emerging market countries. Many of them are smaller in size, making them less competitive. It also increases trade for every participant. Their companies enjoy low tariffs, making their exports cheaper.
As far as countries in Africa are concerned, multilateral trade policies are more profitable than bilateral trade policies. Because bilateral trade agreements tend to favour the countries with the best economy like the U.S and the European nations. It positions the weaker nation at a disadvantage.
One of the major advantages of a bilateral trade policy over a multilateral policy is it ease in negotiation. However, a successful multilateral investment deal opens doors to economic prosperity for developing countries.
Nigeria is beginning to committee herself to diversifying her economy from crude oil dependence, which accounts for 90% of the country’s exports. Nigeria strives to build its agricultural, mining and manufacturing sectors, especially in the automotive assembly, cement, textile, and clothing sectors. This led to negotiations of some effective foreign trade agreements to grow these sectors and increase gross domestic profit. And recently, Nigeria signed the African Continental Free Trade Area Agreement (AFCFTA) in July 2019 and ratified the agreement in December 2020. When fully implemented, the AFCFTA will require member countries to remove tariffs from 90% of goods, allowing free access to commodities, goods, and services across the African continent.
Finally, international trades are inevitably the driving force of all nations around the world. The best nations grow their economy through favourable systems of trading policies and that should be the blueprint developing countries should consider adopting; by transcending from bilateral systems to multilateral trade policies.
