Wealthier countries in Europe make extensive use of import taxes to make imported goods more expensive and protect domestic business. At the same time they cajole African countries to sign free trade agreements which prevent them from imposing import taxes on European products which puts local farmers in Africa out of business.
This means that there is double standard in how trade rules are applied and that global trade works to benefit rich countries at the expense of poorer countries.
This is according to an interesting DW documentary called ‘the deceptive promise of free trade’ which suggests that Free trade is not an effective tool for global development.
EU countries imposing tariffs
Wealthy countries such as Germany and Switzerland make extensive use of taxes on imported goods (tariffs) to increase their price and protect domestically produced goods and jobs.
China has one of the most efficient bike manufacturing factories in the world, and mass produces bike more cheaply than any other country, so Germany has put a tax on bikes imported from China so as to protect the German bike manufacturing industry.
It also does the same with bikes manufactured in countries close to China such as Cambodia as bike manufactures in such countries also benefit from cheap parts made China and can produce them almost as cheaply.
As a result of these import tariffs, companies manufacturing bikes in China are able to survive – NB they still import all the parts from China, but they assemble the parts in Germany – it’s only the finished bikes which have an import tax on them.
In contrast the United States which does has not historically taxed bikes manufactured in China has seen all of its American bike production companies go out of business.
Another example of tariffs being used to protect domestic producers is in Switzerland which has the highest wages in Europe – here food production would be unfeasible if it had no import taxes because wages are so much lower in other countries.
However, there is still food produced in Switzerland because of protective tariffs on some products. These are flexible – they are quite low most of the year but during harvest time they increase several times – as with strawberries for example.
Producers in Germany and Switzerland are obviously highly supportive of nationalist protectionist policies. Saying they are good for jobs and the environment.
Free Trade Agreements prevent African countries from imposing tariffs.
In Cameroon, we get to see a local onion farming co-operative which used to produce onions, but has had to stop (and switch to cassava) because of cheaper onions being imported from Europe and flooding the market.
Cameroon is not allowed to raise tariffs further on EU onions because of a free trade agreement it signed with the EU (the EPA agreement).
As a result local farmers are either going out of business or having to switch products, the problem is that the product they switch to might also be undercut by cheaper EU imports in the future – the farm in this documentary is now growing Cassava, which is used to make flour, but there is already a history of cheap imported Wheat flour from the EU undermining local economies in Senegal, so it’s probably only a matter of time
Double Standards in the use of import taxes
It seems that we live in a world where richer countries increasingly ignore the World Trade Organisation and use tariffs to protect their domestic industries from cheaper products produced mainly in China.
While the EU cajoles countries in Africa to sign trade agreeements (probably in return for much smaller sums of development aid) which prevent them from protecting their own domestic food producers from EU agricultural products.
Subsidies also benefit farmers in the EU
The documentary also covers subsidies, showing how EU farmers benefit from government hand-outs which make their goods artificially cheap, a topic also dealt with anther DW documentary.
Relevance to A-level Sociology
This is a crucial update to the ‘free trade topic’, which is a core part of the global development option.