Topic

The Impact of Trade Agreements on Global Inequality: Why They Favour Developed Countries
More Than Third-World Nations

Author: Onyiriuka David, Department of International Relations, ESCAE University

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Abstract

Trade agreements are designed to promote global trade, reduce barriers, and support economic
cooperation among nations. However, their outcomes are not evenly distributed. This study
examines why trade agreements tend to benefit developed countries more than Third-World
nations. Using historical, economic, and political analysis, the research explains how colonial
legacies, unequal bargaining power, limited industrial capacity, and structural dependency shape
global trade relations. The study also explores the role of theories such as Dependency Theory,
World-Systems Theory, Comparative Advantage, and Neocolonialism in understanding global
inequality in trade. Case studies from Togo, Congo, and the Democratic Republic of Congo (DRC)
illustrate how reliance on raw material exports and dependence on imported manufactured
goods deepen trade imbalances. The paper concludes that unless developing countries
strengthen their industries, build negotiation capacity, and engage in regional cooperation, trade
agreements will continue to reinforce global inequality rather than reduce it.

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1. INTRODUCTION

STATEMENT OF PROBLEM

Trade agreements are important tools that shape how countries exchange goods and services.
They reduce tariffs, encourage investment, and create predictable rules that support global
commerce.

However, not all countries benefit equally. Developed countries often enter negotiations with
stronger economies, advanced technology, and experienced negotiators. Third-World countries,
on the other hand, struggle with weak infrastructure, limited industrial capacity, and a history of
colonial exploitation.

This paper explores why trade agreements tend to favour richer nations, the challenges
developing countries face in trade negotiations, and how historical, structural, and political
factors shape these outcomes.

2. Concept of Trade agreements

A trade agreement is a formal agreement between two or more countries in
view of promoting trade between them i.e. how they buy, sell and exchange
goods and services with one another. Ajijola (2025).

A trade agreement is a wide-ranging taxes, tariffs and trade treaty that often
include investment guarantee. It exists when two or more countries agree on
terms that help them trade with each other. Grossman (March 2016).

According to Britannica trade agreement is any contractual arrangement

between states concerning their trade relationship.

Inu Manak and Helena Kopans-Johnson (2025) defines it as a set of rules

agreed upon by two or more countries to regulate their economic interactions,
with focus on government barriers to trade, either imposed at a country’s
border or internally through regulations or taxes.

The UK government views trade agreement as an agreement made between

two or more countries and set out preferential rules for buying
and seling good or services between them.

3. Objectives of Trade Agreements

 • To promote free trade by reducing tariffs and quotas
• To encourage economic cooperation among countries
• To make it easier for countries to access new markets
• To protect domestic industries through regulations
• To create predictable rules and reduce trade disputes
• To promote investment and technology exchange

4. Importance of Trade Agreements

Trade agreements play a key role in strengthening global economies. Their main importance
includes:
• Reducing trade barriers, making exports easier
• Encouraging foreign investment through stable regulations
• Supporting economic growth and job creation
• Improving political and diplomatic relations
• Helping countries diversify their economies
• Increasing access to modern technology and innovation

While these benefits exist, developing countries often struggle to enjoy them fully due to
structural disadvantages.

5. Types of Trade Agreements

Types of trade agreement:

There are numerous types of trade agreements in place around

the world, however, they may be broadly categories under these four types
based on the number of countries involved:

5.1 Unilateral Trade Agreement: This is the type that is one sided,
without negotiation. It is more of a big brother gesture by developed
countries to developing countries to let them grow. The south Pacific
Regional Trade and Economic Co-operation Agreement (SPARTECA),
Canada GPT (General Preferential Tariff), China – Zero – Tariff Treatment
for LCDs are some of the examples of this. Ajijola (2025)
 5.2 . Bilaterial Trade Agreement: Here trade is formal with both sides
negotiating and agreing on specific ruls that would govern trade between
them. This agreement involves two parties (countries) and it is
reciprocal. This a do for me I do for you type of agreement. The US-
Mexico Bilateral Agreement ,Nigeria-Morroco bilateral
trade cooprtaionamongst others are types of bilateral Trade Agreement.

5.3 Multilateral Trade Agreement: This is the trade pact between three
or more countries that have chosen to collaborate to set rules on
trade amongstthemselves. WTO, AfCFTA are examples of this.

5.4. Regional trade blocs: Unlike the multilateral this involves countries
within the same geographical region coming together to reduce or
remove trade barriers among themselves, examples are ECOWAS, EU,
ASEAN and MERCOSUR

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6. WHAT ARE TRADE BARRIERS AND HOW IT AFFECTS INTERNATIONAL TRADE ?

TRADE BARRIERS

Trade barriers are policies or defense mechanism put in place by the

government to protect the nation’s economy. They usually reduce the
amount of country imports. These barriers exist to protect domestic
products, local producers or political agendas.

Larges Multinational corporations or countries engage in “dumping” their

products in a countries market at a lower price than the market price
making the local market is forced to convert to losses or shut down. The EU
Milk powder dumping in West Africa is a typical example. To prevent this act
of dumping domestic government put in place trade tariffs that will raise
the price of dumped goods and protect domestic suppliers, government can
even go as far as banning the product if the aforementioned tactics is not
enough. Tim Vipond (2025).

Trade barriers are grouped into two – Tariffs and Non Tariffs

• Tariffs / import taxes are duty imposed by a national government,

customs territory, or supranational union on imports of good s and is
paid by the importers. These can be fixed or vary, these tariffs are
designed to raise the price of imported good to discourage
consumption.

• Non- tariff on the other hand are barriers that restrict import and
export on goods or services through measures other than tariffs.
According to the WTO these include import licensing, rues for
 valuation of goods at customs, pre-shipment inspections, rules of
origin (‘Made in”) and trade prepared investment measures. Other
toes include the aforementioned anti-dumping laws, import quota,
domestic subsidies, packaging and labeling requirements, industry
bailout and others.

How Trade Barriers Affect Trade

Trade barriers have several impacts on international trade:

1. Increase the Cost of Imported Goods

Tariffs make foreign products more expensive, which reduces demand for them.

2. Reduce Trade Volumes

Quotas and restrictions limit how much a country can import or export, lowering overall trade
activity.

3. Protect Domestic Industries

Local companies may benefit because foreign competitors are pushed out of the market.
However, this can also reduce innovation and efficiency.

4. Encourage Trade Diversion

Countries may shift trade to partners with fewer restrictions, even if the goods are not the
cheapest.

5. Slow Down Business Operations

Complex customs procedures delay the movement of goods, affecting delivery times and
increasing costs.

7. Problems in Trade Agreements

Trade agreements are intended to facilitate global trade, but in practice

they often favour advanced nations over developing countries, leading to
significant disparities. One major problem is unequal bargaining power.
Developed countries have stronger economies, advanced industries, and
more experience in negotiations, which allows them to shape agreements
 in ways that benefit their own interests. Developing countries, with limited
negotiation capacity, often accept terms that restrict their own economic
growth (Hoekman & Kostecki, 2009).

Another challenge is the persistence of non-tariff barriers. While trade

agreements may reduce tariffs, advanced economies often maintain strict
quality standards, licensing requirements, and other regulatory measures
that make it difficult for developing countries to access their markets. This
limits the intended benefits of liberalization (Cadot& de Melo, 2008).
Closely linked to this is the issue of overdependence on primary
commodities. Many developing countries export raw materials or
agricultural goods, making them vulnerable to price fluctuations in global
markets. In contrast, developed countries gain from exporting high-value
manufactured goods, widening the economic gap (Oyejide, 2000).

Trade agreements can also lead to deindustrialization in developing

countries. Opening local markets to foreign competition exposes domestic
industries to superior products and efficiency from multinational
corporations, often causing local firms to collapse and resulting in job losses
(Page & Hewett, 2012). Additionally, technology and intellectual property
constraints embedded in trade agreements, such as strict patent rules, can
prevent developing countries from producing medicines, software, or other
technologies independently, further limiting their development potential
(Maskus, 2000).

Another problem is the high compliance and adjustment costs associated

with meeting the legal, institutional, and infrastructural requirements of
trade agreements. Developing countries often struggle to afford these
adjustments, which can strain their limited resources (Hoekman & Kostecki,
2009). Trade agreements also restrict policy space, limiting governments’
ability to implement protective measures like tariffs or subsidies to nurture
strategic industries (World Bank, 2005). Finally, the distribution of benefits
is often uneven, with advanced nations capturing most gains from
increased market access, investment opportunities, and global integration,
while developing countries see marginal or sector-specific benefits
(Baldwin, 2016).

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HISTORY OF TRADE AGREEMENT

8 .The history of global trade and the way trade agreements work today cannot be separated
from the past. To understand why some countries benefit more from trade agreements while
Third-World
countries often struggle, we must look at the journey of international trade from the time of
early
economic interactions, through colonialism and the slave trade, to the modern system of
exporting
raw materials and importing manufactured goods.
The story begins with the early development of trade agreements, which were created as simple
arrangements between kingdoms and empires to control taxes and exchange goods. As the world
became more organized —especially during the Industrial Revolution and after World War II —
these agreements became more formal and complex. Institutions like the GA TT (1947) and WTO
(1995) were formed, but they were largely shaped by powerful countries. As a result, many of the
rules we follow today reflect the interests of already wealthy and industrialized nations.
T o fully understand why these rules favour some countries, we must look deeper into colonial
structures. When European powers took control of Africa, Asia, and parts of the Americas, they
did
not only claim political authority—they reorganized entire economies to benefit Europe. Colonies
were forced to produce raw materials such as cocoa, cotton, minerals, oil, and rubber . In
exchange,
they were required to buy finished, expensive goods from Europe. This system was deliberately
designed to keep colonies economically dependent and unable to industrialize. Local industries
were discouraged or even banned so that the colonies remained loyal suppliers of raw materials.
Before this colonial economic structure was fully established, the transatlantic slave trade had
already created deep economic wounds. From the 1500s to the 1800s, millions of Africans were
taken away as slaves to work in plantations in the Americas. Their forced labour produced raw
goods —sugar , cotton, tobacco —which were shipped to Europe for manufacturing. Europe then
sold finished goods back to Africa and the Americas. This “ three-way trade ” enriched Europe
while destroying African societies, draining manpower , and starting a long-lasting economic
imbalance. This loss of population, skills, and stability made African regions economically weak
long before modern trade systems were formed.
As colonization expanded, the problem of economic dependence became worse. Colonized
nations
were not allowed to build their own industries or produce goods for themselves. Instead, they
were
trained to rely entirely on foreign powers for technology, manufactured goods, and economic
direction. After independence, many Third-World nations inherited economies that were still
structured around exporting raw materials and importing expensive finished goods. Because the
system had operated this way for centuries, it became extremely difficult to break free from this
pattern.
This dependence can still be seen today in the continued export of raw materials. Many African,
Asian, and Latin American countries still export crude oil, cocoa, gold, copper , timber , cotton,
cashew , and other unprocessed items. These goods are sold at low prices because they have
little
added value. Meanwhile, developed countries use these raw materials to produce high-value
products such as cars, electronics, pharmaceuticals, clothing, and processed food.
These same developing countries then import manufactured goods at much higher prices. For
example, Nigeria exports crude oil but imports refined petrol; Ghana exports cocoa but imports
chocolate; many African countries export cotton but import clothes. This cycle reinforces an
economic structure where developing countries remain at the bottom of the value chain—selling
cheap goods and buying expensive ones.
When we bring all these historical and economic realities together , we begin to understand why
modern trade agreements favour some countries over others. Countries that industrialized early
—
mostly Europe and North America — built strong factories, powerful economies, and advanced
technologies. They also designed the trade rules we use today. Meanwhile, Third-World countries
entered the global trading system with weak industries, limited bargaining power , and
economies
built to serve others rather than themselves.
Because of this, trade agreements tend to favour the countries that already have strong
industries
and advanced economies, while they often disadvantage countries still struggling to break free
from
colonial patterns of dependence. In simple terms, the past created a system where some
countries
were positioned to win, while others were positioned to struggle.

9. THEORIES IN TRADE AGREEMENT

Understanding why trade agreements often favour some countries while disadvantaging many
Third-World nations requires looking at several theories that explain how the global economic
system works. These theories do not stand alone; instead, they connect and support one another
to
paint a clear picture of how international trade is structured. T ogether , they show that the
world
economy is not equal, and the rules of trade are often shaped by the most powerful countries.
One major perspective is the Dependency Theory, which argues that the world is divided into two
groups: the powerful industrial nations (the “ core ” ) and the weaker developing nations (the
“periphery”). According to this theory, the core countries design trade systems that ensure they
stay
rich while the periphery remains dependent. This dependency is seen in how Third-World
countries
export raw materials cheaply but buy back finished products at high prices. This creates a cycle
where the developing countries cannot grow because they earn little but spend a lot.
A related idea is the World-Systems Theory, which expands this thinking by showing that the
entire
global economy functions like a chain where each country has a role. Rich countries produce
advanced goods, middle-income countries produce simpler manufactured goods, and poor
countries mainly supply raw materials. Trade agreements often lock countries into these roles.
For
example, many African nations continue exporting cocoa, crude oil, or minerals while importing
chocolate, fuel, and electronics from Europe and America. This structure makes it difficult for
developing countries to move up the chain because the system benefits the countries already at
the
top.
The Comparative Advantage Theory is frequently used to justify this structure. It says each
country
should focus on what it is naturally good at and trade for the rest. However , in practice, this
theory
has worked against poor nations because they are told that their “strength” is agriculture or raw
resources. This limits them to the lowest-earning part of global trade. Meanwhile, richer
countries
continue to dominate industries that bring in high profits, such as technology, manufacturing,
and
pharmaceuticals.
These patterns strongly connect to the idea of Neocolonialism, which argues that although
physical
colonialism has ended, rich nations still control poor nations through economic means. Instead of
using force, they use trade agreements, multinational companies, loans, and international
organizations to influence the policies of developing countries. Many trade agreements require
poor
countries to open their markets, remove tariffs, and reduce government support for local
industries.
This leads to foreign companies flooding the market, outcompeting local businesses, and making
the country more dependent on imports.
Another theory that supports this argument is the Structuralist Theory, also known through the
Prebisch-Singer hypothesis. It shows that the value of raw materials decreases over time, while
the
price of finished goods increases. This means that when developing countries rely on raw
exports,
they earn less each year . But because they must buy expensive manufactured items, they spend
more. Trade agreements often reinforce this structure by discouraging Third-World countries
from
protecting their industries or adding value to their raw resources.
Power is another important factor . The Power Asymmetry Theory explains that trade
negotiations
are not equal. Rich countries have more bargaining power , better trained negotiators, stronger
economies, and political influence. Poor countries, on the other hand, fear losing aid, access to
foreign markets, or international support. This imbalance means that the final trade agreement
usually reflects the interests of the stronger side.
Finally, the negotiation process itself can be understood through Game Theory, which treats
negotiation like a strategic game. When powerful nations negotiate, they have many options—
they
can offer incentives, make threats, or walk away from the table. Poor countries often cannot
afford
to walk away because they rely on the agreement for economic survival. This puts them at a
10 . SOME THIRD WORLD COUNTRIES AND THEIR TRADE AGREEMENT WITH
OTHER INDUSTRALIZED COUNTRY

10.1 Togo

Exports: Phosphates, cocoa, cotton

Imports: Machinery, vehicles, petroleum
Problem: Trade deficit due to reliance on low-value exports.

10.2 Congo (Brazzaville)

Exports: Crude oil, timber

Imports: Machinery, fuel
Challenge: Price fluctuations and overdependence on oil.

10.3 Democratic Republic of Congo (DRC)

Exports: Cobalt, copper

Imports: Machinery, manufactured goods
Issue: Mineral wealth benefits foreign companies more than locals.

11. International Bodies Mentioned

• WTO – World Trade Organization
• IMF – International Monetary Fund
• World Bank – International Bank for Reconstruction and Development
• ECOWAS – Economic Community of West African States
• AfCFTA – African Continental Free Trade Area
• EU – European Union
• ASEAN – Association of Southeast Asian Nations
• USMCA – United States–Mexico–Canada Agreement

12 CONCLUSION

Trade agreements are designed to promote cooperation and expand global markets, but in
reality, they often operate within an unequal international system shaped by history, power, and
economic structure. Developed countries enter these agreements with strong industries,
advanced technology, and greater bargaining power, allowing them to secure rules that protect
their interests. In contrast, Third-World nations struggle due to weak industrial capacity, colonial
legacies, and dependence on exporting raw materials that have low value in global markets.
The historical impact of colonialism, the slave trade, and the forced design of dependent
economies continues to affect developing nations today. These countries still export cheap raw
materials while importing expensive finished goods, creating persistent trade deficits. Theories
such as Dependency Theory, World-Systems Theory, Neocolonialism, and Structuralism all show
that the global trade system favors wealthier nations. Trade agreements, therefore, often
reinforce—rather than reduce—global inequality.

To achieve fairer outcomes, developing countries need stronger institutions, regional

cooperation, investment in industrialization, and more balanced negotiation processes. Without
addressing the underlying power imbalances and structural weaknesses, trade agreements will
continue to benefit developed countries more than Third-World nations.

13. SUMMARY

This research explains how trade agreements—though designed to promote global trade—end
up benefiting developed countries more than developing ones. Historical factors like colonialism
and the slave trade created economies in Africa, Asia, and Latin America that depend on
exporting raw materials and importing expensive manufactured goods. This structure continues
today.
Because developed nations have stronger economies and more negotiation power, they shape
trade agreements to favor their industries. Meanwhile, developing countries face problems such
as non-tariff barriers, weak industries, price fluctuations of raw materials, and limited technology.
Examples from Togo, Congo, and the DRC show how dependence on primary exports leads to
trade deficits and slow development. Theories such as Dependency Theory, World-Systems
Theory, Neocolonialism, and Structuralism help explain why these inequalities persist.
The study concludes that fairer trade outcomes require stronger institutions, industrial
development, regional cooperation, and more equitable negotiation processes for Third-World
nations.

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Maskus, K. E. (2000). Intellectual Property Rights in the Global

Economy. Institute for International Economics.

Oyejide, T. A. (2000). Africa and the WTO: Challenges and

Opportunities. UNCTAD.

Page, S., & Hewett, A. (2012). “Industrial Policy and Trade Agreements in
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