CHAPTER ONE

INTRODUCTION

1.1 Background History Of The Study

International trade is an unavoidable activity that nations in the world are practicing. Many nations have limited capacity to produce all the goods they need to produce, all the goods they need to consume due to limited resources, smaller domestic market so they import from other nations. Hence, trade is the exchange of goods and services for the flow of foreign exchange.

International trade is seen to have started in the 15th century with the emergence of nation-state like Britain (1485-1509), France (1453), Spain (1464), Germany, and Italy (1870). With the emergence of these, nations were faced with the problem of consolidating their authorities and as such, they had to carry out a trade that could generate some income to run their economy.

Thus, they exported goods to their colonies and other nations and receive an adequate supply of gold and silver. The volume of international trade has increased as all nations in the world are trading internationally. They are either exporting to other nations or gaining foreign exchange importing from other nations and spending their currencies.

For 1990, the volume of trade amongst countries in goods and services measure in dollars has surpassed four trillion dollars. In the year 2000, the growth rate of the world trade merchandise was around 10% and double the rate recorded in 1999. This was due to the resumption of economic activities in Western Europe (WTO, 2007).

The United Nation council for trade and development (UNCTAD) is the only trade agency for the united nations which deals with trade, investment, and development issues. It is made up of 191 member states and helps to foster trade in the world.

In Central Africa, the Central African Economic and Monetary Community (CEMAC) is the organization that helps to foster trade in Central Africa and Cameroon became a member in 1972. The World Trade Organization (WTO), which is based in Geneva, establish in 1995 to seek to encourage the reduction in trade restrictions and to settle trade disputes amongst member state, smooth trade and to help to administer trade agreement between nations and act as a forum for trade negotiations (P. Njikamp, 2009).

The United Nations Council has helped a nation like Cameroon to enjoy a brotherly friendship with other nations like the USA, France, Germany, and China to name a few. Cameroon has established strong diplomatic ties with China since 1972. They both have developed fruitfully corporations in political affairs, economic and trade, culture and education.

In 2005, Cameroon exported 6.43million tons of goods with a value of 2.99 billion dollars that is a fall of 6.8% in value term and a rise of 2% as compared with 2004. On the other hand, China’s value share of world export rose from less than 2% in 1987 to over 7% in 2005. China, apart from petroleum, other export items are cocoa, coffee, aluminum, lumber.

On the other hand, Cameroon import includes machinery, transport, cereals, equipment, fuel, food, and electronic equipment. In 2009, Cameroon’s import volumes rose to 4.3 billion dollars. (Baden, B. Catherine, 2005).

International trade has been a very important factor that contributes to the growth of many economies. It helps the economy politically, socially, and economically and it also fosters globalization that is it increases the rate at which countries deal with each other which goes a long way to enhance growth and development.

Many under-developed countries get to gain development through international trade because they get to use machinery which they can’t manufacture for the production of goods and services, they get to enjoy products which normally they are unable to produce, and they get to enjoy services like workers from other countries with good technical know-how which normally they can’t produce.

Trade barriers which are measures taking by the importing country in order to raise revenue, protect infant industries, and reduces trade distortion also play an important role in international trade. The main reason why free trade was abolished was that they wanted to give domestic industries the means to grow and compete with industries of other countries and they also wanted to see which industries have chosen to remain small and not grow. This idea was brought in by John Stuart Mill in 1848 before other economists supported the idea.

Another reason for the deviation from free trade was the term of trade. The term of trade deals with the price at which countries exchange exports from imports and it was determined by demand and supply but could still be manipulated by government policy in the favour of one country to another.

For example, OPEC reduces its export in order to drive up prices in the world market so that it can enrich itself at the expense of other nation that is increasing its term of the trade(when you compare his export and import prices). The introduction of free trade also came in as a result of externalities. Externalities deals with when a bystander suffers from the action of another and many industries do suffer as a result of that. For this reason, this research deals with an intensive evaluation on which is preferable to free or restricted trade.

1.2 Problem Statement

The potential of developing countries like Cameroon to achieve rapid and sustainable economic growth and reduction in the level of poverty in part depends on their integration into global markets. These potential gains from global trade could be achieved if all participating countries can limit their barriers to trade, so as to encourage the free flow of goods and services.

In reality, this is often not the case as there are various market access barriers to some key exports of developing countries, which make it difficult for them to take full advantage of the opportunities that abound in global trade.

In international trade theory of comparative cost advantage, countries are advised to specialize in the production of commodities in which they have a comparative cost advantage over other countries. This will make countries to gain from international trade. African exports prior to this time (during the 1950s and 1960s) have performed well in terms of the volume and number of products, while the issue of market access barriers to their exports in the markets of their trading partners did not arise.

Though, Africa has its strength in the production of primary products that attract fewer restrictions in the developed nations’ markets (especially in the markets of their colonial masters), the continent has however gained from trade in which the returns serve as the bulk of their foreign exchange during these periods. However, recently, the developed countries found it appropriate to engage in backward integration (that is, to encourage the production of primary products for the use of the industrial sector of their economies) that will reduce the import bills they pay to their trading partners.

It is as a result of this that the developed countries started encouraging the production of primary products especially agricultural products, which attracted some supports and subsidies that distort international prices of these commodities.

These subsidies and supports made imports from African countries to be less competitive coupled with the fact that these developed countries imposed restrictions on agricultural export access to their markets. So far, there has been a divergence of opinions as to what really undermines Africa’s exports in global trade.

While a school of thought believes that it is the trade restrictions that hindered Africa’s exports to developed countries and some developing countries, thereby reducing the income level and employment rate, another argued that even if Africa’s exports are allowed free access to the developed countries’ markets, the continent lacks the ability to produce to meet the demand due to Africa’s supply constraints.

Some studies have been carried out on the issue of market access conditions, many of which ascertained the extent that Africa has gained from the trade preferences granted to the continent. The studies that modeled the actual distortions to trade due to market access restrictions focused on trade mostly between developed and developing, i.e. North-South trade and in particular for sub-Saharan Africa. It is against this background that this study intends to provide answers to the following question;

1.3 Research Questions

1. What is the impact of trade barriers on international trade in Cameroon?
2. What is the impact of export subsidies on international trade in Cameroon?
3. What is the impact of foreign direct investment on international trade in Cameroon?

1.4 Objectives Of The Study

1.4.1 Main Objective

The main objective of this study is to evaluate the effect of trade barriers on international trade in Cameroon.

1.4.1 Specific Objectives

The specific objectives of the study will include to;

1. Examine the impact of export subsidies on international trade in Cameroon.
2. Analyze the impact of foreign direct investment on international trade in Cameroon.
3. Make relevant recommendations on how economic growth can be increased in Cameroon through exports earnings.