The Role of Trade and Economic Integration in Promoting Peace and Security

By Udeshi Shermila and Vishwa Chamuditha Tennakoon 

“International trade is the physical movement and electronic transfer of goods and services across national borders.” (McConnell, 2001). Moreover, international trade has the ability to guide a country towards its growth. According to economic perspectives, countries trade in order to take advantage of differences in factor endowment, technological abilities, demand, government policies and the existence of economies of scale. Nevertheless, it is important to note that international trade without any barriers is not realistically possible. This is where the concept of economic integration comes in. “Economic integration is seen as a move towards free trade despite criticisms from some quarters” (Karakaya & Cooke, 2002). Focusing on both trade and economic integration, the aim is to describe their role of them in promoting peace and security. 

There is an ongoing debate among scholars about whether international trade reduces interstate conflict or not. However, as bilateral commercial interdependence grows, it is anticipated that greater global trade openness will lessen the likelihood of armed conflict. As stated by Barbieri and Peters (2003), ‘trade openness’ considerably reduces the likelihood of war. However, contrary to the above statement, ‘multilateral openness,’ or the openness of international trade, raises the likelihood of armed conflict (Martin et al., 2008).   

In general, it is considered that open states can be more peaceful because they become more exposed to political freedom and democracy. They practice effective governance and better international law application. Trade openness can also result in an “expansion of a bureaucratic structure,” which is less likely to use force since it is more concerned with economic objectives than ones related to security (Domke, 1988). 

Furthermore, when economic integration is taken into account, according to the ‘liberal peace’ school of thought in political science, it can serve as a bridge for peace. It implies that the incentive to deploy military force in interstate relations is constrained by a higher level of bilateral economic interdependence. For instance, a state that depends more on trade is less inclined to engage in hostilities with a partner due to the higher opportunity cost of trade loss. Business elites will also pressure the government to limit the use of military force against a significant trading partner since they stand to gain the most from growing economic interdependence.  

There are several arguments in opposition to the liberal peace viewpoint as well. For instance, neo-Marxists and dependency theorists argue that “asymmetric economic interdependence could lead to negative consequences in a country such as exploited concession and threatened national autonomy” (Lee & Pyun, 2009) which would create interstate tensions and conflicts. There are historical evidences where conflicts evolved out of trade disputes. 

When focusing on the Sri Lankan context, we are well aware that the economy shifted towards liberalization in 1997 in its move away from self-sufficiency. As a result of this, the government opted for trade facilitations bringing in numerous benefits to Sri Lanka. Not only in the exchange of goods and services but, Sri Lanka also experienced an increase in the flow of foreign direct investments. Nevertheless, Sri Lanka being an open economy could make ties with neighbouring as well as Western economies. As a result, countries like USA, UK, India, and China became its main trading partners. However, due to Sri Lanka trading with big economies, it became in the highest interest of Sri Lanka to remain peaceful with those countries because otherwise, it would negatively affect the economy. 

Additionally, when taking economic integration into account, it is important to mention two key bilateral trade agreements that Sri Lanka has been involved with. First, the 1998 India-Sri Lanka Free Trade Agreement (ISFTA), which implemented tariff concessions in 2000, resulted in the immediate removal of tariffs on some items while partial concessions were given on chosen goods. Second, the Pakistan-Sri Lanka Free Trade Agreement (PSLFTA), which was signed in 2002 and went into effect in 2005. It allowed Sri Lanka to access the Pakistani market duty-free on 206 products while granting Pakistan access to the Sri Lankan market duty-free on 102 products. Nonetheless “The objective of a Free Trade Agreement (FTA) is not to bring about a balance in trade, but to work out a ‘win-win’ situation for both producers and consumers in the FTA member countries” (Kelegama, 2017). Therefore it becomes clear that trade and economic integration has undoubtedly provided peace and security between Sri Lanka and its trading partners because up until now, there have been no major disputes between Sri Lanka and those countries. 

Furthermore, the degree of Sri Lanka’s economic integration with the global economy has also changed significantly through time, from a lesser degree to a higher degree. Sri Lanka’s engagement in organizations like the South Asian Free Trade Area (SAFTA) and the South Asian Association for Regional Cooperation (SAARC) are examples of this. Increased economic integration may have had a crucial effect on Sri Lanka’s remarkable achievements in raising the living standards of its inhabitants. Yet, to catch up to some of the emerging market economies in the East and South East Asian region, Sri Lanka needs to make a lot of improvements. Even to come out of this current economic crisis, the country needs to facilitate trade and engage in economic integration as they play a key role in supporting the dollar inflow and reduction of balance of payments issues. Hence, with all the above-discussed ideas, it seems that the crucial importance of both international trade and economic integration are able to ensure peace and security not only for Sri Lanka but for all other countries which engage in trade. 

The views and opinions expressed in articles submitted to the Comparative Advantage Blog are those of the authors and do not necessarily reflect the views of The Moot Court Bench.