Please visit the following websites to learn about the arguments in favor of and
ID: 1132224 • Letter: P
Question
Please visit the following websites to learn about the arguments in favor of and against free trade:
In favor:
http://www.heritage.org/trade/report/the-benefits-free-trade-guide-policymakers
http://www.econlib.org/library/Enc/FreeTrade.html
https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm
Against:
http://www.fairtradefederation.org
http://www.fairtradeamerica.org/What-is-Fairtrade
http://www.alexandercollinsconway.com/staging/globalexchange/campaigns/legacy-campaigns/global-econ-101/global-econ-101/
After browsing through the site and links, please answer the following questions:
a. What are some of the arguments in favor of free trade?
b. What are some of the arguments against free trade?
c. What is the WTO? When was it formed, and what is its purpose?
d. What is the difference between free trade and fair trade?
Explanation / Answer
a. Free trade is a trade policy which allows goods, capital and labour to move freely between nations. Under free trade the government of a country does not interfere with import and export and impose any restrictions on them. Goods and services are freely allowed to cross the national boundaries.
1. Free trade creates competition which leads to innovation, availability of better products, better paying jobs and increase the saving and investment.
2. Under free trade goods and services are available at low price to the domestic consumers and increase their economic welfare.
3. Free trade foster economic development. The growth of U. S economy over the past decade shows that how far free trade fosters its economic growth. Since 1990, the economy has grown more than 23 %. The free trade added more than $2.1 trillion to the GDP and it raised the wealth of the American consumers by more than $5.500.
The import of real goods and services has increased to 15%. The full time job has increased 13.4% since 1991. The percentage of part time job after 1991 is less than 3% of the total labour force. The total employment between 1998 and 1999 increased by 2 million.
4. Under free trade variety of goods and services are available as these goods can cross the national boundaries without restrictions. Thus free trade gives best choices to the consumers. As the free trade foster competition among producers, the producers innovate and develop better products and thereby bring better products at low price to the market.
5. Under free trade the trading partners have to abide by the terms of their contract and internationally agreed norms and laws. For example WTO compels its member countries to honor trade agreements between its members and in trade disputes to abide by it decisions. Therefore the free trade respect democratic value and its enforceability among the member countries.
b. Many of the developing countries put restriction on their import in to their economies in the form of tariff, quotas and import licensing. These restrictive policies can be justified on the following grounds.
1. The imposition of trade restrictions in developing countries can be supported on the ground that these countries can earn revenue by imposing tariff on import and exports.
2. Labors in developing countries must protect from loss of job. If low priced products coming from low waged countries the labors in developing countries will lose their job.
3. Again the industries in developing countries must be protected from cheap dumped goods from developed countries. The newly established industries cannot compete with the well established technically advanced industries of advanced countries as they are in the early stage of development.
4. The producer’s welfare in developing countries can be protected by imposing tariff on imports from developed countries. Import tariff makes price of low price imported goods equal to domestic products. The developing countries are in the early stage of production with low technological advancement. As such they cannot produce the product at lower cost. If low priced products are imported from developed countries they cannot exist in the market.
5. Restrictions on import are an essential factor to developing the balance of payment and balance of trade in developing countries. Tariff will save the quantity of scarce foreign currencies in developing countries. By trade restrictions the developing countries can improve the balance of payment position.
6. Import restriction is a major factor in preventing dumping of good by developed countries to developing countries. If foreign goods are dumped into developing countries the existing industries will be badly affected. Dumping refers to selling goods below their cost of production. Anti-dumping laws block imports that are sold below the cost of production by imposing tariffs that increase the price of these imports to reflect their cost of production. Since dumping is not allowed under the rules of the World Trade Organization (WTO), nations that believe they are on the receiving end of dumped goods can file a complaint with the WTO. Anti-dumping complaints have risen in recent years, from about 100 cases per year in the late 1980s to about 200 new cases each year by the late 2000s. Note that dumping cases are countercyclical. During recessions, case filings increase. During economic booms, case filings go down. Individual countries have also frequently started their own anti-dumping investigations. The U.S. government has dozens of anti-dumping orders in place from past investigations. In 2009, for example, some U.S. imports that were under anti-dumping orders included pasta from Turkey, steel pipe fittings from Thailand, pressure-sensitive plastic tape from Italy, preserved mushrooms and lined paper products from India, and cut-to-length carbon steel and non-frozen apple juice concentrate from China.
7. Protectionist policy is very much important to improve the terms of trade of developing countries.
8. The free trade and the resultant international specialization lead to an unbalanced growth of the national economy. Under the free trade the sector on which it has a comparative advantage develop (export sector) the other sector will be undeveloped (import sector). The result will be unbalanced growth.
c. World Trade organization (WTO) is an international organization world trading countries. It deals with the rules of trade among the member countries. Its primary purpose is to open trade among countries for the benefit of all. WTO was formed on 1st January 1995 after the completion of Uruguay Round of multilateral trade negations during 1986-94.
d. Free trade envisages reduction and gradual removal of tariff and other duties imposed on the national level. Under the free trade the member countries agreed to abide by a set of rules to increase economic well being by reduction of import taxes. It is a policy against the economic exploitations.
Fair trade envisages the policies against the economic as well as the environmental exploitations. Many often the large companies sought for cost cutting methods through the employment of methods which cause threat to the environment of the trading nations. Thus fair trade is a method of cost reduction as well as the trading of economically friendly products.