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The world trade organisation has stated that everyone gains by a world increasingly organised around free trade. How far do you agree that the benefits of free trade and comparative advantage outweigh any negative aspects?

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Introduction

The world trade organisation has stated that everyone gains by a world increasingly organised around free trade. How far do you agree that the benefits of free trade and comparative advantage outweigh any negative aspects? Before any country removes barriers to trade on foreign imports it needs to be sure that foreign countries will remove barriers to trade on their own exports. With many dozens of trading countries it is very difficult to get removal of barriers to trade. Because of this the General Agreement on Tariffs and Trade (GATT) was set up. From there the World Trade Organisation took over. The World Trade Organisation (WTO) is the only global organisation dealing with the rules of trade between nations. The goal is to help producers of goods and services, exporters, and importers to promote and expand their business. It is a forum for countries to thrash out their differences on trade issues, negotiate trade partnerships and enhance their integration into the international trading system. As the WTO implies, its current role is to serve as the lubrication for the joints in the engine of globalisation; although just how effective and fair this lubrication may be, is still a point of great contention. Free trade is trade without protectionist barriers between countries, such as tariffs and non-tariff barriers, quotas and regulations. Freer trade and technological change offer the same advantage, which is singularly to increase the range of choices open to the consumers. ...read more.

Middle

Now to the advantages based around comparative advantage. David Ricardo, working in the early 19th century, realised that absolute advantage was a limited case of a more general theory. Consider table 1. It can be seen that Portugal can produce both wheat and wine more cheaply than England (i.e. it has an absolute advantage in both commodities). What David Ricardo saw was that it could still be mutually beneficial for both countries to specialise and trade. Table 1 Country Wheat Wine Cost per unit in man hours Cost per unit in man hours England 15 30 Portugal 10 15 In Table 1, a unit of wine in England costs the same amount to produce as 2 units of wheat. Production of an extra unit of wine means foregoing production of 2 units of wheat (i.e. the opportunity cost of a unit of wine is 2 units of wheat). In Portugal, a unit of wine costs 1.5 units of wheat to produce (i.e. the opportunity cost of a unit of wine is 1.5 units of wheat in Portugal). Because relative or comparative costs differ, it will still be advantageous for both countries to trade even though Portugal has an absolute advantage in both commodities. Portugal is relatively better at producing wine than wheat: so Portugal is said to have a comparative advantage in the production of wine. ...read more.

Conclusion

For example, a foreign country may produce jeans at �8 a pair, and sell them at �6 a pair, bearing the loss in order to get a foothold in the foreign market, it is trying to get established in, in doing so weakening the host countries producers. Once the UK producers are removed, foreign competitors might raise their prices again. In conclusion, the benefits of free trade and comparative advantage are endless, it offers the potential for the reaping of net welfare gains, these arrive from comparative advantage opportunities, increasing competition, reaping economies of scale, increased returns to capital and labour, and the efficiency of the allocation of resources is improved. While the disadvantages mainly fall on the poorer countries the workers and the environment as so much of the enthusiasm about the benefits of globalisation focuses upon what is happening in Europe, North America, and Japan, plus certain extensions of that triad, but little is said about the rest of the world. The concern is whether or not there are truly globalising forces or whether it is merely a type of imperialism carried out by the wealthy. While the firm's only disadvantage would be competition. Also if analyse the advantages it all works on the premise of full employment and it really does not take in the consideration the problems raised by chronic unemployment, it also fails to analyse how the gains that arise from trade will be distributed. It assumes a purely competitive model of industry. ...read more.

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