Free trade

        

With specialization and trade between nations, it can lead to an improvement in economic efficiency because the gain from trade has occurred. The result from Ricardo’s comparative advantage model is the main reason of some economists’ support of free trade. The specialization in produce the goods that have comparative advantage, it let to economic of scale existing. This has created a level of competition in the international market that encourage nations’ continuous innovation on their specialized goods will encourage countries to produce high value goods to trade in world market, which will lead to competition and innovation among nations and consequently lead to higher quality of product. () Besides that, with free trade, a new market with wider range of selection of goods will be available for consumers and enable them to get goods at a lower price and consequently improve their standard of living. The concept of free trade has also spread the value of freedom, reinforce the rule of law, and stimulate poor countries’ economic development. ()  

The other way of explaining the advantage of free trade is by analyzing the impact of import tariff and quota. Nations will usually impose import tariff or quota on foreign goods to protect local industries and this has cause failure of free market. Through international negotiation of trade policies, countries will engage in mutual tariff reduction agreement with each others. With reduction of trade restriction, there are two major benefits, helps to promote free trade and to avoid trade war. ()

Furthermore, if there are without import tariff and quota, people can freely trade between nations which will surely benefit them. For example, United State and Japan could reach an agreement that U.S. removal of import quotas that protect its manufacturer from Japanese competition in order to request Japan’s removal of trade barriers against U.S. products. ()

Removal of trade barriers also helps to avoid trade war from happening. Assuming there is only two countries, whenever either of the country impose tariff on another country, the other country will tend to take the same action on the country that impose tariff on it. As a result, the continuous increase of tariffs in both countries will make the price of goods higher and the cost will fall on consumers. () In addition, small businesses can benefit from free trade also. Since small businesses are the largest group of domestic exporters, they are able to benefit from free trade because it brings them increased market access. While large businesses can afford to set up foreign affiliates in order to overstep trade barriers, small businesses rely on exports for access to foreign markets. ()

Moreover, free trade can promote peace through internationally agreed standards or rules of that trade. It helps to reduce the likelihood of tragedies such as World War I and II which arose through trade battles between the former imperial countries. Free trade itself also will bring peace and hope to the Middle-East countries. For instance, Arab nations lack the legal and political infrastructure to enforce property and contract rights. Free trade will help to improve and develop their legal policy. ()

The Failure of Free Trade Meeting at Seattle

        Prior to mention the opposites of free trade, it is necessary to talk about the free trade meeting at Seattle. At the end of November 1999, the protests at the World Trade Organization meeting in Seattle marked a turning point in trade politics and has caused enormous public protests ensued. Most of protesters’ specific complaints that the WTO has issued rulings that forcing member countries to repeal specific laws that attack national and local social and environment safeguards. Furthermore, more than 1000 mostly Third World labor, environmental, consumer, church and development organizations in more than 70 countries signed the joint statement to oppose a new WTO round. It is because the establishment of WTO has not accomplished their promises on the Uruguay Round Agreements. However, prior to Seattle’s meeting, WTO has not accomplished it promises. For instance, they contributed to the concentration of wealth in the hands of the rich few, increase the poverty the majority of the world’s population, and unsustainable patterns of production and consumption. The Uruguay Round Agreement actually benefits the transnational corporations but expenses at the national economies those workers, farmers, and the environment. In addition, the WTO system, rules and procedures are undemocratic, opaque and non-accountable and have operated to marginalize the majority of the world’s people.

Opposites of Free Trade

Beside the issues of free trade agreement mentioned above, there are other voices that criticize the concept of free trade. The most common group that opposes free trade is the domestic’s producers. Since free trade remove tariff for imported goods, the price of imported goods will reduce and that will cause competition of the market become higher. With cheaper imported goods, the profit and market shares of local producers will surely be reduced. In some situation, imported goods will set at a price that is lower than the price in the home country to take over the market shares and this situation is called dumping. () For example, the dumping of subsidized milk powder from Europe and USA into developing countries like Jamaica and Brazil has caused the fallen of annual milk production in those countries. Some companies in those countries tend to buy cheaper milk powder from Europe and USA instead of local produced milk. This has forced the farmers to throw away most of their milk and caused many small farmers losing their business and source of income ().

Besides domestic producers, there are still some economists that argue about the benefit of free trade. It is rather unfair when the free trade agreement is signed between developed and undeveloped country. Instead of benefit, the free trade agreement may enslave the undeveloped country. If there is a free trade agreement between developed and undeveloped country, undeveloped country will have to cut down the tariff deeply. Since they open its market to foreign countries, their comparative advantages will be replaced by other homogeneous foreign industries which come from developed countries. In addition, some developing countries are force to sign free trade agreement for fear of losing preferences. Hence, they actually do not get any benefits. () Furthermore, according to Verdoorn’s growth laws, specialization will lead to an increasing of productivity level and the level of skills in the export sector and then lead to a reallocation of resources. However, industrial goods have higher income elasticity of demand than agricultural goods. Therefore people will more willing to work in the industrialized area instead of agriculture area because of higher income. Thus, the agriculture industry will spend higher wages to induce workers. As a result, agricultural countries have lost their comparative advantages with free trade as the increases of cost. ()

Since the argument of unfair trade agreement exists, the concept of fair trade has been voiced out. Fair trade generally aids producers and workers who suffered from the free trade system. It encourages producers to be independent in marketing their products and offer better trading condition to them. With fair trade, workers in the developing country also enjoy the benefit from it. This is because when there is free trade agreement signed between developed and developing country, developing country will bear more costs while developed country enjoy most benefit. Fair trade will solve this situation by maximizing the benefits and minimize the costs of the developing country when trading with developed country. However, there is still some group of economists claim that fair trade is the barricade in the growth of economy. ()  

Besides unfair trade, trade diversion also one of the negative effect that comes along with free trade. When a free trade agreement is created, the international trade may divert from an efficient exporter toward an exporter who is less efficient. Therefore, when a free trade agreement is applied to a high cost producer, trade diversion will lead to a net loss in the economy. () Other than the effect in economical aspect, free trade also brought some negative effect in the cultural aspect of a society such as impact on the values, ideas, and behavior. There are economic nationals claim that free trade has the effect of encouraging materialism because when imported goods become cheaper, people will tend to consume more luxury goods and this will be destructive and corrupting the traditional values. They also claim that international trade is harmful to a nation because the specialization and interdependence between nations make the situation insecure, dependent, and vulnerable to foreign developments. (Robert Gilpin, 1987)

The model of free trade always ignore the issue of institutional, political, social, and environmental effect brought by free trade which may reduce or even eliminate the gains from trade. For examples, there are still some nations that are not willing to accept free trade because in some countries, their domestic industries and jobs are necessarily needed protection from foreign competitors. These industries will lose their market shares or even bankrupt if the government of the country did not offer protection for them. ()

Relevant Issues of Free Trade Agreements

        The free trade organizations always proclaim the free trade will benefit the members’ countries. In facts, free trade agreements have undermined local laws and constitutions.

First at all, there are exits the power of policies under WTO. Though there is a main principal of equality and non-discriminations, dominant countries have the right to protect their nation’s health and environment but the other countries cannot. In reality, some importing national has no choice to allow a free trade that harms the national laws and decisions for safety and protections of people’s health, environment and national economies. For instance, members’ countries cannot forbid importing genetically engineered food that known to cause health problems. ()

        

Furthermore, there have been many concerned issues since the initiation of the NAFTA. Issues over cheap labor, environment concerns, highway safety, and who will gain control over the economy have been facing by officials for some time now. One of the major issues concerned is that open up free trade between US and Mexico has also enabled Mexican truck to cross US border freely. () With more Mexican truck able to cross the border freely, many problems have consequently occurred. The open up of border for business has also increased the chances for illegal drug trafficking. In addition, problems that caused by Mexican truck to the environment or highway will have to be paid by US instead of Mexican government. Therefore under pressure from public and politic, President Clinton has limited the trucks that allowed entering US and this has violated the rules in NAFTA agreement. Not only in US, President Vincente Fox of Mexico also restricted US truck to enter Mexico due to the pressure from Mexican federal transportation agency. () As a result, in order to trade between US and Mexico without duty, a lot of documents are needed to prove that the goods are eligible to cross border without tariff. Which also means NAFTA has imposed large burden of paperwork that may become the barrier to trade even the principle of the agreement is free trade. (Paul R. Krugman, 2006)

Conclusion

        Over the past few decades, the increasing of free trade adoption is obvious as more and more countries slowly reduced their trade barriers. The improvement of free trade policies have also improved respectively. However, the current issues have clearly showed that current free trade policies are still incomplete. Many opinions and criticisms have been voiced out to oppose free trade. When the benefits exist in the countries that open up their market, they will accept it without worrying other consequences. This means the advantage of free trade is more obvious than the disadvantage of it. No matter how, the current free trade policies are surely needed a lot of improvement to achieve more efficient international trade. Since open markets are significant, the wider choices and lower prices are available for businesses and consumers. The expanding competition in the market encourages greater productivity and innovation. Hence, the free trade should be prevailed and the Free Trade should be improved in order to fix the current issues.        

         

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