Free Trade Features

Free trade is a system in which the trade of goods and services between or within countries flows unhindered by government-imposed restrictions. Such government interventions generally increase costs of goods and services to both consumers and producers. Interventions include taxes and tariffs, non-tariff barriers, such as regulatory legislation and quotas, and even inter-government managed trade agreements such as the North American Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA) (contrary to their formal titles.) The most extreme version of Free Trade opposes all such interventions. Trade liberalization entails reductions to these trade barriers in an effort for relatively unimpeded transactions.

One of the strongest arguments for free trade was made by classical economist David Ricardo in his analysis of comparative advantage. Comparative advantage occurs when different parties (countries, regions, or individuals) have different opportunity costs of production. The theory is that free trade will induce countries to specialize in making the products that they are best at, and that this will maximize the total wealth produced.

Opposition to free trade, which is generally known as protectionism, claims either that the above theory is unrealistic, or that the advantages are outweighed by considerations of national independence or national security ; or of nurturing infant industries in one's own country (in hope that they will later become competitive) ; or of preventing the exploitation of economically weak countries by the economically mighty ; or of furthering various other social goals.

Free trade implies the following features:
• trade of goods without taxes (including tariffs) or other trade barriers (e.g., quotas on imports or subsidies for producers)
• trade in services without taxes or other trade barriers
• The absence of "trade-distorting" policies (such as taxes, subsidies, regulations or laws) that give some firms, households or factors of production an advantage over others
• Free access to markets
• Free access to market information
• Inability of firms to distort markets through government-imposed (or non-government-imposed?) monopoly or oligopoly power
• The free movement of labor between and within countries
• The free movement of capital between and within countries

0 comments:

Newer Post Older Post Home