Free trade agreement Essay
In your own words describe the purpose for developing free trade agreements. Explain how the establishment of free trade areas represents both a threat and an opportunity for global corporations.
Currently, free trade agreements are the backbone of the international trade. It is well known that free trade zones and customs unions facilitate the free movement of goods, increase the attraction of investments, technology exchange and are the cornerstones of trade liberalization.
A number of modern economists believe that trade restrictions (protective tariffs, export subsidies and import quotas) creative the preconditions for the inefficient functioning of the economy, depriving consumers and producers of the necessary incentives and further, forcing the state to bear financial losses. Stiglitz and Charlton (2007) argue that in terms of limited national markets small companies serving the needs of the small market get widely spread, bringing to nothing the savings associated with the growth of production scales, and that the incentives stimulating manufacturers to innovations and competition with each other, lose their attraction. In general, the economic integration of the different countries is now deepened in terms of the rapid development of communications, transport and investment strategies, which brings great benefits to global corporations due to the expansion of markets with less expenditure on tariffs.
However, there are still several economic arguments against free trade. One of them is based on the disadvantages of the domestic market. If the internal market is not functioning properly, only the refusal from the principles of free trade can help to restore it or bring the compensatory gain to other areas of the domestic economy (Fletcher & Luttwak, 2011). Another argument is that the fundamental position of the theory of free trade on the immovability of capital is no longer true, and free trade can harm some countries, as investments are now made in accordance with the principle of absolute returns, rather than on the basis of comparative advantage (Fletcher & Luttwak, 2011). Thus, free trade can lead to a reduction of wages, poor health, security level decline, and simplification of the techniques of environmental protection to the lowest levels prevailing in any of the trading countries.
