Friends, you might have read in your news feed about the series of negotiations for free trade agreements and protests of farmers and workers for justice. Isn’t this contradictory? Why does free trade system precipitate negative impacts? Is there any alternative for free trade system? For this, let’s explore the pros and cons of free trade system to make it more better..
Meaning of free trade
Suppose, ‘A’ country exports some electronic gadgets to ‘B’ nation at $50 per unit. And, if in the ‘B’ nation, the product is available at the same rate for consumers, then, we could say that destination nation hasn’t imposed any tariffs, duties or any other text on the goods of ‘A’ country.
It happens only when both nations are agreed for free trade of goods, services and other factors.
In this manner, when more than two nations agree to accept terms of barrier free trade, it results in the multilateral free trade agreement or system. Now, let’s see various pros and cons of free trade.
Pros of free trade system
First of all, I’m going to explain the positive achievement of free, and then, we see the general fallouts of free trade.
1.Comparative advantage of free trade system
It is all about to materialize the cost difference of factors of production among member countries to produce cost effective and competitive product.
By doing so, producer, as well as consumer will be in surplus, and it will boost purchasing power of consumer.
2.Free trade generates consumer surplus and expands market
Comparatively, in free trade, consumer saves more as he needs to pay lesser for same product.
At the same time, free access encourages more players to participate in the absence of barriers.
3.Free trade accelerates the pace of employment opportunities and improves standard of living
As I discussed earlier that free trade helps to save more and increase the rate of capital formation. Consequently, the rate of job creation rises considerably.
Increased choices, consumption and rise in income adds much lustre for living standards.
Apart from all these, easy access for advanced technology, lesser government spending, intensive use of resources, and financial literacy are some of other benefits free trade generates.
Now, it is time to discuss the second angle of pros and cons of free trade system.
What are the cons of free trade system?
Like, positive impacts, cons of free trade are really vital as they help to improve the functionality of system.
1. Does free trade impacts jobs and employments?
This is the most common argument of opponents against the free trade system.
As per theirs point of view, nowadays, production in China is widely considered cost effective due to low, wages, cheap resources and so on.
In such situations, people are losing jobs in the other nations due to increased demand for Chinese products.
Loss of job is a serious thing as it impacts saving, personal capital, and standards of living.
Export driven growth strategy is somehow responsible to place free trade system in the negative zone.
2. “Does free trade affect food security or is growing starvation and malnutrition a product of free trade system”
It is the least noticed but most important negative impacts of free trade system.
It is commonly noticed that export-oriented and import-competing agro- industries divert theirs land resources for cash or plantation crops ignoring food crops.
Everything is done to make product competitive to be market leader.
Shockingly, it has often been proved by the land use policies of respective nations of free trade regions (FTA)
3. Piracy of technology or dispute over Intellectual Property Rights
Since many decades, it has been a bone of contention between inventors and potential beneficiaries.
Strangely, majority of patent rights related to biotic resources are with developed countries.
But, the pool of such resources are abound in developing countries. Isn’t it mad rush for resources? Then, conflict is unavoidable.
It is happening because inventors always stress to recoup their investment pumped in research. Whereas, potential beneficiaries argue about the unaffordable prices.
4. Regional block politics and failure of multilateral negotiations — fallout of free trade negotiations, isn’t it?
It is results of favour and disfavour policies.
Even though, the Uruguay round was a milestone in term of consensus over the barrier reduction, the later development raises many doubts over the result oriented negotiation.
It is true that regional economic blocs are engine of growth and appreciable incentive for integration.
But, at the same time, these are acting alternatives for the stagnated negotiations of the WTO.
5. Economic inequality and regional disparity due to favourable market access
Open market embodies the democratic principle that is freedom to trade.
As a result, migration of everything begins to capture favourable condition.
Many staunch aspirants are pumping their investment in areas from where they could reap profit in return, ignoring unprofitable one.
Logically, consequent repercussions are regional disparity and economic inequalities.
6. Why need for agricultural subsidies– to minimize the negative impact of free trade system
Why are the negotiations of WTO not solving the bottlenecks?
To preserve the interests of unskilled labours of import-competing industries, high income countries are offering large amount of subsidies for them. This is the best example of cons of free trade for farmers.
7. Environmental degradation and loss of cultural identity is serious cons of free trade
It is happening due to loss of identical products in search for global market access.
Cost effective production with lower opportunity cost is prerequisite to scale more in competitive market.
Is there anyone to compromise profit for negative externality? Definitely no one. So, the scapegoat is bystander.
These are some common pros and cons of free trade system prevailing in the today’s advancing world.
After all, healthy competition is necessary. We know that conflict oriented competition won’t bear better results.
But, at the same time, there should be constant improvement in the system in function.
At last, it is wrong to make free trade system a beast of burden or complete saviour to bypass ours inabilities. Let’s hope for greater journey.