- What is ‘free trade’?
- What is ‘liberalisation’?
- What are the key bilateral or regional free trade agreements?
- Is it helpful for developing countries to get access to wealthier developed country markets?
- How are countries pressured to agree new trade deals?
- Do wealthy countries follow their own advice?
What is ‘free trade’?
Free trade is defined as trade within and between countries that is free from government intervention. There should be no obstacles to trade and minimal regulation.
The policy of economic ‘liberalisation’ is the gradual removal of government intervention in home markets. For example, this could mean a government:
- cuts its support for local producers
- opens its markets by removing the barriers that limit the amount of imports it allows
- privatises public services such as water, health or transport
- reduces regulations which cover the activities of private companies.
What are the key bilateral or regional free trade agreements?
North America Free Trade Agreement (NAFTA). This deal between the USA, Canada and Mexico has been in effect since 1994. NAFTA has given companies the ability to sue governments. This has led to cases when governments have dropped public health measures that could allegedly damage a company’s commercial profit under threat of legal action.
- Free Trade Area of the Americas. Talks began between the US and more than 30 countries in 1994 and are still underway. The fact that US farmers continue to receive massive state subsidies, in contradiction to the principles of free trade that are forced on developing countries, is a big sticking point in these talks.
- Economic Partnership Agreements. These are deals between the European Union (EU) and 77 African, Caribbean and Pacific countries. They began to come into effect in 2008. Many developing countries fear that the deals will put them into competition with wealthy EU companies before they are ready to compete, potentially leading to de-industrialisation. Another grave concern is reduced government income from taxation as import tariffs are slashed. Issues that were strongly resisted at the World Trade Organisation were sneaked back onto the table by the EU during these talks.
Is it helpful for developing countries to get access to wealthier developed country markets?
Wealthy countries often suggest that developing countries should be granted greater access to sell their goods in the markets of developed countries. This could certainly benefit some developing countries. However, the poorest people do not produce goods for export. They make their living producing goods for their local market where cheap imports from the developed world can be the biggest headache.
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How are countries pressured to agree new trade deals?
There are reports of countries being bullied into accepting trade deals which they are reluctant to sign. All the stops are pulled out to get a deal agreed. Wealthy countries have been reported as threatening to cut their aid, for example, if a country does not sign up. There have also been reports of direct phone calls from one president to another on the eve of critical trade talks, to press individual countries to drop their opposition to a deal. What is more, developing countries are also forced to adopt economic policies favoured by wealthy countries when they come into contact with the World Bank and International Monetary Fund.
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Do wealthy countries follow their own advice?
Almost all of today’s wealthier countries developed their economies following the very policies they now discourage elsewhere!
Many wealthy countries still refuse to take their own free trade advice and continue to hand out massive subsidies to farmers or producers, which provide an incentive to produce too much. The glut of goods is then sold off cheaply in other parts of the world, driving down global prices. The result is that producers from wealthy countries enjoy an unfair advantage over developing country producers – who rarely receive any government support at all.
Last modified: 12/01/2011
