Posted in Finance, Accounting and Economics Terms, Total Reads: 439
Definition: Free Trade
It denotes the unbridled exchanges of goods and services between countries. The unbridled nature is due to the fact that the countries don’t impose duties, quotas or taxes to make goods from outside the state costlier and thus less attractive to buy in comparison to home made items. However free trade enables the countries to trade on wide varieties of goods and services and make most use of their core competency.
One of the great examples is the European Union and the North American free trade policy. Such agreements enable the participating nation to be competent in international markets and expand their reach beyond their horizon, positively affecting their economy and unemployment. The World trade organization strives for greater freedom in trade and many members are signatories to numerous bi-lateral and multilateral deals. However the protectionist nature of some countries cannot be done away with. Indian government during the period of high fiscal deficit imposed quota on gold import, countries trying to support their working class or industries such as the steel imposes heavy tariff to keep certain goods at bay from the domestic markets. Some other countries provide subsidies to make their goods more competitive in nature. Such measures are only short term thus process and technological innovation is required to gain sustainable competitive advantage in international markets. Countries can impose blanket ban on certain precious resources to keep them from being transported to other nations.
India has flourished since the deregulation era and china phenomenal growth is also attributed to free trade policy. Free trade enables the nation to focus on its core competencies and accumulate enough foreign reserves to import goods which it doesn’t produce. It is a win-win situation for both the trading nations. International goods also bring competitiveness and prompts indigenous manufactures to match international standards.