Free Trade
Candlefocus EditorThe concept of free trade was first formalized in the late 19th century with the signing of the General Agreement on Tariffs and Trade (GATT). GATT established uniform and reciprocal tariffs and other trade regulations between signatory states. It was later modified with the formation of the World Trade Organization (WTO); an intergovernmental organization created to promote and facilitate international trade.
In addition to the GATT and WTO, most countries have enacted reciprocal free trade agreements with their major trading partners, such as the North American Free Trade Agreement (NAFTA) between Canada, the United States, and Mexico. These free trade agreements seek to reduce or eliminate tariffs, quotas, and other market entry and exit barriers, as well as “behind-the-border barriers” such as regulatory requirements and standards.
In essence, free trade agreements remove trade barriers, allowing more goods and services to flow freely across borders with minimal regulation. In the case of the Western world, free trade agreements have spurred increased economic integration and cross-border investment in the global economy.
The goal of free trade agreements is to increase international trade and investment, which in turn, they believe, will increase global economic growth, raise standards of living, and reduce poverty levels. Yet, even as trade agreements have led to economic growth in many parts of the world, it has also led to an increase in the financial gap between wealthy countries and the poorer countries.
That’s why the U.S. and the EU have pushed for strict regulations and oversight to ensure that the benefits of free trade are equitably shared among all parties. This includes vetting and monitoring the overseas working conditions and environmental standards of companies that are a part of free trade agreements.
Ultimately, free trade is not an unblemished system. Despite its potential for economic expansion, free trade agreements can also lead to financial disparities, price manipulation, and unfair labor practices. However, when these agreements are properly implemented and regulated, free trade can be an effective tool to open the flow of trade between countries and promote economic freedom.