Question

Free trade agreements (FTA) between nations have proliferated in recent times, however they have not been universally well received. Discuss the major arguments for and against FTAs, focusing particularly on their effects on commercial enterprises.

Answer 1

Free Trade Agreements allow nations to interchange goods and services easily between them. This means reduced regulation, red-tape and overall economic growth at the first glance. However, the FTAs do have their own share of pros and cons.

Advantages: The advantages of FTA is mainly focused on capitalistic nature of economic growth. Some of the key points are

• Growth: FTA provide growth for businesses that are competitive. It allows easy expansion in global market and increases overall market size.
• Culture: Provides improved and dynamic business culture. This in turn results in better economic measures within countries. This also makes stagnant industries sit up and take notice in order to be more competitive.
• Government spending: With efficient trades between countries, theoretically, government spending on subsidy can be reduced. The government funds can be better used to provide other needs of the citizens.
• Investment: FTA allows foreign direct investment to and from the country. This means it helps the country’s investors to broaden their portfolio and increase remittance. In the other hand it also allows the businesses to raise fund from foreign institutes in order grow.
• Knowledge: Share of technology, services, products and overall knowledge is a good example of an efficient FTA. Such sharing can benefit the countries in question provided that their knowledge capital is complementary to one another.

Disadvantages: In spite of these many advantages of Free Trade Agreements, there are also several disadvantages that plague the system. Some of the key disadvantages are:

• Jobs: Often jobs are outsourced to the country with cheaper labor. This means that FTA causes job uncertainty and unemployment. This in turn impacts the economy negatively resulting in negative impacts for the businesses.
• Theft: The sharing of technology and knowledge can also give rise to theft of intellectual properties from one country to another. Often the patent laws are specific to a country and in case of theft, the businesses are harmed through opportunity loss.
• Reduced revenue for government: Most governments implement import duty. With FTA, these duties are either reduced or removed. This results in reduction of government income. Unless this reduction can be balanced out by increase income level (in turn income tax) of individuals of the country, there is bound to be a negative impact.