Free Trade Agreement Essay Example | Topics and Well Written Essays - 2000 words

Free Trade Agreement - Essay Example It brings prosperity. However it may be a disadvantage for protected industries which are at a comparative disadvantage (Anderson, 22, 1997). Governments worldwide are considering setting up free trade areas which they believe will open markets and improve the standard of living of their people. However there has been some opposition for the establishment of free trade areas also. Some people say that it would be disastrous for the trade and stability of smaller countries (Daniells, 54, 2005). Free Trade areas open up markets and eliminate tariffs. However this would be disastrous for small countries since their industries and agricultural products would not be able to compete with the corporate goods of powerful countries. Foreign agricultural imports would destroy a small country's agriculture. The country would be dependant on imports to survive and feed its population. Small countries have been reluctant to join free trade areas because of concerns that their small industrial bases would be unable to compete with corporations of powerful and industrialized countries (Anderson, 22, 1997). According to economists free trade areas have short impacts on member states as they adjust their production and consumption according to falling trade barriers. They also initialize improved specialization of resources and create more opportunities for exchange within the region (Frumkin, 71, 2000).This allows consumers to benefit from lower prices. Production is also increased due to reallocation of resources according to the comparative advantage. Free trade areas also cause transitional costs as companies begin to reallocate their activities which can cause short term unemployment (Esser, 65, 1999). Free Trade areas also cause long term impact on economic growth as economies grow in scale and scope (McInnis, 61, 1995). Competition increases between companies. There is also an increase in technology and investment. Companies expand their activities in the greater market. It also causes innovation and efficiency in companies. A free trade area also causes greater dependence of economies. This can cause some vulnerability and instability in a trading partner. But the trading partner also benefits from multiple links with the better performing trading partner (Esser, 65, 1999). There are other difficulties in the establishment of free trade areas. Countries with different political, legal, social and economic systems will have difficulty if trade and investment are opened between them (Walford, 51, 2005). This also can create larger transition costs. Free trade area however helps to remove barriers which prevent trade between nations, hinder production and breed corruption. A free trade area can help in reducing corruption in developing countries. They also help in promoting trade and investment. They can also help in developing the infrastructure of poor countries (Webb, 54, 2005). China has been pushing for the establishment of a free trade area in Asia and the world despite being a developing country (Ackroyd, 34, 1997). It has participated in numerous talks and negotiations. China currently has an agreement with ASEAN. It is also negotiating with Australia and New Zealand for the establishment of a FTA. Further talks have been conducted with Japan and South Korea. These three