The paper 'Free Trade and General Agreement on Tariffs and Trade" is a good example of marketing coursework. Free trade is an economic concept that refers to the selling of goods and services between different countries and nations without any imposed trade barrier and tariffs. It refers to the absence of government-imposed barriers to trade among persons as well as corporate in different countries. International trade is restricted by certain barriers such as taxes, import duties as well as other non-tariff regulations. Trade agreements that are labeled as “ free trade” often have their own barriers too towards entry or exit from the market among its members.
In reality, the free trade policy does not imply that the government abandons all controls revolving around imports and exports but rather that such government eliminates tariff barriers, trade quotas and currency restrictions. Adam smith urges for the case of free trade. He argues that different countries engage in the specialization of labour which results in the specialization. This results in increased efficiency and greater productivity. Countries should, therefore, be left alone to produce that which they can in order to remain competitive in the international markets.
The General Agreement on Tariffs and Trade (GATT) is one of the major bodies that seek to liberalize trade by getting rid of barriers such as quotas. It is administered through WTO, World Trade Organization. It was formed in 1947 and it has since acted as a trade dispute negotiator mediator. It was originally made up of 23 nations but the number increased to 84 countries. Its aim was to tear down trade barriers through multilateral negotiations. The reciprocity concept was first adopted followed by the preferential trade treatment.
These changes helped boost international trade among the countries. However, after the 1970s, global trade output decreased and the economic recession also hindered trade cooperation between the member states. For instance, the United States and Europe which were supporters of GATT started imposing protectionist policies on their industries. Although the 1994 reforms in the GATT and WTO initially increased trade as well as boosting the economies, countries were often involved in disputes. The usefulness of the two is limited as countries often impose barriers and the governments also offer subsidies and thus the free trade policy has not entirely been achieved. Although free trade has numerous advantages to both the developed and the developing countries, the government must remain very vigilant in the intervention of international trade.
The governments intervene in economical, political and cultural means. Economic motives Free trade has several characteristics. They include; industries have free access to markets, all the industries have access to free-market information, there is the trade of goods and services without any market barrier such as tariffs, quotas or any subsidies, the firms are not able to distort markets through government-imposed monopoly power and there is no trade-distorting mechanisms such as taxes, laws and regulations that favour certain household or households or factors of production over others. Protection of infant industries Infant industries are often new industries that have not achieved their possible optimum growth.
The government, therefore, has to protect such industries from the international competition especially during their begging and developing stages until such industries are able to compete globally. Such industries will often charge higher prices for their goods and services in order for them to recoup their investment thus foreign goods would be the main threat to their growth if they were allowed to export at cheaper prices.
( Harris, 2008)25 (18). Moreover, such infant industries may have not invested much in research and development. Their raw materials, production processes and wastage are, therefore, likely to be higher as compared to foreign industries that have been in existence for a longer period and have acquired their market share. Such industries, therefore, must be protected from such powerful dominant firms.
The infant industries are likely to achieve economies of scale, increased manufacturing skills as well as industrial infrastructure if they are protected for a while. For instance, if sugar was to be allowed into the US at reduced tariffs, the local sugar industries would have to sell their sugar at reduced prices thus lower profits.
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