Concept of Free Trade Agreement - Coursework Example

FREE TRADE AGREEMENT By Student’s Name Course Title Name of Instructor University Affiliation State Date Introduction The free trade agreement (FTA) is a treaty between two or more nations with a primary purpose of providing a free trade area, where trade and flow of the goods and services are conducted freely across their common boundaries without any hindrances or attracting tariffs. However, it is different from an ordinary market because there may be no free movement of the labor and capital. A uniform tax is imposed upon the trade with a non-member nation. The United States got into its first FTA on 1st September 1985 with Israel, and since then, the U.S. has signed additional 14 FTAs covering a scope of around 19 nations (Baier & Bergstrand 2007). The U.S has received substantial benefits from the FTAs, and this has made the Commerce Chamber consider enacting more FTAs in future. Free trade agreements have raised the productivity in the US, improved conditions necessary for creating jobs, boosted the economic growth and facilitated cross-border trade (Tsogas, 1999). While one tries to understand the advantages of FTAs, a wider knowledge about the proposed Trans-Pacific Partnership (TPP) and the others such as TISA, and TTIP crosses one’s mind to get a sharper focus. The international trade defines the framework of prosperity. New areas of innovation and competition are opened by the new free trade policies. Goods and services, as well as beliefs and values, are widely spread when the FTAs are established (Rosewarne 2014). Free trade agreement provides several benefits to organizations, employees, and stakeholders. The Pros of Free Trade Agreements: Increased economic growth; Increased production; Business incentives; Resource allocation; International cooperation; Lower government spending; Expertise; Better working environments; Foreign direct investment; and Transfer of technology. One great purpose of the trade is providing access to a wider variety of the services and goods. Scholars have said that when a free market is provided across borders, the competition is fostered significantly, thus forcing the companies to become more innovative and creative. Amid competition, better products are developed, and prices are kept low (Baier & Bergstrand 2007). Enterprises that deal with a lot of things at the same time are forced to close some subsidiaries so that they concentrate on the goods and services that do best. International trade affects the quality out of companies that still want to make sales in the free market. The free trade agreements benefit organizations in various ways (Brenton & Manchin 2003) A brand is easily created because every company is striving to produce quality products at unbeatable rates. Businesses can access a vast market at the same time thus growing considerably and becoming international companies by default. Free trade agreements require the companies and their employees to embrace and support the rule of law. The World Trade Organizations oversee all the transactions, ensure the party members abide by the WTO rules, and honor the contract. If a nation does not enforce the contracts, the businesses are lost, and the investors move their money to a more secure location (Tsogas 1999). The benefits of the free trade are retained if all rules are obeyed. International cooperation is employed when the free trade is implemented because the ideas and values are passed across the land. Organizations that choose to take part in the international markets take more risks than those operating locally. The risk taken is rewarded through increased market share and increased sales. The nations grow their economy when they participate in the FTA (Schott et al. 1988). Such an economic advantage spills even the smaller countries with a weak economy simply because they are open to the trade. The inflation is suppressed indefinitely by the imports because the best source supplies every commodity. Everyone benefits from the imports because they are obviously of low prices (Baier & Bergstrand 2007). Through the initiation of FTAs, the local organizations have received the latest technologies and human resources from the developed nations. Through the free trade, technology transfer has been made possible by the multinational companies to the local businesses that are in partnership. Employees in these firms have interacted and gained more skills in their area of specialization. It goes without saying that the global organizations and industries have more expertise than the local businesses to improve local resources. In some countries, oil has been discovered, but they lack the necessary skills to drill it. Mining and manufacturing are other areas where the domestic companies need help. Through the free trade, the duties expected to be paid by these global industries are cheap and affordable, and the country is also accessible without the numerous restrictions (Rosewarne 2014). The multinationals partner with the local firms in the exercise and train them on the best practices. The Cons of Free Trade Agreements for employees and their representatives include: Increased job vacancies; Crowd out domestic industries; Theft of intellectual property; Degrading of natural resources; Poor working conditions; Reduced tax revenues; and Destruction of native cultures. Job vacancies have increased tremendously following the reduced tariffs on the imports. When less money is paid for importing, the companies and organizations end up extending to the other nations without limitation. Imports from the countries with a low cost of living go at lower prices than even the domestic products in that country (Tsogas 1999). Take the US for instance, when the companies such as China bring their goods to the market, they cost less that the locally manufactured products. Thus, the U.S. companies are forced to reduce their cost of production to compete with the imported goods. One way of reducing the production cost is by dropping the workforce. Because of NAFTA, many US manufacturing industries laid off their workers. NAFTA has criticized that it sent jobs to Mexico because that is where people ran to (Schott et al. 1988). FTAs can also cause serious employment issues and this is no longer theoretical but practical as earlier indicated. The domestic industries such as farming have been neglected thus increasing unemployment, poverty, and crime. Due to the eruption of FTAs, the developed countries that have majored in subsidized agri-business supply their cheap farm products thus pushing aside the agricultural products from the local farms. These private farmers are left with no alternative but to quit their work and proceed to the cities to look for other forms of employment. Most of the developing countries do not have the laws protecting the patents, new processes, and inventions as the developed nations. When such countries get into an FTA, some companies exploit these people by stealing their ideas and establishing something major in the same country under their names. The small businesses set up by the inventors have to compete with the lower-priced domestic products. The organizations and corporations established before the FTA may collapse shortly after the agreement due to such exploitation (Rosewarne 2014). Upon closure, many people are rendered jobless thus making the developing countries poorer and dependent. The free trade markets do not have any more regulations regarding the trade itself. Since there is no reinforcement, people have indulged in the businesses that are illegal. Free trade has led to the depletion of minerals, timber, and other natural resources. In some countries, strip-mining and deforestation has reduced the jungles to wasteland fields. Both the environment and business are destroyed because there are those who depend on this forest to acquire what they require for the market, but when destroyed, the business will fail. Due to the emergence of the free trade agreements, the multi-national companies are taking the advantage and opening thousands of outlets. However, the problem comes in when they relocate their staff to the new environment without caring about the labor protections. Due to the lack of laws, the marginalized groups such as the women and children are subjected to the sub-standard working conditions of the factory job. This problem cuts across all levels of employment, even those in the managerial positions (Schott et al. 1988). All the people are subjected to similar circumstances which deprive them of their rights. In summary, many issues surround the human resources and its relation to FTAs. The free trade agreements have allowed a free flow of people across borders of the relevant countries, but regulations have not been erected. There are both advantages and disadvantages of having FTAs and the kind of effect it brings to the employees and organizations. From this paper, we learn that those who are highly disadvantaged are employees from the developing country. They face intimidation, discrimination, job loss and poor working conditions. The domestic organizations are affected both adversely and positively. If a multinational company comes into the country, steals ideas from a domestic company and starts a new business based on the same idea, it is likely to affect the local business adversely leading to its closure. FTAs have a positive effect on the economy of the world, and that is why economists insist on them. References Baier, SL, & Bergstrand, JH 2007, “Do free trade agreements increase members' international trade?”, Journal of International Economics, 71(1), 72-95. Brenton, P, & Manchin, M 2003, “Making EU trade agreements work: the role of rules of origin”, The World Economy, 26(5), 755-769. Rosewarne, S 2014, “Free trade agreements, temporary labor migration and the erosion of employment standards”, Australian Options, No. 79, Summer 2014 - 2015: 9-11 Schott, JJ, & Smith, MG 1988, The Canada-United States Free Trade Agreement: The global impact, Washington, DC: Institute for International Economics. Tsogas, G 1999, “Labour standards in international trade agreements: an assessment of the arguments”, The International Journal of Human Resource Management, 10(2), 351-375 Read More