The Advantages and Disadvantages of Free Trade in the Global Economy

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Introduction.

In this essay on the World Trade Organisation and the Cancun round of negotiations, there will be a discussion on the advantages as well as the disadvantages of free trade in the global economy and there will also be looked at a defenition for the WTO. Furthermore, this essay will also focus on the reasons why the Cancun ministerial round of discussions had collapsed.

World Trade Organisation.

The World Trade Organisation ( 9 years old ) can be defined as an international body that looks to promote free trade by opening markets through the elimination of import tariffs.

It manages trade agreements, observes international trade policy and performs as a medium for trade discussions, while striving for four main goals such as freeing global trade through universally lowered tariffs, imposing the same rules on all members in order to regulate the trade process, urging competition through lowered subsidies and guaranteeing the same trade recognitions for all member nations. The WTO also gives technical support and training to developing countries and works to improve plainness which concerns trade policies by needing its members to report on their trade laws and measures as they go into effect.

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(Moore, J. 2003. pg. 1)

Advantages of free trade.

Free trade happens when there are no barriers put in place by governments that limit the flow of supplies and services between trading nations. When these trade barriers, such as tariffs and subsidies are put in place, they protect the domestic producers from international competition and redirect, rather than create trade flows.

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(Edge, K. 2000. pg. 1)

Trade also ties countries together and this generates a good basis for economic and political interdependence. (Balaam, D.N. & Veseth, M. 2001. pg. 112)

Free trade allows countries to concentrate in the production of those products which they have a relative advantage in. This causes that countries are able to take advantage of efficiencies generated from ‘economies of scale and increase output.’ So, international trade boosts the size of a country’s market, resulting in a lower average costs and increased productivity. Free trade also advances the effectiveness of resource allocation which leads to higher productivity and an increase in the total domestic output of goods and services. Free trade also causes foreign exchange gains because a country that sells its exports overseas receives hard currency from its customers’ which is then used to pay for imports that are produced more cheaply overseas. Increased competition encourages new production methods, the use of new technology, marketing and distribution methods. (Edge, K. 2000. pg. 1)

The countries which are involved in free trade also experience high living standards, increased ‘real’ incomes and higher rates of economic growth. (Edge, K. 2000. pg. 1)

Disadvantages of free trade.

Free Trade does not just have benefits; it also has cons too for example:

Structural unemployment is likely to occur in the short term with this removal of the trade barriers and free trade may also cause an bigger domestic economic insecurity from international trade cycles because economies may became too dependant on the global market. International markets are not an equal playing field as countries with extra goods may dump them on the world markets below cost. Some well-organized industries may than find it difficult to compete for long periods under such conditions.

Developing or new industries may also find it difficult to become recognized in a competitive environment with no short-term protection polices by their governments and free trade can also lead to pollution and environmental problems when companies fail to include these costs in the price of goods. (Edge, K. 2000. pg. 1)

Cancun ministerial round of discussions.

‘After a morning of “green room” meetings, intense negotiations, extensive lobbying, and creative manoeuvring, a Kenyan delegate stood in the concourse of the Cancun Convention Centre on the afternoon of September 14, 2003, and stated that the talks had collapsed — the 5th Ministerial of the World Trade Organization was over.’ (Symington, A. 2003. pg 1)

ACP countries (Africa, Caribbean and Pacific) had refused to keep further discussions about investment and other “new issues” going because they believed that the system is undemocratic, non-transparent and anti-development for developing countries. So the delegates did not return to the negotiating rooms and the 5th WTO Ministerial ended in confusion when the delegates of developing countries walking out of the discussions. Some people were puzzled and amazed by the events, unsure of what to think about this disturbance in “business as usual”, and some were shocked at the “lost opportunity”. (Symington, A. 2003. pg 1)

The reasons for collapse.

The talks collapsed as a result of the meeting of many different factors. Some believed that the collapse was due to “cynicism, delusion and incompetence”. Countries did not trust each other around the discussion table and they focussed mainly on their own self-interest economic agendas and not on a cooperative basis with other countries in order to lighten poverty, inequality and human rights violations in the world. Developed countries continued their pressure on the developing countries and the process of having “facilitators” was seen as non-transparent and manipulative. Furthermore, despite calls since the Seattle Ministerial in 1999, no changes had been made to make the WTO’s decision-making processes more democratic. (Symington, A. 2003. pg 2)

Another factor for the collapse of the discussions falls directly on the United States and the European Union. It was clear that the US and the EU did not want to make any major cuts in their agricultural subsidies although they continued to push the developing countries to lower their tariffs. These two nations also disregarded the “open consensus” stipulation from the Doha Declaration and forced ahead with discussions on the “Singapore Issues” to push their own self-interests and uncompromising behaviour. (Symington, A. 2003. pg 2)

Another factor was surely the shaky basis on which the discussions started off. The Doha Declaration was a very delicate agenda to begin with and the lack of consensus on the goals of the round (and on the best means to achieve development in countries of the global South) came back to bite those who had brokered the deal. This faulty platform influenced the success of the discussions greatly. (Symington, A. 2003. pg 2)

The organization and strength of the global South demonstrated during Cancun was also an important factor. This strength was due to a few reasons such as trade ministers which had held bilateral and multilateral meetings with one another before to Cancun, many brought large numbers of parliamentarians and policy experts from NGOs as members of their official delegations and furthermore, psychological support was given to the delegates by the ‘near-unanimous and instantaneous denunciations of the draft text by NGOs and activists’ all around the world and in Cancun. (Symington, A. 2003. pg 3)

The developing countries were strong in their alliances and kept their positions of no new issues, an unambiguous reduction in domestic agricultural subsidies in rich countries and special protections for strategic products. They felt that it would be wrong to go back to their countries without having improved the lives of the poor and it became obvious that the best result was for the discussions under the Doha Development Agenda not to receive the support of the Ministerial. While on the surface it would seem that the failure to reach a consensus on agricultural issues and on the “Singapore Issues” caused the failed talks but the resolve of Southern countries to avoid another harmful compromise, can be seen as the more fundamental reason behind the impasse. (Symington, A. 2003. pg 3)

Finally, the collapse of the talks in Cancun can be seen as the suggestive of a more global searching of the neo-liberal model and its instructions. Trade liberalization, privatization, deregulation and other market-based policies that have been leading for the last 20 years are failing with respect to reach development. Countries grew poorer and people hungrier over the last 10 years and in addition are

human rights being violated. This reality brought all kinds of people to Cancun – farmers, students and women – and encourages them to take part in the ministerial. They caused that many governments had to stand their grounds and refused to bend to the demands of the developed countries. (Symington, A. 2003. pg 4)

Furthermore, the breakdown of the ministerial can be seen as the shift in agreement that is emerging in the global discussions about values and governance. Average people, NGOs and governments are seeing food as a basic human right, not a service; that it is not enough to have jobs available but that jobs must provide ‘real’ wages for people to make a decent living and provide dignity for workers; that governance institutions must keep the needs of the poor in mind at all times, the disadvantaged and the discriminated against; and that economic growth must add to development, equality and human security. This agreement shift is producing cracks in the system. And finally, the role of the civil society should not be underestimated. (Symington, A. 2003. pg 4)

So, in a sense, Cancun can be seen as a first step to build a more equal multilateral system that focuses on the well-being of a global society because the developing countries showed resistance to the demands of the rich countries. The rich countries is clearly only focussed on the well-being of their own economies and they only wish to do things if it is in their own self-interest. So, the choice which the alliance of the developing countries had made to stand up against the rich countries couldn’t have been easy and the extend of that choice shall yet be revealed. Did they harm themselves indirectly or was the statement which they had made loud enough to be heard by the rich countries of the world? Only time can tell…

Bibliography:

  1. Balaam, D.N. en Veseth, M. 2001. Introduction to International Political Economy.’ Prentice-Hall: New Jersey. Pg. 112
  2. Edge, K. 2000. ‘Free trade and protection: advantages and disadvantages of free trade.’ Department of foreign affairs and trade. Pg. 1
  3. http://hsc.csu.edu.au/economics/global_economy/tut7/outcomes#outcomes
  4. Symington, A. 2003. ‘Final Reflection on the World Trade Organization’s 5th Ministerial Conference.’ Association for Women’s Rights in Development. Pg. 1-4
  5. http://www.awid.org/cancun/index.html

 

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The Advantages and Disadvantages of Free Trade in the Global Economy. (2021, Sep 26). Retrieved from https://studymoose.com/the-advantages-and-disadvantages-of-free-trade-in-the-global-economy-essay

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