The Advantages and disadvantage of Free Trade in Developing Countries
Introduction
Free trade agreements provide chances for both large and small Australian firms to profit from increased trade and investment, which in turn boosts economic activity and job creation in Australia.
Non-tariff obstacles that might otherwise obstruct the flow of products and services can also be addressed through free trade agreements, which can serve to enhance regulations governing matters like intellectual property, e-commerce, and public procurement.
Australian businesses and consumers now have better access to a greater variety of reasonably priced goods and services, cutting-edge technologies, and creative business methods thanks to free trade agreements.
Australia can gain more from international investment thanks to free trade agreements.
Free trade agreements strengthen shared approaches to trade and investment between Australia and our trading partners and encourage regional economic integration.
Increased trade and investment opportunities provided by free trade agreements can help less developed economies prosper economically.
Free trade agreements foster more robust business-to-business and people-to-people ties, strengthening Australia's overall bilateral connections with FTA partners.
Over time, free trade agreements can continue to benefit Australia and its trading partners in other ways, such as through built-in agendas that promote continued domestic reform and trade liberalization.
Advantage of free Trade in developing country
Many beliefs and behaviors are included in free trade. The most widespread use of free trade is the lowering or elimination of trade barriers between nations. This enables a trade agreement's member countries to more freely exchange commodities and labor. Free trade agreements have been hailed as one of their biggest triumphs as they are becoming increasingly prevalent all over the world and having a good impact on emerging nations. Participation in free trade by emerging nations has a number of benefits.
higher rates of employment
New job prospects for local workers arise as wealthy countries are able to relocate their operations into developing nations. As a result of the reduction of trade barriers, employment in manufacturing (such as vehicles), assembly (such as textiles), and service (such as help desks) has all moved to emerging nations. In general, higher employment levels result in a higher standard of life and more consumer spending. This ultimately boosts the economy of the nation and might aid in the growth of locally held businesses.
Reduced Child Labor
There are several factors that contribute to child labor in poor nations, but a major one is a lack of technology. Children are employed as a less expensive alternative while making equipment. Free trade enables businesses to invest in machinery that reduces the temptation to use underage labor. Additionally, international companies are typically better able to afford to give adult workers higher wages. Children who come from families with better means can go to school instead of working.
A foreign company's internal policies and concern for its reputation may also serve to lessen the use of child labor. International businesses that care about their brand are becoming less willing to take the chance of being exposed to investigative journalists and others who may find evidence of child labor in their workplaces.
New Market Access
Foreign-owned businesses can establish themselves in emerging nations thanks to free trade, but local businesses can equally sell to markets abroad. This increases their consumer base, generates new goods and services, and establishes the profitability of funding innovation. For small firms in developing nations, this is especially true. These businesses can now freely offer their products without having to worry about covering the expenses of tariffs and other market entrance restrictions.
Greater Investment Capital Levels
In most free trade agreements, limits on foreign investment are also lowered. This modification makes it simpler for international companies and financiers to provide money for domestic initiatives. An upward cycle of productivity starts when new capital enters a developing nation, stimulating the entire economy. The banking sector can be stimulated by an influx of foreign cash, which will increase lending to consumers and investment.
Longer Life Expectancy
An improvement cycle that reduces hunger and a lack of access to healthcare in developing nations is fueled by rising employment rates, earnings, and overall standards of living. More people have access to preventative medical care, including examinations and vaccines. Additionally, it raises the proportion of kids who are educated and regularly attend school. The end outcome is a longer average life expectancy and fewer newborn deaths.
Consequences of Free Trade
Free trade aims to remove unfair trade obstacles and boost economies in both developed and developing countries. Free trade, however, has a number of adverse repercussions, including poor working conditions, job losses, economic harm to some nations, and worldwide environmental harm. To the disadvantage of some country economies and millions of employees, the World Commerce Organization nevertheless supports unrestricted trade.
Negative impact to the environment
Many workers in impoverished nations deal with low pay, poor working conditions, and sometimes forced and brutal child labor as these nations try to slash expenses to achieve a pricing advantage. Steven Greenhouse and Michael Barbaro wrote in a "New York Times" story titled "An Ugly Side of Free Trade: Sweatshops in Jordan" that Jordan's garment industry was thriving, "driven by... free trade," and that its exports to the U.S. had increased 20-fold in five years. However, the report warned that this free commerce has a downside:
However, the WTO asserts that it does not see how a firm treats its employees as a justification for nations to forbid the import of products from that manufacturer. According to poor nations, every attempt to incorporate working conditions in trade agreements aims to eliminate their cost advantage in the global market, the WTO notes. Workers around the world suffer as a result of this pro-free trade argument.
Others concur that free trade has also hurt the environment. Alf Hornborg, a professor of human ecology at Lund University in Lund, Sweden, states that it is just impossible to have free trade and "rescue the earth," adding:
Lund reiterates the points made earlier, claiming that free trade leads to economic imbalance, job loss, and subpar working conditions in many developing countries. Free trade, however, also causes "net transfers of labor and natural resources between richer and poorer portions of the world," according to him. Because workers in poorer countries produce items at far lower costs and in less favorable working conditions while typically using older, dirtier energy sources like coal and oil, Hornborg contends that free trade is to blame for the growing worldwide problem of greenhouse gases.
This occurs as economies throughout the world use up more of the planet's finite natural resources while failing to advance clean fuel technologies like solar and wind power.
All of these issues—job loss, economic inequality, poor working conditions, and environmental degradation—when considered collectively show that free trade is detrimental to all aspects of the economy, including job creation, working conditions, global equity, and the environment.
Fear of Loss of Job
Due to concerns about job loss to foreign nations with cheaper labor, free trade agreements have also sparked opposition from the American public for decades. However, proponents of free trade assert that such accords boost economies on both sides. The WTO admits that free trade does, in fact, result in employment losses. Roberto Azevêdo, the director-general of the World Trade Organization, said at the 2017 World Economic Forum in Davos, Switzerland:
Although Azevêdo argued that other causes account for 80% of job losses globally, it is noteworthy that the director of the organization that has been the strongest proponent of free trade was recognizing that free trade is responsible for 20% of all job losses worldwide. That would undoubtedly be a compelling case against free trade rather than in favor of it. Additionally, Paul Krugman, a columnist for the New York Times, claims that free trade agreements with nations like Korea and Colombia are not "means to create jobs." This hardly qualifies as a stirring ode to free trade.
Excellent sucking noise
Ross Perot claimed that the then-new North American Free Trade Agreement (NAFTA) between the United States, Mexico, and Canada would result in a "huge sucking sound" as millions of jobs were transferred from the United States to Mexico and Canada during the 1992 presidential election. And it appears that Perot was entirely right, according to "Business Insider," who writes:
Unsurprisingly, unions have harshly opposed the free-trade pact, claiming that it will seriously affect American workers and the economy. According to the AFL-CIO, NAFTA has damaged consumers and workers in all three nations, causing job losses and income declines while increasing the influence of multinational businesses. The unions claim that the greater capital mobility made possible by free trade has weakened government regulation and harmed the environment.
significant employment losses
As trade restrictions are removed, some goods might be more affordable to buy abroad than to produce domestically. As less competitive industries decline, employment losses are therefore likely. Although the majority of economists would contend that shifting these people to more productive sectors where the United States has a comparative advantage would benefit the nation as a whole, doing so isn't always realistic or feasible. Additionally, long-term modifications are simpler to make than short-term ones. For example, it is not always simple for someone who has spent their entire working life in a factory to begin a new job as an information technology specialist.
predation in price
Even a successful corporation could suffer losses at the hands of an international rival using a predatory pricing approach if commerce were to occur without any obstacles at all. For instance, a wealthy foreign corporation could flood the American market with its goods, driving out competitors. When that happens, the business will have a monopoly and be able to set its prices accordingly. Retaliatory duties are permitted by some free trade agreements if the measures are verifiable.
greater susceptibility
If free trade results in the decline of vital industries, it may leave a nation vulnerable from a strategic standpoint. A country may be exposed to political pressure and be denied access to the goods if the agreement is abruptly terminated if it becomes dependent on another for essential goods or services. Additionally, if doing so will harm its own position, a government that has a free trade agreement or preferential trade arrangement with a nearby country may fight against the expansion of that agreement to other countries.
One instance of this was when, in response to Ukraine's desire for stronger connections with the European Union, Russia threatened to renege on their trade agreement and impose tariffs on Ukrainian goods.
No new industries can grow
Domestic policies that influence production, like protective tariffs or tax cuts, frequently aid developing sectors. It might be challenging for new industries to establish themselves as these protections disappear. For instance, if foreign rivals already have economies of scale and easy access to domestic markets, it would be difficult for an entrepreneur hoping to thrive in a sector where entry costs are high to consider releasing her product there.
tax issues
The ability of a country to collect taxes from domestic firms may be hampered by free trade. Portable industries may relocate from a nation that has a high tax rate, open trade, and the free flow of capital from within its boundaries. While some employment are difficult to relocate—a farm, for instance, cannot readily be moved abroad—businesses may find it simpler to move their headquarters and adjust their accounting procedures in order to report earnings in more tax-advantageous locations.
Conclusion
Free trade is frequently cited by economists as the ideal strategy for maximizing the potential of the global economy, yet there are winners and losers in this game. Consumers may be able to purchase more things at reduced prices thanks to free trade, which may also help specific industries and firms that are able to compete without protective tariffs.
Free trade, however, may result in employment losses for some people and the disappearance of vital industries in some nations.