Free trade refers to a market model in which trade in goods and services between or within countries flow unimpeded by government imposed restrictions such as taxes, tariffs, or subsidies. In general sense, we can say free trade ensures the free flow of goods from one country to another without facing any trade barrier. In today’s world the word ‘Free trade’ emerged in the post Cold War world as a global possibility with the growing economic interconnectedness between countries has become a catchphrase. Before concluding any remarks regarding the issue, at first we need to analyze the pros and cons.
Benefits of Free Trade to a developing country like Bangladesh
Free trade helps to increase the global level of output because it permits specialization among countries. Every nation has some sort of specializations which allow that nation to devote its scarce resources to the production of the particular goods and services for which that nation has a comparative advantage. Under free trade the whole world is the market and it needs huge supply resulting into economies of scale. The benefits of specialization, coupled with economies of scale, increase the absolute quantity of goods and services produced which is highest only under free trade. This situation can ensure products and services at low price which will be affordable for the consumers of the developing nations.
Trade improves global efficiency in resource allocation. A glass of water may be of little value to someone living near the river but is priceless to a person crossing the Sahara. Trade delivers goods and services to those who value them. Hence a developing country is able to use the technology which has been used in the developed countries with the help of free trade.
Free trade can facilitate developing nations to enter international markets, enabling the goods of that country to be more widely sold abroad. It will help to accumulate capital and encourage foreign direct investments that are essential to growth. For example we can say about the free trade and economic cooperation between EU and Bangladesh. Bangladesh always enjoyed the advantage of duty and generally quota-free access to the EU market. Readymade Garment (RMG) industry, the largest industry of Bangladesh, has virtually thriven in the competitive advantage of a quota free access to the EU market, while, the country’s shrimp industry complying with the EC sanitary standards has secured its EU market share by enjoying duty free access to the EU market. Growth as well as sustainable economic and social development of the economy of Bangladesh requires a full and lasting integration of the economy into the world economy. In this context, free trade with EU is very much important in contributing towards the sustainable development of the country.
For attaining the best result of free trade the EU implemented certain interventions in the area of trade promotion in Bangladesh in the past years. A major feature of the export structure of Bangladesh is the dominance of the Readymade Garment (70% of total exports), which is primarily dependent on imported raw materials available through a preferential trade regime in EU quota-free and duty free access. The EU interventions may include activities like training, capacity building of public authorities, access to information and global networks and strategies to promote investment and private sector development and other related technology transfer activities, especially in fields of economic- labeling, packaging, quality control, standards, market studies, and other actions, which aim at exposing the local entrepreneurs to the severe challenge of accessing the EU market. Without the help of free trade Bangladesh would not get such kind of facilities from EU.
If we analyze the above facts, we will see that free trade is helping our country to boost up more businesses and industries. All these industries are creating huge employment facilities resulting into improvement of purchasing power and living standard as well.
Harms of Free Trade to a developing country like Bangladesh
As the market is free, products (substitute and close substitute) made from foreign countries can easily enter the country and indigenous industry fall under a great competition. Unregulated free trade leads to low wage, high obligation to workers, least worker safety, and lax environmental regulations. Consequently, in the competition to attract investment there is constant pressure on the country to relax both social and environmental regulations. Especially in poor countries this leads to the exploitation of workers and abuse of the environment. Sometimes the indigenous industries cannot cope with the competition created by foreign products and they compel to drop the business or continue doing business with losses. For example we can say about the agricultural sector of Bangladesh. Farmers are producing pulse and onion in the country at a price which is higher than the price of imported pulse and onion from India. At this point the farmers of Bangladesh are losing their sales and sometimes falling to huge loss. But this unfavorable situation could be controlled if there are efficient government policies.
If the main theme of free trade derails from the track, it benefits only the wealthy within countries in the following ways:
· Developed countries misuse their high bargaining power to oppress the poor countries.
· The wealthy nations can produce at the lowest cost in the world as they have huge capital
· As the world's markets merge into a single global market the number of market-leading companies worldwide drops, with takeovers of smaller local corporations by larger multinational corporations. This process concentrates wealth in fewer corporations.
Concluding remarks on upper hand: Benefits or Harms?
If we compare the benefits and harms of free trade, we see that the overall benefits lie in the upper hand only if “Free trade” is fair enough. Free trade will be free and fair when countries with different advantages are allowed to trade with a minimum of restriction and capitalize on those differences.
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