Economic costs and benefits of Free Trade agreements

Economic cost is the combination of losses of any goods that have a value attached to them by any one individual. Economic cost is used mainly by economists as means to compare the prudence of one course of action with that of another. The factors to be taken into consideration are money, time, and other resources cost is the sum of explicit cost.

The comparison includes the gains and losses precluded by taking a course of action as well as those of the course taken itself. When contextualised with Free Trade Agreements, economic cost is the yardstick by which one can gauge the pace of national development.

A free trade agreement is a pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

Two very famous FTA’s are GATT, which was the precursor to the modern WTO and the Pacific Alliance formed by Chile, Colombia, Mexico and Peru, which all border the Pacific Ocean.

Benefits of Free Trade Agreements:

  • Free trade agreements contribute to greater economic activity and job creation and deliver opportunities for big and small businesses to benefit from greater trade and investment.
  • Free trade agreements don’t just reduce and eliminate tariffs, they also help address behind-the-border barriers that would otherwise impede the flow of goods and services; encourage investment; and improve the rules affecting such issues as intellectual property, e-commerce and government procurement.
  • Free trade agreements give businesses and consumers improved access to a wider range of competitively priced goods and services, new technologies, and innovative practices.
  • Free trade agreements help to obtain more benefits from foreign investment.
  • Free trade agreements promote regional economic integration and build international commercial relations between trading partners.
  • Free trade agreements can deliver enhanced trade and investment opportunities that contribute to the economic growth of less-developed economies.
  • Free trade agreements support stronger people-to-people and business-to-business links that enhance India’s overall foreign trade policy.
  • Free trade agreements can continue to provide additional benefits to trading partners over time, via in-built agendas that encourage multilateral trade arrangements.

Not surprisingly, the financial markets see the other side of the coin. Free trade is an opportunity to open another part of the world to domestic producers.

Moreover, free trade is now an integral part of the financial system and the investing world however, completely free trade in the financial markets is unlikely in our times.