This question expects the candidate to evaluate the advantages and disadvantages of joining a FTA and then come to a conclusion. This question cannot be answered by looking at only one side of the argument. This question should take about 35 minutes.
Definitions
FTA: Exists when an agreement is made between countries, where the countries agree to trade freely among the member of the group, but are able to trade with countries outside the FTA in whatever ways they wish.
Real Example: ASEAN which is a FTA consisting of Asian nations.
Bullets from 3A
- Free trade is trade that occurs between countries without any barriers or hindrances
- This means that firms are able to sell directly into a country as easily as the firms within that country are able to trade
- The firm exporting into the country should not face any additional barriers, taxes, regulations or any other obstacles that prevent them selling their goods/services
- Free trade at an international level means that this freedom is true for trade between all countries. In this way, countries gain the benefits from competition that exist where the national markets are free from barriers and restrictions
- Economic theory tells us clearly that this is likely to deliver significant benefits, but it is far from being universally true
- However, completely free trade may have a number of costs for some economies. These may include:
- Adjustment costs – changes in comparative advantage may require adjustments in the structure of industry and these may take some time. While they are taking place there may be employment costs from the changeover.
- Environmental costs – free trade may lead to firms relocating to where environmental and other regulations are most lax. This could cause long-term environmental problems.
To evaluate this question:
*Define free trade
*Give 2 or 3 of the strongest arguments FOR joining a FTA
*Give 2 strong arugments against it (protectionism)
*Define protectionism
*Come to a conclusion as to what the value of FTA is for a country
