Free Trade Essay, Research Paper

Is free trade really such a good idea? There are some countries that says it is and others

that rather be left alone and being self-sufficient. An example of this statement would be the

United States who thinks that Free trade is big on improvement by creating new jobs and making

the U.S. the global leader in economy. Whereas, Switzerland refused to join the European

Economic Area (EEA) for personal reasons and China that trades but not freely. Well, what is

free tree trade any ways? According to Microsoft Encarta 1996, free trade is defined as an

interchange of commodities across political frontiers without restrictions such as tariffs, quotas, or

exchange controls. As good as it may sound, free trade, unfortunately as a few negative aspects,

such as the fear of loss of sovereignty, protection of a nation s resources, etc. The purpose of this

essay is to define free trade, give examples of free trade agreements and to find out weather it is

an opportunity or nightmare (in Canada) based on various sources .

The definition of free trade refers to the term tariff which I think needs to be elaborated in

order to get a better understanding of free trade. A tariff is a list or schedule of customs duties

generally imposed by a government on imports and sometimes on exports (Encarta 96). The

reason there are tariffs is to raise a revenue. Tariffs were imposed to protect domestic industries

against foreign competition and to achieve a favorable balance of trade. Tariffs were intensified

early in the world economic depression of the 1930s (Encarta 96). After World War II the trend

toward a worldwide reduction in tariff barriers continued with the establishment of the General

Agreement on Tariffs and Trade (GATT) and the formation or regional custom unions, such as

the European Community (now called the European union). These groups lowered tariffs among

themselves and maintained a common tariff for nonmembers. World trade promotion through

lower international tariffs and the removal of other impediments continues to be utilized by the

GATT. This treaty is being used by most major trading nations, such as the United States,

Canada, Japan, Germany, etc.

The classical theory of trade developed by Smith, Ricardo, and Mill was concerned

primarily with the analysis of the gains from trade. Modern trade theory, however, takes the

principle of comparative advantage for granted. In other words, it is a theory that countries will

benefit from trade if each specializes in its areas of comparative advantage (Canadian Business).

In Canada, for example, export commodities tend to be those in which the country has a

comparative advantage. Classical theorists assumed that differences in comparative advantage

resulted from differences in the productivity of resources, resulting the unequal distribution of

technologies and labor skills among nations (Encarta 96). Differences in the prices of final goods

tend to reflect differences in the prices of productive resources and that the latter are accounted

for mainly by differences in the availability of resources (Canadian Business). Countries specialize

in the production and exports of goods requiring relatively large amounts of those resources that

they possess in abundance, and they import goods requiring relatively large amount of resources

that are limited within their borders.

The oldest free trade association treaty goes back to the 1960s which was called the

European Free Trade Association (EFTA). This trading block was established by Austria,

Denmark, Great Britain, Norway, Portugal, Sweden, and Switzerland as a response to the

creation of the European Economic Community (EEC). Other countries eventually joined such as

Finland in 1961, Iceland in 1970 and Liechtenstein in 1991 . The purpose of EFTA was to work

for the removal of trade barriers and the promotion of closer economic cooperation throughout

Western Europe, including the EEC. By January 1967 EFTA had abolished internal tariffs. EFTA

countries have signed individual trade and tariff pacts with the European Union (EU), and in 1961

the two organizations agreed on a plan to establish a broader common market, called the

European Economic Area (EEA). The EEA went into effect on January 1, 1994, although

Switzerland and Liechtenstein did not join. By 1994 many member nations had left the EFTA to

join the EU. The remaining members included Norway, Liechtenstein, Iceland, and Switzerland.

In December 1994 Slovenia applied for membership into the EFTA because its application into

the EU had been denied (Encarta, 96).

The EU, European Union, has a very detailed and complex historical background which is

why I do not wish to elaborate on and that, furthermore, it is not really the main focus of this

essay. Going back to EFTA, it is governed by a council, consisting of a representative from each

member nation, that meets three times a year (Encarata, 96). The council is responsible for

supervision of the tariff-reduction system. Standing committees assist the council in its operations.

The headquarters of EFTA is located in Geneva.

A more recent free trade agreement is the North American Free Trade Agreement

(NAFTA). This pact calls for the gradual removal of tariffs and other trade barriers on most

goods produced and sold in North America. NAFTA became effective in Canada, Mexico, and

the United States on January 1, 1994 (Infopedia, 2.0). NAFTA forms the world s second largest

free-trade zone, bringing together 365 million consumers in Canada, Mexico, and the United

States in an open market (Infopedia, 2.0). The European Economic Area (which includes the

members of the European Union and the European Free Trade Association) is the largest free-

trade zone in the world, which also became effective in 1994.

NAFTA was built upon a 1989 trade agreement between the United States and Canada

that eliminated or reduced many tariffs between the two countries (Infopedia, 2.0). It called for

immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing

out other tariffs over a period of about 14 years (Infopedia, 2.0). Restrictions are to be removed

from many categories, including motor vehicles and automotive parts, computers, textiles, and

agriculture. The treaty also protected patents, copyrights, and trademarks and outlined the

removal of restrictions on investments among the three countries. Mandates for minimum wages,

working conditions, and environmental protection were added later as a result of supplemental

agreements signed in 1993 (Infopedia, 2.0).

In December 1992 NAFTA was signed by the three leaders of the three countries

(Infopedia, 2.0). After a long debate, the legislatures in all three countries approved NAFTA in

1993 (Infopedia, 2.0). In the United States, the debate over NAFTA divided members of both the

Democratic and Republican parties and ignited fierce opposition from environmental and labor

groups. Many, in the U.S., feared that jobs would be lost because the agreement would facilitate

the movement of U.S. production plants to Mexico, where plants could take advantage of cheaper

labor and easygoing enforcement of environmental and workers rights laws (Infopedia, 2.0).

Environmental groups were concerned that pollution and food safety controls would be more

difficult to enforce. In response to these concerns, Canada, Mexico, and the United States signed

supplemental agreements in 1993 that addressed some of these issues (Infopedia, 2.0).

Talks began in the late 1994 to expand NAFTA to include all Latin American nations,

with the exception of Cuba, the

only country in the region with a

Communist government. These

talks include plans to create a free-

trade zone throughout the Americas in the 21st century, but including more countries in NAFTA is

expected to be difficult. Some countries are far from being able to agree to and implement the

stringent economic requirements of a free-trade accord. Formal negotiations to include Chile in

NAFTA began in 1995 without any further results so far (Infopedia, 2.0).

Free trade may have several reasons as for why such agreements are created but there are

also oppositions to them.. The Canada-U.S. Free Trade Agreement (FTA) took effect against the

will of the majority of Canadians.

There exists a non-partisan grassroots organization, founded in 1985, called Citizens

Concerned About Free Trade (http://web.idirect.com/ ccaft/) . This organization was made to

provide information and mobilize those opposed to the Free Trade Agreements and loss of

Canadian sovereignty. The members of that organization, of all ages, political persuasions, and

ethnic backgrounds, want Canada to survive as a nation. Their goal is to have Canada exercise the

termination clauses of both the FTA and NAFTA and withdraw from these agreements so that

Canada can protect its resources, build a productive, prosperous, and humane Canadian society as

well as play an independent role in world affairs.

In the Free Trade Agreements Canada agreed to a couple of things. One of them is never

to screen any new American ownership coming into Canada (http://web.idirect.com/ ccaft/).

Even before the FTA Canada had the highest level of foreign ownership of any industrial country

in the world, more than $35 billion flows out of Canada in profits and in interests each year to

foreign owners, while over a million Canadians rely on food banks and the true unemployment

rate has reached 20%. (http://web.idirect.com/ ccaft/). Canadian controlled companies created

almost all new jobs in Canada during the last fifteen years of the FTA, while foreign owned

companies decreased their employment.

Foreign ownership lies at the very root of

Canada s economic problems. The last

thing Canada needs is more of it!

Another article of the CCAFT called To grant American corporations and investors the

same rights as Canadians is about the loss of Canadian jobs and industry, but rapid

Americanization of our country (http://web.idirect.com/ ccaft/). It is now impossible to require

U.S. companies operating in Canada to hire Canadians or purchase supplies locally, and no level

of government in Canada can give preferences to Canadian firms over American ones. Each

province can still favour its own companies over out-of-province Canadian companies, but not

over American ones, which now have greater rights in each provinces then out-of-province

Canadian companies.

Each year the U.S. consumes more oil than Canada s total known reserves and three years

of U.S. consumption exceeds Canada s known reserves of natural gas. The U.S. is now taking

over half of Canada s annual gas and oil production (http://web.idirect.com/ ccaft/). Since 1992,

the U.S. has increased its yearly take of our natural gas over 50%, while our reserves are dropping

rapidly. According to National Energy Board figures, as exports deplete our reserves , the cost of

natural gas to Canadian consumers will increase dramatically, and by 2012, Canada s entire

known gas reserves will be extinct (http://web.idirect.com/ ccaft/ ). What will be left then for us?

The loss of our right to manage our resources has frightening environmental, economic and social

implications.

Under this provision Canada will never be able to become a successful industrial power,

because its most important competitive advantage energy has been signed away. This is like the

Canadian hockey team, in a World Championship final against the U.S., promising not to play its

best players and even to let those players play for its U.S. opponents!

After introducing the CCAFT, the text from there until here is the nightmare aspect of

free trade. Now, here are some opportunities of free trade. Well, first of all, it eliminates tariffs

and quotas which facilitates trade. It allows trade to be done in bigger numbers, faster and

cheaper. That is the main purpose of free trade. Second of all, it protects property rights such as

patents, copyrights, etc. Third of all, (in the case of NAFTA) it improves working conditions, in

the case of Mexico for workers under paid and mistreated, and environmental protection. Another

point that falls under opportunities is the act of forming such an agreement which I think promotes

peace and harmony between the countries in question.

Free trade has quite an history. It has always been a concern to the major trading

countries like the U.S., Canada, Germany, etc, because they kept on expending their territories,

travelling goods across borders became esier and other countries always had and will always have

goods or services that other countries need . Based on this essay and all of the information

gathered above, I ve come to the decision that free trade is more of a nightmare than an

opportunity. I used to think that free trade was ideal and was the greatest thing that ever

happened to Canada . But, the article that I found on the Internet changed my mind. That article

was one of many others opposing free trade for Canada. I didn t know of such an act that has

gained, in the past years, so much awareness among Canadians. In conclusion, free trade is a

nightmare in Canada.