Free Trade (redirected from Free-trade agreement)

free trade, in modern usage, trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas, or import licenses. The basic argument for free trade is based on the economic theory of comparative advantage: each region should concentrate on what it can produce most cheaply and efficiently and should exchange its products for those it is less able to produce economically.

Internal Free Trade

Free trade within national borders is in some countries a comparatively recent development. Jean Baptiste Colbert tried to abolish internal trade barriers in France in the 17th cent., but that was not accomplished until the French Revolution, a hundred years later. In the German states Prussia took the lead in organizing the Zollverein movement after 1818. The desire to assure freedom from internal trade barriers in the United States was a factor in calling the Constitutional Convention. In Britain, the classic home of the free-trade movement, the term free trade was first used during the agitation for removal of the privileges of the chartered companies in the 17th cent.

International Free Trade

In 18th-century Britain, free trade eventually came to mean the desire for a moderate tariff policy in international trade, especially with France. The rapid growth of British industry in the late 1700s (see Industrial Revolution) gave added force to the attack on international trade restrictions (see mercantilism). Adam Smith's Wealth of Nations (1776) provided a powerful intellectual basis for the free trade movement, and the later work of David Ricardo was important in developing the notion of comparative advantage as an argument in its favor. The most important practical blow in favor of the free-trade movement came with the formation (1839) of the Anti-Corn-Law League, and the repeal (1846) of the corn laws. The Anglo-French commercial treaty of 1860 represented perhaps the high-water mark of free trade.

After World War I, Britain reintroduced protection and a system of imperial preference in an attempt to establish a greater measure of economic autonomy. France, along with other European nations, historically followed a policy of protection. In the period of international economic dislocation in the mid-1930s, the United States reversed earlier policy and signed reciprocal trade treaties with many foreign governments, embracing a policy of selective tariff reduction for economic and political reasons. At present the United States is a relatively low tariff nation, although it still maintains a fairly restrictive system of import quotas. Japan also has restrictive import quotas, as well as high tariffs and other trade restrictions.

After World War II, strong sentiment developed throughout the world against protection and high tariffs and in favor of freer trade. The results were new organizations and agreements on international trade such as the General Agreement on Tariffs and Trade (1948), the Benelux Economic Union (1948), the European Economic Community (Common Market, 1957), the European Free Trade Association (1959), Mercosur (1991), and the World Trade Organization (1995). In 1993 the North American Free Trade Agreement (NAFTA) was approved by the governments of Canada, Mexico, and the United States. In the early 1990s the nations of the European Union (the successor organization to the Common Market) undertook to remove all barriers to the free movement of trade and employment across their mutual borders.

Critics of free trade zones argue that such measures are detrimental to domestic economies. In the case of NAFTA, for example, opponents contended that the jobs of some American workers would be "exported" to Mexico, where labor costs are lower. Many have continued to oppose the international impetus toward freer trade, arguing the accords not only fail to protect jobs in more developed nations but also harm workers and the environment in less developed nations, where the laws are more lax or less enforced. Despite such objections, support for free trade has continued. In Apr., 2001, for example, 34 nations of the Western Hemisphere committed themselves to the development of a Free Trade Area of the Americas, though movement toward such an organization subsequently stalled. In May, 2004, the Central American Free Trade Agreement was signed by the United States and five Central American nations; the Dominican Republic is also a member of the group. The United States, Japan, and other countries have also negotiated bilateral free-trade agreements with individual nations.

See also reciprocal trade agreement.

Bibliography

See G. B. Doern and B. W. Tomlin, Faith and the Free Trade Story (1991); D. B. Yoffie, Beyond Free Trade: Firms, Governments, and Global Competition (1993); A. E. Eckes, Jr., Opening America's Market (1995); J. J. Schott, The World Trading System (1997).

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free trade

Policy in which a government does not discriminate against imports or interfere with exports. A free-trade policy does not necessarily imply that the government abandons all control and taxation of imports and exports, but rather that it refrains from actions specifically designed to hinder international trade, such as tariff barriers, currency restrictions, and import quotas. The theoretical case for free trade is based on Adam Smith's argument that the division of labour among countries leads to specialization, greater efficiency, and higher aggregate production. The way to foster such a division of labour, Smith believed, is to allow nations to make and sell whatever products can compete successfully in an international market.

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free trade

1. international trade that is free of such government interference as import quotas, export subsidies, protective tariffs, etc.

2. Archaic illicit trade; smuggling

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Free Trade 

a trend in economic theory and politics of the industrial bourgeoisie that demanded no restrictions on trade and noninterference by the state in private enterprise.

The free-trade movement originated in Great Britain in the last third of the 18th century and was linked with the incipient industrial revolution. However, the demand for a free-trade system had been expressed even earlier by the French economist E. Crucé, the British economist N. Barbon, and the French Physiocrats F. Quesnay and P. Mercier de la Rivière. A comprehensive theoretical groundwork for free trade was provided by A. Smith and D. Ricardo, who presented the policy as an ideal, one that would always be advantageous to all countries and peoples. The British free traders directed their efforts against agricultural customs duties, which by resulting in high prices on farm produce served the interests of the large-scale landowners. The British industrial bourgeoisie sought low prices on farm produce, since this would assure less expensive raw materials and manpower. Moreover, a reciprocal lowering of customs duties would facilitate the increased sale of British commodities abroad. The free traders were also opposed to the vestiges of the medieval regulation of industrial production.

Under pressure from the free traders during the 1820’s, a reform of the customs system was carried out in Great Britain: customs duties on many commodities were abolished or significantly lowered; the high, protectionist customs duty on imported grain was replaced by a sliding scale of duties, in accordance with which the duty on imported grain rose with the decline in prices on domestic grain and, conversely, decreased when prices rose.

During the 1830’s the free-trade movement in Great Britain was intensified. It was led by the textile mill owners R. Cobden and J. Bright, who in 1838 organized the Anti-Corn Law League. The city of Manchester became the center for the advocates of free trade (hence the second name for the free traders, “Man-chestrians”). Subsequently the free traders formed the left wing of Great Britain’s Liberal Party. The free traders attempted to win the Chartists over to their side.

By the mid-19th century the free traders had won a complete victory in Great Britain; together with the elimination of legislative limitations on the import of grain, raw materials, and industrial goods, other protectionist limitations were also abolished. Only fiscal customs duties were retained. Free-trade tendencies were also manifested in the trade policy of France during the Second Empire (1852–70), Germany, Russia (the 1850’s and 1860’s), and other countries. However, in most capitalist countries protectionism was as predominant as ever. Protectionism was particularly intensified during the period of imperialism.

Efforts to revive free trade by concluding bilateral and multilateral agreements, such as those undertaken during the 1920’s and 1930’s under the aegis of the League of Nations, did not meet with success because of acute conflicts between imperialist nations. Moreover, J. M. Keynes attempted to prove theoretically that free trade was unacceptable under the conditions of state-monopoly capitalism. However, under present-day conditions certain free-trade principles are being implemented within the framework of closed, integrated groupings, such as the European Economic Community and the European Free Trade Association. Within these organizations the elimination of customs barriers between member countries serves as a weapon for subordinating small-scale, middle-scale, and occasionally even large-scale capital to giant monopolies. It also bolsters the giant monopolies in their struggle against competitors who are not members of the organizations.

During the 1960’s and 1970’s, the capitalist world observed an intensification of the advocacy of certain features of free trade. The governments of the large imperialist countries (the USA and the FRG, for example) have supported the idea of liberalized conditions for trade, under cover of which they are striving to create favorable conditions for the further economic expansion of their own monopolies.

REFERENCES

Marx, K. “Rech’ o svobode torgovli.” In K. Marx and F. Engels, Soch., 2nd ed., vol. 4.
Marx, K. “Chartisty.” Ibid., vol. 8.
Engels, F. “Protektsionizm i svoboda torgovli.” Ibid., vol. 21.
Lenin, V. I. “K kharakteristike ekonomicheskogo romantizma.” Poln. sobr. soch., 5th ed., vol. 2.
Goureau, C. O svobode mezhdunarodnoi torgovli: Razbor angliiskoi teorii svobodnoi torgovli, parts 1–2. Moscow, 1860. (Translated from French.)
Diumulen, 1.1. Sovremennyi tarifnyi i netarifnyiprotektsionizm. Moscow, 1975.
McCord, N. Free Trade: Theory and Practice From Adam Smith to Keynes. New York [1970].
Corden, W. Trade Policy and Economic Welfare. Oxford, 1974.

G. G. ABRAMISHVILI