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 Colbert, Jean Baptiste (zhäN bätēst` kôlbĕr`), 1619–83, French statesman.
..... Click the link for more information. 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 Zollverein (tsôl`fərīn`) [Ger.,=customs union], in German history, a customs union established to eliminate tariff barriers.
..... Click the link for more information. 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 Industrial Revolution, term usually applied to the social and economic changes that mark the transition from a stable agricultural and commercial society to a modern industrial society relying on complex machinery rather than tools.
..... Click the link for more information. ) gave added force to the attack on international trade restrictions (see mercantilism mercantilism (mûr`kəntĭlĭzəm), economic system of the major trading nations during the 16th, 17th, and 18th cent.
..... Click the link for more information. ). 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 Anti-Corn-Law League, organization formed in 1839 to work for the repeal of the English corn laws . It was an affiliation of groups in various cities and districts with headquarters at Manchester and was an outgrowth of the smaller Manchester Anti-Corn-Law
..... Click the link for more information. , and the repeal (1846) of the corn laws corn laws, regulations restricting the export and import of grain, particularly in England. As early as 1361 export was forbidden in order to keep English grain cheap.
..... Click the link for more information. . 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 protection, practice of regulating imports and exports with the purpose of shielding domestic industries from foreign competition. To accomplish that end, certain imports may be excluded entirely, import quotas may be established, or bounties paid on certain exports.
..... Click the link for more information. . 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 General Agreement on Tariffs and Trade (GATT), former specialized agency of the United Nations. It was established in 1948 as an interim measure pending the creation of the International Trade Organization.
..... Click the link for more information. (1948), the Benelux Economic Union Benelux Economic Union (bĕn`əlŭks'), economic treaty among Belgium, the Netherlands, and Luxembourg.
..... Click the link for more information. (1948), the European Economic Community European Economic Community (EEC), organization established (1958) by a treaty signed in 1957 by Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany (now Germany); it was known informally as the Common Market.
..... Click the link for more information. (Common Market, 1957), the European Free Trade Association European Free Trade Association (EFTA), customs union and trading bloc; its current members are Iceland, Liechtenstein, Norway, and Switzerland. EFTA was established in 1960 by Austria, Denmark, Great Britain, Norway, Portugal, Sweden, and Switzerland.
..... Click the link for more information. (1959), Mercosur Mercosur or Mercosul, officially the Common Market of the South, Latin American trade organization established in 1991 to increase economic cooperation among the countries of E South America.
..... Click the link for more information. (1991), and the World Trade Organization World Trade Organization (WTO), international organization established in 1995 as a result of the final round of the General Agreement on Tariffs and Trade (GATT) negotiations, called the Uruguay Round.
..... Click the link for more information. (1995). In 1993 the North American Free Trade Agreement North American Free Trade Agreement (NAFTA), accord establishing a free-trade zone in North America; it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994.
..... Click the link for more information. (NAFTA) was approved by the governments of Canada, Mexico, and the United States. In the early 1990s the nations of the European Union European Community (EC), an economic and political confederation of European nations, and other organizations (with the same member nations) that are responsible for a common foreign and security policy and for cooperation on justice and home affairs.
..... Click the link for more information. (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 reciprocal trade agreement, international commercial treaty in which two or more nations grant equally advantageous trade concessions to each other. It usually refers to treaties dealing with tariffs.
..... Click the link for more information. .

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).

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.