free trade


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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 ColbertColbert, Jean Baptiste
, 1619–83, French statesman. The son of a draper, he was trained in business and was hired by Cardinal Mazarin to look after his financial affairs.
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 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 ZollvereinZollverein
[Ger.,=customs union], in German history, a customs union established to eliminate tariff barriers. Friedrich List first popularized the idea of a combination to abolish the customs barriers that were inhibiting trade among the numerous states of the German
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 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 RevolutionIndustrial 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.
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) gave added force to the attack on international trade restrictions (see mercantilismmercantilism
, economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting precious metals in return.
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). 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 LeagueAnti-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 Association.
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, and the repeal (1846) of the corn lawscorn 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. Subsequent laws, numerous and complex, forbade export unless the domestic price was low and forbade import
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. 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 protectionprotection,
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.
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. 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 TradeGeneral 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.
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 (1948), the Benelux Economic UnionBenelux Economic Union
, economic treaty among Belgium, the Netherlands, and Luxembourg. It arose out of a customs convention signed in 1944, but was not fully established until 1958.
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 (1948), the European Economic CommunityEuropean 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.
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 (Common Market, 1957), the European Free Trade AssociationEuropean 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.
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 (1959), MercosurMercosur
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.
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 (1991), and the World Trade OrganizationWorld 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.
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 (1995). In 1993 the North American Free Trade AgreementNorth 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.
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 (NAFTA) was approved by the governments of Canada, Mexico, and the United States. In the early 1990s the nations of the European UnionEuropean Union
(EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the European Community (EC), an economic and political confederation of European nations, and other organizations (with the same member nations)
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 (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 continued. In 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 2004 the Central American Free Trade Agreement was finalized by the United States and five Central American nations; the Dominican Republic is also a member of the group. Twelve Pacific Rim nations, including the United States, signed the Trans-Pacific Partnership (TPP), an agreement to reduce or eliminate many tariffs and to set common standards on a number of trade-related issues, in 2016, but criticism of it and other free-trade agreements in the United States during the 2016 elections called into question the ratification of the TPP. The United States, Japan, China, and other countries have also negotiated bilateral free-trade agreements with individual nations or regional trade associations; such agreements generally open trade in some areas while preserving the protection of politically sensitive economic sectors. Donald Trump, who accused free-trade agreements of harming U.S. workers, withdrew (2017) the United States from the TPP and called for renegotiating NAFTA after becoming president. Subsequently Japan and the European Union announced (2017) an agreement in principle on free-trade deal covering most exports.

See also reciprocal trade agreementreciprocal 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.
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.

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

economic exchange between states without tariff or other restrictions. This first became a major issue in 18th-century Europe when states were still enforcing mercantilist policies through international monopolies of trading arrangements and protection of their economies from goods from outside. Increasingly, pressure came from some countries, and then from industrialists, to withdraw these barriers, thus opening up markets and increasing competition. In the UK, this culminated in the debates over the Corn Laws in the early 19th-century, resulting in the victory of the proponents of free trade.

Behind the movement towards free trade was the economic theory that there would be economic benefit if countries concentrated their economic activities in areas in which they had a comparative advantage and could produce more efficiently than others. The counter-argument to this is that free trade benefited, and continues to benefit, the most economically advanced countries. Thus, many countries which industrialized later than Europe and the US instituted import controls to protect their nascent manufacturing industries.

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

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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