Sunday, 30 August 2009

Trade and free markets - how they improve our standard of living and promote freedom

Free trade is an ideal that the World Trade Organisation (WTO) has been striving to achieve since its inception 60 years ago. The WTO has led the way towards a freer international trading environment. Trading barriers have been broken down and globalisation of various industries has taken place on a vast scale. International trade is at an all time high.

Many agreements have been reached between member states over successive rounds of WTO conferences. But many of these conferences have been plagued by passionate demonstrations and protests. The reasons for the protests are largely a result of the skewed implementation of free-trade that favours the rich at the expense of the poor.

The unfair implementation of free trade is a problem that has plagued the WTO from its inception. The champions of free trade strive to eliminate tariffs and unfair practices by other countries while maintaining an unfair advantage at home.

The huge agricultural subsidies applied by the United States and the European Union are the prime example of unfair trading practices. Subsidies result in over-production and the subsequent "dumping" of surplus produce on world markets. By contrast, developing countries are expected to reduce or eliminate tariffs on imports,

The result is therefore skewed. The developing world cannot hope to compete against agricultural subsidies that dwarf their entire economy. Unable to provide subsidies in their own countries, various GATT agreements ensure that imported goods often highly subsidised - are available duty free in these countries.

Prior to the establishment of the WTO many countries operated varying degrees of protectionism. High tariffs and duties were imposed on imports. In some cases additional restrictions such as import quotas were imposed over and above the tariffs.

Many of these tariffs and restrictions have been removed over the years. However, there are some notable exceptions. One of these is China which maintains a protected economy coupled with an artificial exchange rate. As a result Chinese goods are currently flooding world markets unimpeded. The results are good for China, but can seriously undermine the ability of certain industries to compete against artificially low prices.

Free trade is a system that encourages each country to produce and export what it is best at. If applied fairly and universally, free trade should benefit all.

At present, trade is skewed in favour of the rich and powerful, able to subsidise their own producers. For all intents and purposes, subsidies imply a degree of protectionism that works against free trade. Some countries have not signed the various WTO agreements but enjoy the benefits of being able to export to other countries unimpeded.

Free trade will work properly when the rules are applied equally to all. In the current environment, some countries are more equal than others.

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