Free Trade vs Free Market

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Free Trade Vs Free

Market

International Business

Submitted To:

Maam Khansa Masood

Submitted By:

Asad Raza

+923336135474


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Free Trade:

Free Trade means that countries may freely trade goods

with each other without having to pay a tariff (tax) onthose goods. In other words, free trade means no trade

barriers among the trading nations.

Purpose of free trade:

The purpose of the agreement is to:

Allow free movement of goods and services among the

countries.

Promote competition in the free trade areas.

Protect the property rights of people and businesses in

each country.

Be able to resolve problems that arise among the

countries.

Encourage cooperation among countries.

Benefit of free trade:

Free trade increases sales and profits for the members

countries and their economies.

Lack of tariffs has allowed one country goods in the

other countries market at lower price. Free trade is an opportunity for the members countries

to provide financial help to the other country by

providing financial aid etc.

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Free trade enables countries to specialize in the

production of those goods in which they have

comparative advantages.

Free trade improves the efficiency of resource

allocation that leads to higher productivity.

Economic growth of the trading nations.

Criticism on free trade

Free trade has caused more U.S. jobs losses than gainsespecially for higher wages jobs.

Short term unemployment

Free trade agreement between Pakistan & China:

Pakistan and China initiated a Free Trade Agreement. As a first step, the

two countries signed an Early Harvest Program (EHP) on 5th April, 2005

which became operational on 1st January, 2006. Within a year, Pakistanand China signed the Free Trade Agreement and finalized the modalities

for Phase I which will cover the first five years under the preferential

agreement.

For Phase II , both parties will endeavor to eliminate tariffs on no less

than 90% of products, both in terms of tariff lines and trade volume

within a reasonable period of time.

Phase I of the Agreement stipulates elimination and/or reduction of tariff

rates within the following parameters:

"Category I": Import customs duties shall be removed in four stages

from the entry into force of the Agreement, specified goods shall

become duty free effective January 1 st of the third year through yearly

reductions by Margins of Preference (MOP) as follows:

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Table 1: Category I

Entry into force 25%

01.01.08 50%

01.01.09 75%

01.01.10 100%

Some current developments in Free Trade Agreements inAustralia

Thailand. Australia signed a free trade agreement with Thailand

in 2005. The agreement was designed to reduce tariffs on

products exported and imported by both countries. By 2010 tariffs

on 95% of current trade between both countries were to fall to

0%.

The United States. Australia signed a free trade agreement with

the United States in 2005. This agreement was designed to

increase exports of Australian raw materials and agricultural

products and increase imports of US services from the US

economy.

Singapore. Australia signed a free trade agreement with

Singapore in 2003 to increase the import and exports of banking

and education services as well as other services like

environmental and telecommunications services.

Chile. Australia signed a free trade agreement with Chile in 2009

to reduce tariffs and boost trade between these two countries.

Tariffs on all existing merchandise trade were to be removed by

2015.

ASEAN-Australia-New Zealand Free Trade Agreement

(AANZFTA). On January 2010 the Australian Trade Minister

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announced the commencement of our largest free trade

agreement. This agreement sees the removal of a range of tariffs

on Australian exports to ASEAN nations such as Malaysia and the

Philippines. It should eliminate tariffs on 96% of our current

exports to ASEAN nations by 2020.

Future FTAs. Australia is also negotiating with countries including

China, Japan, Korea, Malaysia and Gulf countries on possible future FTAs

Free market

The term free market economymeans a system where the buyers

and sellers are solely responsible for the choices they make. In away, free market gives the absolute power to prices to determine

the allocation and distribution of goods and services. These prices,

in turn, are fixed by the forces of supply and demand of a

respective commodity. In cases of demand falling short of the

supply of a respective commodity, the price will fall as opposed to a

price rise when the supply is inadequate to meet the growing

demand of a good or service. Free market economy is also

characterized by free trade without any tariffs or subsidies imposed

by the government.

The role of the government of a nation is only limited to controlling the

law and order of a country and to ensure that a 'fair price' is charged by

the sellers. That is to say, the government, having no role in

administering the price of a commodity, has to see that the prices taken

by the sellers is true and commensurate with the price determined bythe forces of demand and supply

Advantages of free market:

These are the following advantages of free market:

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The market produces a vide variety of goods & services

to meet the consumers wants.

The free market respond quickly to the consumers

wants

The market system encourages the use of new and

better methods & machines to produce goods and

services.

High Income mobility.

A free market offers continual innovation.

Market is run on supply & demand so there is no

chance of monopoly.

Disadvantages

Factor of production will be employed on the basis of

profitability.

Free market fails to provide certain goods or services.

Free market can encourage the use of harmful goods.

The social effects of production may be ignored.

The market system allocates more goods and services

to those consumers who have more money then other.

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Free Trade vs Free Market

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