Tuesday, August 3, 2010

Free Trade ------ ?

Free trade is a type of trade policy that allows traders to act and transact without interference from government.  Most of the State conduct trade policies that are to a lesser or greater degree protectionist.  Each country developed a trade policy which protects the interests of local producers and traders through restricting competition from other countries with the help of quotas and tariffs.  One ubiquitous protectionist policy employed by States comes in the form agricultural subsidies whereby countries attempt to protect their agricultural industries from outside competition by creating artificial low prices for their agricultural goods.  But according to free trade policy, prices are a reflection of true supply and demand, and are sole determinant of resource allocation.  So a free trade agreement prevents all government interventions like subsidies, taxes and tariffs, non-tariff barriers such as regulatory legislation and quotas.
Features of Free Trade:  Free trade implies certain features like:
* Trade of goods without taxes including tariffs or other trade barriers like quotas or subsidies.
* Trade in services without taxes or other trade barriers.
* The absence of 'Trade Distorting' policies such as taxes, subsidies, regulations etc., that give some firms, households, or factors of production an added advantage over others.
* Free access to markets.
* Free access to market information.
* Inability of firms to distort markets through government imposed monopoly or oligopoly power.
* The free movement of labour between and within countries.
* The free movement of capital between and within countries.

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