Free Trade Essay, Research Paper
Is free trade really such a good idea? There are some countries that says it is and others
that rather be left alone and being self-sufficient. An example of this statement would be the
United States who thinks that Free trade is big on improvement by creating new jobs and making
the U.S. the global leader in economy. Whereas, Switzerland refused to join the European
Economic Area (EEA) for personal reasons and China that trades but not freely. Well, what is
free tree trade any ways? According to Microsoft Encarta 1996, free trade is defined as an
interchange of commodities across political frontiers without restrictions such as tariffs, quotas, or
exchange controls. As good as it may sound, free trade, unfortunately as a few negative aspects,
such as the fear of loss of sovereignty, protection of a nation s resources, etc. The purpose of this
essay is to define free trade, give examples of free trade agreements and to find out weather it is
an opportunity or nightmare (in Canada) based on various sources .
The definition of free trade refers to the term tariff which I think needs to be elaborated in
order to get a better understanding of free trade. A tariff is a list or schedule of customs duties
generally imposed by a government on imports and sometimes on exports (Encarta 96). The
reason there are tariffs is to raise a revenue. Tariffs were imposed to protect domestic industries
against foreign competition and to achieve a favorable balance of trade. Tariffs were intensified
early in the world economic depression of the 1930s (Encarta 96). After World War II the trend
toward a worldwide reduction in tariff barriers continued with the establishment of the General
Agreement on Tariffs and Trade (GATT) and the formation or regional custom unions, such as
the European Community (now called the European union). These groups lowered tariffs among
themselves and maintained a common tariff for nonmembers. World trade promotion through
lower international tariffs and the removal of other impediments continues to be utilized by the
GATT. This treaty is being used by most major trading nations, such as the United States,
Canada, Japan, Germany, etc.
The classical theory of trade developed by Smith, Ricardo, and Mill was concerned
primarily with the analysis of the gains from trade. Modern trade theory, however, takes the
principle of comparative advantage for granted. In other words, it is a theory that countries will
benefit from trade if each specializes in its areas of comparative advantage (Canadian Business).
In Canada, for example, export commodities tend to be those in which the country has a
comparative advantage. Classical theorists assumed that differences in comparative advantage
resulted from differences in the productivity of resources, resulting the unequal distribution of
technologies and labor skills among nations (Encarta 96). Differences in the prices of final goods
tend to reflect differences in the prices of productive resources and that the latter are accounted
for mainly by differences in the availability of resources (Canadian Business). Countries specialize
in the production and exports of goods requiring relatively large amounts of those resources that
they possess in abundance, and they import goods requiring relatively large amount of resources
that are limited within their borders.
The oldest free trade association treaty goes back to the 1960s which was called the
European Free Trade Association (EFTA). This trading block was established by Austria,
Denmark, Great Britain, Norway, Portugal, Sweden, and Switzerland as a response to the
creation of the European Economic Community (EEC). Other countries eventually joined such as
Finland in 1961, Iceland in 1970 and Liechtenstein in 1991 . The purpose of EFTA was to work
for the removal of trade barriers and the promotion of closer economic cooperation throughout
Western Europe, including the EEC. By January 1967 EFTA had abolished internal tariffs. EFTA
countries have signed individual trade and tariff pacts with the European Union (EU), and in 1961
the two organizations agreed on a plan to establish a broader common market, called the
European Economic Area (EEA). The EEA went into effect on January 1, 1994, although
Switzerland and Liechtenstein did not join. By 1994 many member nations had left the EFTA to
join the EU. The remaining members included Norway, Liechtenstein, Iceland, and Switzerland.
In December 1994 Slovenia applied for membership into the EFTA because its application into
the EU had been denied (Encarta, 96).
The EU, European Union, has a very detailed and complex historical background which is
why I do not wish to elaborate on and that, furthermore, it is not really the main focus of this
essay. Going back to EFTA, it is governed by a council, consisting of a representative from each
member nation, that meets three times a year (Encarata, 96). The council is responsible for
supervision of the tariff-reduction system. Standing committees assist the council in its operations.
The headquarters of EFTA is located in Geneva.
A more recent free trade agreement is the North American Free Trade Agreement
(NAFTA). This pact calls for the gradual removal of tariffs and other trade barriers on most
goods produced and sold in North America. NAFTA became effective in Canada, Mexico, and
the United States on January 1, 1994 (Infopedia, 2.0). NAFTA forms the world s second largest
free-trade zone, bringing together 365 million consumers in Canada, Mexico, and the United
States in an open market (Infopedia, 2.0). The European Economic Area (which includes the
members of the European Union and the European Free Trade Association) is the largest free-
trade zone in the world, which also became effective in 1994.
NAFTA was built upon a 1989 trade agreement between the United States and Canada
that eliminated or reduced many tariffs between the two countries (Infopedia, 2.0). It called for
immediately eliminating duties on half of all U.S. goods shipped to Mexico and gradually phasing
out other tariffs over a period of about 14 years (Infopedia, 2.0). Restrictions are to be removed
from many categories, including motor vehicles and automotive parts, computers, textiles, and
agriculture. The treaty also protected patents, copyrights, and trademarks and outlined the
removal of restrictions on investments among the three countries. Mandates for minimum wages,
working conditions, and environmental protection were added later as a result of supplemental
agreements signed in 1993 (Infopedia, 2.0).
In December 1992 NAFTA was signed by the three leaders of the three countries
(Infopedia, 2.0). After a long debate, the legislatures in all three countries approved NAFTA in
1993 (Infopedia, 2.0). In the United States, the debate over NAFTA divided members of both the
Democratic and Republican parties and ignited fierce opposition from environmental and labor
groups. Many, in the U.S., feared that jobs would be lost because the agreement would facilitate
the movement of U.S. production plants to Mexico, where plants could take advantage of cheaper
labor and easygoing enforcement of environmental and workers rights laws (Infopedia, 2.0).
Environmental groups were concerned that pollution and food safety controls would be more
difficult to enforce. In response to these concerns, Canada, Mexico, and the United States signed
supplemental agreements in 1993 that addressed some of these issues (Infopedia, 2.0).
Talks began in the late 1994 to expand NAFTA to include all Latin American nations,
with the exception of Cuba, the
only country in the region with a
Communist government. These
talks include plans to create a free-
trade zone throughout the Americas in the 21st century, but including more countries in NAFTA is
expected to be difficult. Some countries are far from being able to agree to and implement the
stringent economic requirements of a free-trade accord. Formal negotiations to include Chile in
NAFTA began in 1995 without any further results so far (Infopedia, 2.0).
Free trade may have several reasons as for why such agreements are created but there are
also oppositions to them.. The Canada-U.S. Free Trade Agreement (FTA) took effect against the
will of the majority of Canadians.
There exists a non-partisan grassroots organization, founded in 1985, called Citizens
Concerned About Free Trade (http://web.idirect.com/ ccaft/) . This organization was made to
provide information and mobilize those opposed to the Free Trade Agreements and loss of
Canadian sovereignty. The members of that organization, of all ages, political persuasions, and
ethnic backgrounds, want Canada to survive as a nation. Their goal is to have Canada exercise the
termination clauses of both the FTA and NAFTA and withdraw from these agreements so that
Canada can protect its resources, build a productive, prosperous, and humane Canadian society as
well as play an independent role in world affairs.
In the Free Trade Agreements Canada agreed to a couple of things. One of them is never
to screen any new American ownership coming into Canada (http://web.idirect.com/ ccaft/).
Even before the FTA Canada had the highest level of foreign ownership of any industrial country
in the world, more than $35 billion flows out of Canada in profits and in interests each year to
foreign owners, while over a million Canadians rely on food banks and the true unemployment
rate has reached 20%. (http://web.idirect.com/ ccaft/). Canadian controlled companies created
almost all new jobs in Canada during the last fifteen years of the FTA, while foreign owned
companies decreased their employment.
Foreign ownership lies at the very root of
Canada s economic problems. The last
thing Canada needs is more of it!
Another article of the CCAFT called To grant American corporations and investors the
same rights as Canadians is about the loss of Canadian jobs and industry, but rapid
Americanization of our country (http://web.idirect.com/ ccaft/). It is now impossible to require
U.S. companies operating in Canada to hire Canadians or purchase supplies locally, and no level
of government in Canada can give preferences to Canadian firms over American ones. Each
province can still favour its own companies over out-of-province Canadian companies, but not
over American ones, which now have greater rights in each provinces then out-of-province
Each year the U.S. consumes more oil than Canada s total known reserves and three years
of U.S. consumption exceeds Canada s known reserves of natural gas. The U.S. is now taking
over half of Canada s annual gas and oil production (http://web.idirect.com/ ccaft/). Since 1992,
the U.S. has increased its yearly take of our natural gas over 50%, while our reserves are dropping
rapidly. According to National Energy Board figures, as exports deplete our reserves , the cost of
natural gas to Canadian consumers will increase dramatically, and by 2012, Canada s entire
known gas reserves will be extinct (http://web.idirect.com/ ccaft/ ). What will be left then for us?
The loss of our right to manage our resources has frightening environmental, economic and social
Under this provision Canada will never be able to become a successful industrial power,
because its most important competitive advantage energy has been signed away. This is like the
Canadian hockey team, in a World Championship final against the U.S., promising not to play its
best players and even to let those players play for its U.S. opponents!
After introducing the CCAFT, the text from there until here is the nightmare aspect of
free trade. Now, here are some opportunities of free trade. Well, first of all, it eliminates tariffs
and quotas which facilitates trade. It allows trade to be done in bigger numbers, faster and
cheaper. That is the main purpose of free trade. Second of all, it protects property rights such as
patents, copyrights, etc. Third of all, (in the case of NAFTA) it improves working conditions, in
the case of Mexico for workers under paid and mistreated, and environmental protection. Another
point that falls under opportunities is the act of forming such an agreement which I think promotes
peace and harmony between the countries in question.
Free trade has quite an history. It has always been a concern to the major trading
countries like the U.S., Canada, Germany, etc, because they kept on expending their territories,
travelling goods across borders became esier and other countries always had and will always have
goods or services that other countries need . Based on this essay and all of the information
gathered above, I ve come to the decision that free trade is more of a nightmare than an
opportunity. I used to think that free trade was ideal and was the greatest thing that ever
happened to Canada . But, the article that I found on the Internet changed my mind. That article
was one of many others opposing free trade for Canada. I didn t know of such an act that has
gained, in the past years, so much awareness among Canadians. In conclusion, free trade is a
nightmare in Canada.