Erika Paola Alvarado

Grupo 482
Tratados Internacionales

The Purpose of the Free Trade Agreement

Free trade agreements worldwide are about integrating economies. Their primary
purpose is to reduce the relevance of national borders relative to international trade.
Competition among the world's producers, without interference from governments, is the
ultimate purpose of most, if not all, free trade agreements.

Features
Free trade agreements typically concern the gradual reduction of tariffs over time. A
tariff is a tax on imports, making the imported good more expensive and hence, making
domestic production more attractive to consumers. Many such agreements seek to
eliminate tariffs completely. This permits firms to invest in each other's economies with
little adjustment.

Function
Comparative advantage is the main function of a free trade agreement. Put simply,
comparative advantage is about the maximization of efficiency. Those economies that
can produce goods more efficiently should be able to freely import them into other
countries. The ultimate beneficiaries are the consumers of the world, that can buy these
goods at a lower price. Free trade agreements, therefore, are about putting consumers
first, giving them a choice among a wide range of products, rather than subsidizing
domestic producers.

Significance
Free trade is one of the marks of the modern, global economy. Producers and
consumers, rather than states and governments, are put first. The ultimate purpose of
all free trade agreements is to create a global marketplace where borders no longer
matter, where goods, labor and capital can move freely with minimal hindrance.

Benefits
Free trade agreements build goodwill among countries through economic cooperation.
These agreements fight corruption in that to compete with major firms, local firms must
retool their processes and become more transparent, streamlined and efficient. Since
efficiency is rewarded in the marketplace, fewer resource are used in the production of
goods. Consumers have greater choice among products; and since competition among
firms is greater, prices tend to be lower.

Problems
Free trade agreements permit capital to move freely, thereby evading many local
regulations on the environment or labor. Labor also moves freely, which acts as an
incentive for firms to invest where labor is cheaper, negatively affecting the wages of
domestic workers. Free trade agreements remove any government control over the
economic life of the nation and place this control in the hands of corporations. Put
differently, free trade removes politics from economic transactions. But this can mean
that the public good is no longer important in economic relations, only profits and
efficiency.