The Merits of Free Trade

By Siddiqi, Moin | African Business, February 2000 | Go to article overview

The Merits of Free Trade


Siddiqi, Moin, African Business


The World Trade Organisation (WTO) was created in 1994 as a multilareral body aimed at promoting greater liberalisation of trade in goods and services. Its roots date back to the 1950s with the signing of the General Agreement on Tariffs and Trade (GATT). Presently, of the 135 WTO members, 75% are from the developing world but over the past five decades, it has been in Western Europe and North America that most of the trade liberalisation has gone on. More recently developing nations have been opening their markets too.

The WTO has also concluded important agreements on the deregulation of financial services and telecoms. The gradual dismantling of trade barriers has led to an increasing integration of the global economy, a landmark of the late 20th century

The case for liberalisation

Advocates of free trade argue that economic prosperity world-wide owes much to the burgeoning trade among nations. Expanding trade encourages improved productivity by domestic manufacturers, increased access to new technology and cheaper and better-quality products and services. Undoubtedly, the surge in world trade has underpinned the longest sustained economic expansion in modern history.

Between 1950 and 1998, the volume of global exports increased 18-fold, whilst global output increased six and a half times. This year, the growth in world trade is projected to increase by 6-7%, up from 4% in 1998-99.

Poverty can be eliminated in Africa and Asia only through robust growth. Liberal trade regimes enhance the profile of emerging markets. Chile for example doubled its gross domestic product (GDP) between 1989-1997 and in the process, attracted considerably more foreign direct investment (FDI).

The developing nations welcome the WTO's General Agreements on Trade in Services (GATS), which permits countries to liberalise at their own pace. It also encourages inward FDI and competition in sectors such as finance, information technology, relecoms and tourism. Increased bilateral trade also improves political ties.

Does free trade benefit all?

The WTO's critics include labour unions, 'green' politicians, human rights and consumer groups who argue that free trade only benefits rich countries and big businesses. …

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