Fta - Advantages and Disadvantages
3. FTAs – advantages and disadvantages
The principal point of Free Trade Agreements is to secure trade liberalisation. While the traditional debate about FTAs is the danger that they can divert rather than create trade, the record to date suggests there has been little diversion and that FTAs and regional agreements have been effective in encouraging wider trade liberalisation. A practical advantage of FTAs is that they are quicker and easier to negotiate than multilateral agreements because fewer parties are at the table. Parties can secure advantages that are harder to win in bigger forums. The disadvantages are twofold. If FTAs are not set up within the right framework of policies, they can diminish rather than enhance economic welfare. The second disadvantage is that they are not good vehicles for liberalising trade in sectors on which parties outside the agreement have a major influence.
FTAs as drivers for liberalisation
While multilateral agreements under the GATT and WTO have been the leading arrangements bringing greater trade liberalisation in the world economy, narrower agreements like the European Union and the Canada-US bilateral FTA have also been significant. For Australia, the Closer Economic Relations agreements with New Zealand have made important contributions in allowing Australia and New Zealand to become, in substance, a single economy. While trade liberalisation is usually a negotiated process under which each party makes “concessions” in opening up their markets, greater access to the market for the second country is only the first gain for the first country. The second gain is the benefit to the domestic economy of reducing protection. It is similar to gains from unilateral liberalisation.
How liberalisation occurs
Bilateral trade liberalisation can be thought of as bringing changes to the participants in two ways: through diverting goods and services from countries that become disadvantaged in relative terms from the liberalisation, and
The principal point of Free Trade Agreements is to secure trade liberalisation. While the traditional debate about FTAs is the danger that they can divert rather than create trade, the record to date suggests there has been little diversion and that FTAs and regional agreements have been effective in encouraging wider trade liberalisation. A practical advantage of FTAs is that they are quicker and easier to negotiate than multilateral agreements because fewer parties are at the table. Parties can secure advantages that are harder to win in bigger forums. The disadvantages are twofold. If FTAs are not set up within the right framework of policies, they can diminish rather than enhance economic welfare. The second disadvantage is that they are not good vehicles for liberalising trade in sectors on which parties outside the agreement have a major influence.
FTAs as drivers for liberalisation
While multilateral agreements under the GATT and WTO have been the leading arrangements bringing greater trade liberalisation in the world economy, narrower agreements like the European Union and the Canada-US bilateral FTA have also been significant. For Australia, the Closer Economic Relations agreements with New Zealand have made important contributions in allowing Australia and New Zealand to become, in substance, a single economy. While trade liberalisation is usually a negotiated process under which each party makes “concessions” in opening up their markets, greater access to the market for the second country is only the first gain for the first country. The second gain is the benefit to the domestic economy of reducing protection. It is similar to gains from unilateral liberalisation.
How liberalisation occurs
Bilateral trade liberalisation can be thought of as bringing changes to the participants in two ways: through diverting goods and services from countries that become disadvantaged in relative terms from the liberalisation, and