Written Agreements Between Nations Often Involving Trade

In the modern world, free trade policy is often implemented through a formal and mutual agreement between the nations concerned. However, a free trade policy may simply be the absence of trade restrictions. (However, as mentioned above, an exception occurs in situations where the removal of a barrier to trade in a raw material or component that is not domestic-made increases the effective rate of protection of the final product.) However, in the case of trade diversion, a member makes its sales at the expense of a more competitive producer in a country that is not a member of the bloc, simply because its products enter its partner`s market duty-free, while the more competitive non-member producer faces a discriminatory tax. [20] Exporters from third countries who would have a comparative advantage under a level playing field lose out due to trade diversion. However, many economists believe that the dynamic benefits of free trade may be greater than the static benefits. Dynamic benefits include, for example, pressure on firms to compete more effectively with foreign competition, the transfer of skills and knowledge, the introduction of new products and the potential positive effects of greater adoption of commercial law. Thus, trade can influence both what is produced (static effects) and how it is produced (dynamic effects). A government does not have to take specific measures to promote free trade. This non-surrendered position is called “laissez-faire trade” or trade liberalization. Global Trade Negotiations Homepage, Center for International Development, Harvard University: www.cid.harvard.edu/cidtrade/ “By far the most profound exception to the MFN principle is the approval of free trade agreements such as customs unions and free trade areas under Article XXIV of the GATT, provided that certain conditions are met […].