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equivalent to saying that there is an increase in national welfare

a country
is likely to have greater national output and superior choices available
in consumption as a result of free trade.

Production Efficiency

Improvements in production efficiency means that countries can produce more goods and services
with the same amount of resources

In order to achieve production efficiency improvements resources must be shifted between
industries within the economy. This means that some industries must expand while others must
contract. Exactly which industries expand and contract will depend upon the underlying stimulus
or basis for trade

Different trade models emphasize different stimuli to trade

technological differences

differences in endowments

likely that each of these stimuli plays some role

Thus as trade opens, either the country specializes in the products in which it has a comparative
technological advantage. Or, production is shifted to industries which use the country's relatively
abundant factors most intensively. Or, production is shifted to products in which the country has
relatively less demand compared with the rest of the world

This would be reflected empirically in
an increase in the country's gross domestic product (GDP). This means that free trade would
cause an increase in the level of the countries national output and income

Consumption Efficiency

change in
prices gives the consumer a choice that he did have before

When multiple
varieties of goods are available in a product category then consumption efficiency improvements
can mean that the consumer is able to consume greater varieties or is able to purchase a variety
that is closer to his ideal.

generally requires the assumptions

aim for zero tariffs for both sides as a general rule.  Some exceptions
are then allowed for certain products or sectors.

Between equal partners, there
may be mutual benefits. But between a strong and a weaker country, the
stronger partner tends to get more benefits as they have the capacity
to sell, whereas the poorer country is unable to make use of the increased
market access.

This is so even in agriculture,
where developing countries are supposed to have comparative advantage.

Mexico increased exports of fruits and vegetables by 50% to the US
after the North American FTA was signed.

But its imports from the US
tripled for corn and over 500% for soybean, wheat, poultry and beef.  
Mexico’s agricultural imports rose much more than its exports, and 1.7
million rural jobs have been lost.

Thus they swamped 
the Mexican market, displacing the farmers.

The hopes that countries have
to realize more market access to the major developed countries can thus
be illusory.  Even a country as strong as Australia could not get what
it wanted in agriculture in its FTA with the US. 

Australia did not get any increase
in the US sugar quota, even though its leaders had said, “No sugar gain,
no FTA.”   On beef, it only won a minor benefit, equivalent to an extra
market access of half a cow per farm per year according to some economists.

FTA partners have to eliminate tariffs and other
barriers covering “substantially all trade.”    This is unlike the WTO,
where developing countries can ask for special and differential treatment,
to reduce tariffs by less than the developed countries.

serious problems facing
Malaysia’s

Under the same treaty, rice
farmers may also face problems in Indonesia and Malaysia when import duties
are reduced to low levels within a few years, as rice from Thailand and
Vietnam is cheaper.  

In particular, FTAs that the
US is signing with developing countries contain much more than just trade
issues.  They also contain chapters on services, intellectual property,
investment, government procurement and competition.  

Under services, the treaty
asks for opening up of all sectors

The US strongly asks that its
FTA partner allow American banks, insurance companies and other financial
institutions to enter and operate in its country, with full ownership,
and to be given “national treatment”, or be treated equally as local institutions.

In intellectual property, there
is a growing trend to view the standards at the WTO as already too high
for developing countries.  The effects include higher prices of medicines,
software and other products as a result of the monopoly granted to the
companies owning patents and copyright. 

curbing domestic
development.

“biopiracy” is being
practiced, where transnational companies are patenting biological resources
or traditional knowledge originating from developing countries.

n the FTAs with the US, many
of the policies still permitted by the WTO are closed off.

“compulsory licenses” to local companies to produce generic versions of
these medicines,

FTAs of investment,
government procurement and competition has even more serious implications

quietly re-entered
the scene through the side door of the FTAs.

give new rights to foreign companies to be established
in the partner country, to be treated at least as well as local companies,
and to have equal rights as locals to bid for the supply of goods and
services to government and to government projects.

To reserve preferences and
subsidies for local companies would not be permitted as this is seen as
discriminating against foreign firms.   

he FTA partners are also obliged
to discipline the behaviour of  governments and government-linked companies,
so that the GLCs do not enjoy privileges, and each does not influence
the policies of the other.

Agreeing to an FTA with the
US would thus require a developing country to alter its laws, policies
and perhaps its entire development strategy. 

Other developed countries,
such as Japan and the European Union, are also making similar requests
(though sometimes in dilute forms) as the US, in their FTAs.  

Why do countries negotiate
a FTA with the US if there are such drastic consequences?  Some feel they
are left behind if they don’t, because the neighbouring countries are
signing. 

Some believe they can sell
more exports to the US, and sometimes do not take into account that the
increase in imports may be even more.

effects on the country’s development goals
and strategies.