Free trade is the primary force driving economic development Essay

Free trade is the primary force driving economic development - Essay Example Trade liberalisation has become a focal point of many economic forums across the globe. Globalisation has made it easier for countries to look beyond their own borders for economic growth. Countries have recognised the fact that economic growth is a collective effort and all the countries need to work together on this front. Although many developed countries are still practising protectionism, they have realised the importance of free trade in economic development. Several bilateral agreements and multilateral agreements have been signed by many countries to allow flow of goods amongst the member countries. In most of the cases countries that have participated in free trade agreements have experienced rise in living standards, growth in income. This growth curve experience by several countries due to free trade agreements is clear indication of the importance of free trade agreement in economic development. Multilateral agreements drafted under World trade organisation (WTO) and Gene ral Agreement on Tariffs and Trade (GATT) are aimed at influencing nations to opt for trade liberalisation. There are many bilateral agreements which have been formulated between nations geographically located near to each other. Trade liberalisation is a well negotiated procedure where each party, agrees to make some concession in opening up their markets for foreign goods. Free trade has a huge impact on improving the quality and infrastructure of the host as well as the foreign country. Due to free trade, industry standards are raised high in order to compete with global scenario (Buckley & Boulle, 2008, p. 185-189). 2. Evolution of Free Trade Policy and Its Mechanism The international trade, especially during world war two suffered a huge loss. Most countries were involved in conflicts arising mainly due to trade disputes. These trade disputes were mainly caused by the discriminations and trade restrictions implied by the several countries to protect their markets from foreign p layers. It was in 1948 in Havana that a conference was held on trade and employment under the flagship of United Nations. The formation of International trade organisation (ITO) was a landmark in the attempt by international community to form an agency overlooking international trade issues. ITO was dissolved later as it did not get the green signal from the US congress. The US congress on the other hand opted for an ad-hoc agreement like General agreement on Tariffs and Trade (GATT). In 1947 at Geneva GATT was agreed on and signed by 23 countries. GATT was legally effective from 1948. GATT thereby is an agency which overlooks the rules and international laws governing international trade. All the trade disputes amongst the signatory parties are resolved by GATT. The most effective clause in GATT is the MFN clause, under which all participating nations are forced to treat all signatory nations as equal in all trade policies. GATT emphasises on influencing signatory countries to redu ce their tariffs and abolish any concessions given to a specific country. Though GATT gave more stability than ITO, it was often tainted by complaints from developing countries. Developing countries often complained about the policies formulated in GATT. The developed countries were often seen to follow protectionism in their trade policies. The formation of United Nations Conference on Trade and Development (UNCTAD) in 1964 was a direct implication of the dissatisfaction amongst the developing countries regarding GATT (Singh & Singh, 2005, p.1-9). One of the greatest outcomes of the Uruguay Round was the formation of World Trade Organisation (WTO). WTO was