Free trade agreements have been shaping the global economy for the past 25 years. Recently, the number of agreements has increased dramatically. Today, every country in the world is party to some form of trade agreement. At GED, we combine in-depth studies with award-winning visualization tools to help put free trade in perspective.

But what exactly is free trade? Simply put: free trade allows people to enter into economic transactions with people in other countries – without government restrictions. There are several aspects to free trade agreements, but the most important is the reduction or elimination of tariffs. A tariff is essentially a tax placed on an item as it is imported. The idea is to lower or remove tariffs so that items become cheaper to import; the reduced cost of importing the item is then passed on to the consumer, who also pays less. Beyond this, free trade policy also focuses on reducing non-tariff barriers (such as quotas and licensing), non-discrimination between participating countries in agreements, and national treatment rules to ensure that domestic products are treated the same as traded products. Finally, exemptions are also a defining feature of free trade agreements – these are negotiated by states to protect certain national industries and sectors.

Free trade agreements are not necessarily between two countries. They can occur domestically, such as in federal systems, like in the United States where inter-state trade is unregulated, as well as when multiple countries in a particular region come together to form a trade agreement. The most significant free trade agreements to date have all been formed between multiple countries and geographical regions, such as the World Trade Organization (WTO), the European Economic Area (EEA), the North American Free Trade Agreement (NAFTA), and, most recently, the Trans-Pacific Partnership (TPP).

Free Trade for Everyone? The Advantages and Disadvantages

The benefits of free trade have been one of the most debated topics in economics throughout the 19th, 20th, and 21st centuries. Economists have long been divided over whether free trade is really a win-win situation. Generally, free trade theory can be divided into economic and moral concerns. However, there is also an important pragmatic component: stability. Measured by the volume of imports and exports, world trade has become increasingly free in the years since the Second World War. As a result, free trade has a significant impact on the business relationship between countries. Proponents suggest that increases in free trade will lead to more stability in the world. This is because countries will be more interconnected and dependant, and so less willing to enter into war with one another.

For economists, the advantages of free trade are best explained through the concept of “comparative advantage”, which means that countries produce what they are best at. So long as each country specialises in products in which it has a comparative advantage, then any trade that takes place will be mutually beneficial. However, critics of free trade economics argue that trade with developing countries where wages are usually lower, working hours longer, and industries less restricted, will result in a loss of jobs in high-wage countries. They want autarky, or fair trade. This is discussed further in the GED sponsored ‘How to Make TTIP Inclusive for All’ panel.

A final free trade issue is that, once ratified, it can be difficult for parties to withdraw. In line with this, we examine the outcomes of leaving free trade agreements. In our infographic ‘The Economics of Brexit: A Lose-Lose Proposition?’ we consider the various outcomes for both the UK and the countries within the EEA by looking at a soft exit, a deep cut, and complete isolation. The GED team also examine these issues further in our studies ‘Dynamic Effects of Brexit for all EU countries’ and ‘Costs and benefits of a United Kingdom exit from the European Union’.

True Colours: Shedding Light on Mega-Regional Trade Agreements

We’re currently in the midst of several historic trade deals. Mega-regional trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP), as well as the Trade in Services Agreement (TiSA) have been at the centre of heated debates due to high-profile document leaks, outspoken campaigners, and even politicians. Many are claiming that the scale and depth of these agreements goes far beyond the simple principles of free trade. At GED we shed some light on mega-regional trade agreements, and find out how the world of international trade is changing.

The Transatlantic Trade and Investment Partnership (TTIP) is a bi-lateral free trade agreement currently being negotiated between the U.S. and the European Union. The primary focus of TTIP is non-conventional barriers, particularly regulation in areas such as pharmaceuticals, agriculture, and financial trading. With trade between the two zones already at a historic low, the outcome would likely make them the world leaders in standards. In ‘GED TTIP Study on Potential Winners and Losers in Developing Countries’ we investigate the far-reaching effects of the largest ever multilateral free trade agreement, looking not just at the member countries, but also at the economies not party to the agreement.

Beyond this, TTIP has been repeatedly criticised for a lack of transparency. Many are questioning why these meetings are confidential. Discussions about who benefits from the lack of transparency have dominated the public’s perception of these agreements, and in particular, how Investor State Dispute Settlements (ISDS) provisions could be used to circumvent the democratic process. In ‘TTIP & TPP – A Good Agreement for Who?’ GED’s Uli Schoof speaks with noble laureate Joseph Stiglitz to discuss his thoughts on the role intellectual property rights and Big Pharma could have on negotiations.

After a decade of negotiations, the TPP was signed by Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam – making it the world’s largest free trade zone. The total GDP of the 12 countries comprises 40% of global GDP and one-third of world trade (roughly $27.7 trillion). The goal of the TPP is to “promote jobs and growth in the United States and across the Asia-Pacific region”, and the benefits of the agreement are estimated to reach $295 billion annually. In ‘TTIP, TTP and the Formation of a New World Trade Order’ we explore the impact of the TPP and consider the free trade issues for countries not party to the agreement like China, as well as the EEA.

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