There are many steps and measures taken by most countries and the World Trade Organization as well to promote cross country trade among economies. Free trade agreements are one of such measures taken by most countries and regions to promote trade as well as to obtain economic benefits through international trade. Free trade can be defined as trade that takes place between two countries without any taxes, tariffs, duties, quotas, country specific criteria for imports, sanctions and other government restrictions. There are many arguments to and against the concept of free trade that includes both negative and positive impacts. Most common free trade agreements can be known as NAFTA (North American Free Trade Agreement), SAFTA (South Asian Free Trade Agreement) and the European Union.
With free trade practices, consumers are exposed to a wide variety of goods and do not have to settle with local products. They have access to more brands varieties and choices. But at the same time they can be subjected to trade malpractices like dumping. Dumping is loading a country with cheap products that are below standard. This is mostly done by larger economies on smaller economies or developing countries.
Entering into free trade agreements with a country allows free exports to that country as well. An assured export market develops for local products due to free trade. Most countries have free trade zones that have freezone companies in Dubai that produce export goods that are not subjected to any form of taxes or tariffs. These zones encourage investors to enter the export market and which in turn increase employment opportunities in the country.
When loads of foreign products enter the local market without any control, the local producers are faced with huge competition. Local small scale producers will be completely eliminated from the market and the foreign brands will have a monopoly over products that local producers do not have a competitive advantage on. Even the freezone companies will be faced with competition if the target country of export enters into a free trade agreement with one of their competitors.
There are huge effects on the balance of payments due to free trade. The home currency value will become highly volatile and the exchange rates will be subjected to very high fluctuations resulting in BOP current account deficits which can affect the foreign reserves of the country.
Due to many drawbacks related to free trade many countries are reluctant to practice it. They have taken measures of protectionism both in terms of tariff and non-tariff methods. Non tariff methods include imposing quotas, sanctions and restrictions on the import of certain items.