What is the deal with free-trade deals?

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Before its recent approval, the CETA (Comprehensive Economic and Trade agreement in between Canada and the EU) has been seriously questioned by the Belgium Wallonie Premier Paul Magnette. While being flooded with contradictory news and updates about this agreement, it seemed important to me to take a step back, and write about FTAs (Free Trade Agreements).

There are dozens of FTAs worldwide, and many countries have at least one agreement in place. Among the most famous ones, we count the NAFTA (Canada – USA – Mexico), the European Union, the MERCOSUR (Argentina – Brazil – Paraguay – Uruguay – Venezuela) or the ASEAN (Brunei Darussalam – Cambodia – Indonesia – Laos – Malaysia – Singapore – Viet Nam – Thailand – Philippines – Myanmar).

They are enforced by the WTO (World Trade Organization – http://www.wto.org ) which makes sure that the GATT (General Agreement on Tariffs and Trade) is respected.

Those agreements are in place to make trade exchanges easier in between the countries of the agreement (less documentation needed, less import/export taxes, …) The ultimate goal of such agreements is to benefit to all partners by giving easier access to each other’s specific supplies and facilitate exchanges.

For example, the CETA will benefit to meat exporters from Canada who will have better and easier access to  meet the European demand, and the dairy products manufacturers  from Europe will be able to export in greater and safer extend to meet the Canadian demand.

Over the years, the enthusiasm of creating larger trading areas has declined quite drastically. This is a fact, protectionism has become trendy.

Donald Trump in the US and the increasing populism in European countries are good illustrations of public opinion’s animosity towards opening-up actions, not only for trade, but also for people. « Chacun chez soi, et les moutons seront bien gardés » is a French idiom which is quite appropriate to the situation.

It is simple to look at economic issues that most developed countries face, and blame the globalization for high unemployment rates and other problems. Sure enough, FTAs may encourage companies to relocate their manufacturing plants in cheaper places, and governments generate less income from import/export taxes.

However, protectionism may cure these symptoms for a brief period, but eventually, it may severely damage local economies which may stagnate in a non-competitive market.

It is also important to keep in mind that most job cuts in the past decades have been due to technical progress (automatization..) and not relocations.

Societies change, employment as we know it changes too, and we should not be too afraid of these transitions which are part of the entire evolution : things have always changed, from generations to generations.

Free Trade Agreements represent a great growth potential, and also a real development incentive for many countries. It boosts local economies and makes the markets more dynamic.

When opening up on trade, nations are bound together, and eventually, they work on the global leveling up of their population lifestyles. This does not mean that we loose our national identities, but this means that we acknowledge to be part of a wider group (aren’t we all citizens of the world?)

Also, we should keep in mind that even if cross-country trade is made easier by agreements, domestic demand will always prevail : one will not travel 1000 miles to get bread if the same bread is available next door.

Encouraging this dynamism, local governments should of course, adapt their policies according to their domestic needs, and make sure their populations are prepared to enjoy the benefits while having strong foundations in basic areas such as education or healthcare for example.

In my opinion, opening barriers may destabilize local economies for a short period, but if well implemented by local governments, it has the power to create a dynamism that everyone will enjoy.

Please, do not hesitate to leave your comments and views on this controversial topic, so we can exchange and discuss it together.

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Author: Helene

Export-enthusiast, travel-addict, I like blogging on international development, marketing and export strategies for SMEs and Startups! I am also an optimistic World citizen!

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