Benefits of Free Trade Agreement
A free trade agreement is a treaty between various nations for the establishment of an area of free trade where trade in services and goods can be easily done across common borders, without hindrances or tariffs. Once a country signs a free trade agreement, it opens itself to various benefits. Below are key benefits of free trade agreements.
1. Employment benefits
Free trade agreements boost the employment rates in participating nations. Employment usually increases in the exporting companies and more employees are going to be needed since the industries are now supplying their services and products to several countries. Most of the jobs created are usually in service and manufacturing industries, which absorbs the redundancy created by the restructuring of other firms. Statistics clearly show that the presence of high trading tariffs between nations increases unemployment rates. Free trade agreements aim at eliminating these high tariffs, therefore boosting employment.
2. Consumers benefit
Customers in the local economy benefit from free trade agreements because they can easily obtain a wider variety of services and goods. The enhanced competition due to free trade makes certain that the services and products are provided at reduced prices. In addition, consumers also benefit from better quality goods since competition promotes innovative methods of production.
3. Improved production efficiencies
The efficiency in resource allocation is greatly improved through a free trade agreement. An increase in the efficiency of using resources results in higher productivity as well as enhanced total output of services and products. Furthermore, free trade agreements results in the utilization of new distribution and marketing methods and also new technology. International trade enhances the general size of an industry’s market, leading to increased productivity.
However, free trade agreements may lead to environmental problems such as pollution because industries are looking for methods of being more competitive.