Benefits of FTA
Free trade is refers to a trade policy that enables traders to transact or act without any interference from government. This particular policy allows mutual gains for trading partners from the trade of services and goods.
Under the FTA, the prices are a clear reflection of correct supply and demand meaning that they are the sole determinants of allocation of resources. Free trade is different from other trade policies in which the allocation of services and goods between trading countries is determined by simulated prices that might not represent the correct nature of the supply and demand. The artificial prices are usually the result of protective trade policies where governments interfere in the market by supply restrictions and price adjustments. These government interferences can decrease or increase the total costs of services and goods to both the producers and consumers. There are various benefits of FTA and some of them are listed below.
1. Promotes competition and innovation
It makes great economical sense to purchase goods from a company that specializes in producing them easily and at a much cheaper price. One exports in order to acquire services and goods in return. Free trade offers customers the best opportunities and the most choices to improve their living standards. It creates a healthy competition forcing companies to create better products as well as more services and goods to the market. This assists in keeping quality high and prices low.
2. Generates economic growth
Through fostering opportunities, FTA rewards risk taking through increasing sales, market share and profit margins. Companies can opt to build on these profits through expanding their operations, producing better paying jobs and entering new sectors in the market. This helps to generate economic growth due to the expansion of these companies as well as the creation of new job opportunities.
The only disadvantage of FTA is that the created jobs are less sustaining in comparison to the livelihoods eliminated by it.