Today, free trade agreements are being signed between many poor and rich countries. However, these trade agreements are proving themselves to be much more damaging than its name suggests. Currently, there are over 250 agreements, both regional and bilateral in existence, as shown by reports. (Suri, 2007) To start with, what exactly is free trade? There are misconceptions about the meaning of free trade, as many believe that free trade meant trading between countries without any costs. However, according to the Webster's Collegiate Dictionary, free trade is trade based on the unrestricted international exchange of goods with tariffs used only as a source of revenue. Basically, free trade does not mean actual free trade, but freer trade.
Famed 18th century economist Adam Smiths book, An Inquiry into the Nature and Causes of the Wealth of Nations, often referred to as The Wealth of Nations, Smith talks about topics such as labor and free markets. Smiths idea is the logic of many nations in todays world, If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. (Smith, 1776, p. 185). Smith demonstrated that if initiated by both parties, free trade benefits both parties, and showed that if a country specialized in manufacturing, it promoted economies of scale, thus improving productivity and growth of the economy. (Farmer, 2011) Besides that, Smith often using the phrase liberal system to describe free trade in contrast to another system that was known as the mercantilist system.
Economists conclude that allowing free trade in any economy improves the society overall. Nevertheless, developing countries that have signed, or may have been pushed into signing a free trade agreement may not benefit as much as the other end of the agreement.
