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Project on Free Trade Agreement

Project on Free Trade Agreement

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Published by: prashant_addi05 on May 21, 2010
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10/27/2010

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INTRODUCTION
An increase in trade liberalisation coupled with the introduction of new competition can setnew demands for certain domestic industries.In instances where domestic industries arestruggling to survive, various trade remedies are available to protect them from foreigncompetitors. The retention of trade remedies in trade agreements serves the purpose of obtaining political support needed for the successful implementation of the agreement andassures import-competing sectors in member states that protection against unanticipatedconsequences of liberalisation is available.When there is a sudden surge in imports, countries can temporarily safeguard themselves inan effort to protect the affected domestic industry. Traditionally, these safeguard measureswere only available for application under World Trade Organisation (WTO) rules; but withthe proliferation of trade agreements in recent years, such measures have also been includedon a regional and bilateral level. While global safeguards concern the application of safeguard measures on a multilateral level, regional or bilateral safeguards refer to measuresaddressing distortions which come about as a result of implementing regional of bilateraltrade agreements.The rules of the WTO provide that safeguard measures must be appliedwithout discrimination. Regional or bilateral safeguards, however, address only the adverseeffect of the regional or bilateral liberalisation and are therefore only applicable betweencontracting parties. For this reason these measures are also known as ‘transitional measures’,as they may not be invoked after the termination of the transition period. Global and regionalsafeguards are different institutions dealing with problems arising from different free tradeinitiatives. The General Agreement on Tariffs and Trade (GATT) Article XIX, together withthe WTO Agreement on Safeguards, remains the generally applicable safeguard regime at amultilateral level. Safeguards in regional and bilateral agreements vary greatly: fromagreements containing no general safeguard measure to agreements with detailed and rigid provisions and conditions for implementation.All of the regional and bilateral agreementswhich contain safeguards do nevertheless share similar characteristics and are comparable tosome extent with the WTO Agreement on Safeguards. For this reason the multilateral ruleson safeguards were analysed to provide a basis on which the regional and bilateralagreements can be compared. The examination of the regional and bilateral safeguards istherefore patterned on the design of the WTO Agreements on Safeguards and provides for several topics which include conditions for invocation, investigation procedures, applying
 
the safeguard measure, duration of safeguard measures, provisional application,compensation for loss of trade, special treatment for developing countries and disputesettlement.Even though the rules and procedures for transitional safeguard measures are builtinto the agreements, they still need to be applied within the framework of GATT ArticleXXIV. The argument has been made that intra-regional safeguards are in conflict with this provision.This is due to the requirement that restrictions have to be eliminated on‘substantially all trade’. The flexibility of the article does, however, allow for intra-regionalsafeguard application. Only if the measure is invoked on a significant percentage of theregional trade, will the question arise whether the remaining trade qualifies as ‘substantiallyall trade’. In addition to regional and bilateral safeguard,special safeguard mechanisms areapplicable in certain situations where protection could usually not be obtained otherwise.These measures provide additional protection to traditionally sensitive sectors like agricultureand textiles and clothing. The provisions have different requirements and conditions for theinvocation regarding notification, strength and length of implementation, compensation,option of retaliation and the determination of serious injury.These special measures were alsoexamined to determine the difference between them and the normal safeguard measures.
FREE TRADE
Free trade is a type of trade policythat allows traders to act and transact without interferencefrom government. Thus, the policy permits trading partners mutual gains from trade, withgoods and services produced according to the theory of comparative advantage.Under a free trade policy, prices are a reflection of truesupply and demand, and are the soledeterminant of resource allocation. Free trade differs from other forms of trade policy wherethe allocation of goods and services amongst trading countries are determined by artificial prices that do not reflect the true nature of supply and demand. These artificial prices are theresult of  protectionisttrade policies, whereby governments intervene in the market through price adjustments and supply restrictions
[
]
. Such government interventions generallyincrease the cost of goods and services to both consumers and producers.
 
Interventions includesubsidies,taxesandtariffs,non-tariff  barriers, such as regulatory legislationandquotas,and even inter-government managed trade agreements such as the  North American Free Trade Agreement(NAFTA) andCentral America Free TradeAgreement(CAFTA) (contrary to their formal titles.)--any governmental market interventionresulting in artificial prices that do not reflect the principles of supply and demand.Most states conduct trade polices that are to a lesser or greater degree protectionist.
Oneubiquitous protectionist policy employed by states comes in the formagricultural subsidies whereby countries attempt to protect their agricultural industries from outside competition bycreating artificial low prices for their agricultural goods.
FEATURES OF FREE TRADE
Free trade implies the following features
trade of goodswithout taxes (includingtariffs) or other  trade barriers(
e.g.,
quotas onimports or subsidies for producers)
trade in services without taxes or other trade barriers
The absence of "trade-distorting" policies (such as taxes, subsidies, regulations or laws) that give some firms, households or  factors of productionan advantage over  others
Free access to markets
Free access to market information
Inability of firms to distort markets through government-imposed monopoly or oligopoly power 
The free movement of labor between and within countries
The free movement of capitalbetween and within countries
FREE TRADE AGREEMENT (FTA)
Free trade agreements (FTAs) are generally made between two countries. Manygovernments, throughout the world have either signed FTA, or are negotiating, or 

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