Group 7: Bùi Thị Phương Anh, Nguyễn Hương Giang, Phạm Mai Nhi, Nguyễn

Thị Anh Thơ

Topic 7: Arguments for free trade. Example
1. Take advantage of economies of scale
Free trade agreements create larger markets for companies to sell their goods
to. It means that instead of producing everything necessary within the borders of a
country, each country will specialize in the production of those goods in which it has
a comparative advantage over its trading partners. This will lead to an optimum and
efficient utilization of resources and, hence, economy in production. In this way,
productivity is increased and the economies of the trading countries grow.
Example: After the cosignation of NAFTA in 1993, Mexico became a car
manufacturing hub, with General Motors, Fiat Chrysler, Nissan, Volkswagen, Ford
Motor, Honda, and dozens of others operating in the country - not to mention,
hundreds of parts manufacturers. These and other industries' growth are the results of
a four-fold increase in U.S. foreign direct investment in Mexico since 1993, and the
movement of automotive production into Mexico - owning to the lower production
costs compared to the United States.
2. Dynamic and competitive business environment.
Exposure to foreign competition forces a domestic industry to become more
efficient and competitive. Increased competition promotes innovative production
methods, the use of new technology, marketing, and distribution methods.This
benefits consumers, who can enjoy lower prices and more choices. Free trade also
encourages foreign direct investment, which brings in new capital, technology, and
expertise to developing countries.
Example: The case of Vietnam and the ASEAN Free Trade Area (AFTA). This
exposed Vietnam's domestic industries to more competition from other ASEAN
countries. For example, Vietnam's textile and garment industry increased its
productivity, upgraded its technology, and diversified its products to meet the demand
of both domestic and foreign consumers. According to the General Statistics Office,
Vietnam's textile and garment industry contributed 10% of the national industrial
output value, creating jobs for 2.7 million workers, accounting for 25% of the total
number of employees in the industry, and accounting for 5% of the total workforce.
3. Attract foreign investment and technology transfer
Local companies also receive access to the latest technologies from their
multinational partners. As local economies grow, so do job opportunities.
Multinational companies provide job training to local employees
Example: Samsung has transferred technology to 6 factories and 1 Research
and Development center in Vietnam, thereby increasing the number of suppliers from
25 businesses to 257 businesses by the end of 2022. Not only that, Samsung Samsung
delegation implemented the "Smart Factory Development Cooperation Project" at 50
businesses in Vietnam and trained 100 Vietnamese experts in the field of smart factory
consulting for 2 years.
4. Lower Government Spending
Without free trade, it becomes extremely costly for a government to subsidize a
new entrant because the subsidy must be large enough both to overcome foreign trade
barriers and to jump-start the domestic producer.
Example: Free trade policies create favorable conditions for FDI capital flows
to invest in Vietnamese enterprises. It can be seen that currently foreign companies
often invest in manufacturing and service industries. For example, leading businesses
are pouring capital into Vietnam such as Samsung, LG, Lotte or automobile factories
of Toyota and Honda.
Conclusion:
Free trade provides a net gain for society today. Most countries in the world are
members of the world trade organization which limits in certain ways but does not
eliminate tariffs and other trade barriers. Most countries are also members of regional
free trade areas that lower trade barriers among participating countries.