BENEFITS OF FTAs AND

FDIs
Social Studies Chapter 9
• What are Free Trade Agreements (FTAs)?
• FTAs are legally binding international treaties between two or more trading partners that seek to
promote trade by reducing barriers to trade in goods, services and investments.
• Who stands to benefit from FTAs?
• With Singapore being an open trading economy, a vast majority of imports already enter
Singapore tariff-free. FTAs serve to benefit Singapore exporters most, in particular those in the
following categories:
• Singapore-based exporters/manufacturers whose products currently face tariff restrictions and
qualify to receive preferential tariff treatment under FTAs beyond a trading partner’s World Trade
Organisation (WTO) commitments.
• Singapore-based exporters/manufacturers whose products are traded between FTA partner
countries stand to benefit from less stringent rules of origin.
• Singapore-based service suppliers and investors for whom trading partners commit to safeguard
market access, protect investments and ensure business certainty under FTAs.
• Businesses face unique situations according to their industry dynamics. As such, FTAs may benefit
some businesses more than others.
Disadvantages of FTA
Increased Job outsourcing
• Reducing tariffs on imports allows companies to expand to other countries. Without tariffs, imports
from countries with a low cost of living cost less. It makes it difficult for companies in those same
industries to compete, so they may reduce their workforce. Laying off workers is quite common.

Intellectual property theft

• Many developing countries don't have laws to protect patents, inventions, and new processes. The laws
they do have aren't always strictly enforced. As a result, corporations often have their ideas stolen.

Poor working conditions

• Multinational companies may outsource jobs to emerging market countries without adequate labor
protections. As a result, women and children are often subjected to grueling factory jobs in sub-
standard conditions
Disadvantages of FTA

Increased Job outsourcing

• Reducing tariffs on imports allows companies to expand to other countries. Without tariffs, imports from
countries with a low cost of living cost less. It makes it difficult for companies in those same industries to
compete, so they may reduce their workforce. Laying off workers is quite common.

Intellectual property theft

• Many developing countries don't have laws to protect patents, inventions, and new processes. The laws they do
have aren't always strictly enforced. As a result, corporations often have their ideas stolen.

Poor working conditions

• Multinational companies may outsource jobs to emerging market countries without adequate labor protections.
As a result, women and children are often subjected to grueling factory jobs in sub-standard conditions
Disadvantages of FTA
Degradation of Natural resources
• Emerging market countries often don't have many environmental
protections. Free trade leads to the depletion of timber, minerals, and
other natural resources. Deforestation and strip mining reduce their
jungles and fields to wastelands.

Reduced Tax revenues in smaller countries

What is Foreign Direct Investment?
Foreign Direct Investment, often abbreviated as FDI is defined as an investment made by an individual or an
organisation in one country into a business located in another. Apart from money, FDI brings with it knowledge,
technology, skills and employment.

Advantages of FDI
The following are the key advantages of foreign direct investment in countries
1. FDI stimulates economic development
It is the primary source of external capital as well as increased revenues for a country. It often results in the
opening of factories in the country of investment, in which some local equipment – be it materials or labour force,
is utilised. This process is repeated based on the skill levels of the employees.

2. FDI results in increased employment opportunities

As FDI increases in a nation, especially a developing one, its service and manufacturing sectors receive a boost,
which in turn results in the creation of jobs. Employment, in turn, results in the creation of income sources for
many. People then spend their income, thereby enhancing a nation’s purchasing power.
Benefits of FDI
3. FDI results in the development of human resources
• FDI aids with the development of human resources, especially if there is transfer of training,
technology and best practices. The employees, also known as the human capital, are provided
adequate training and skills, which help boost their knowledge on a broad scale. But if you consider
the overall impact on the economy, human resource development increases a country’s human capital
quotient. As more and more resources acquire skills, they can train others and create a ripple effect on
the economy.

4. FDI enhances a country’s finance and technology sectors

• The process of FDI is robust. It provides the country in which the investment is occurring with
several tools, which they can leverage to their advantage. For instance, when FDI occurs, the recipient
businesses are provided with access to the latest tools in finance, technology and operational
practices. As time goes by, this introduction of enhanced technologies and processes get assimilated in
the local economy, which make the financial-tech industry more efficient and effective.
Benefits of FDI
5. Second order advantages
• Apart from the above points, there are a few more we cannot ignore.
For instance, FDI helps develop a country’s backward areas and helps
it transform into an industrial centre. Goods produced through FDI
may be marketed domestically and also exported abroad, creating
another essential revenue stream. FDI also improves a country’s
exchange rate stability, capital inflow and creates a competitive
market. Finally it helps smoothen international relations.
Disadvantages of FDI
FDI can:
• hinder domestic investments and transfer control of domestic firms to
foreign ones
• risk political changes, exposing countries to foreign political
influence 
• influence exchange rates. 
• Overtake domestic industry if they cannot compete 
• Unchecked FDI can make a country vulnerable to foreign elements
like digital crime, cyber attacks