There are many regions and countries of the world that have been able to lift their people from poverty to prosperity through trade. According to the Action Plan for Boosting Intra-Africa trade, “Trade is widely accepted as an important engine of economic growth and development.
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In 2012, the African Union Summit approved a plan to create a continental free trade zone by 2017.
Įxamples of regional and sectoral negotiations include the following:Ĭontinental Free Trade Area for Africa (CFTA). More than 250 regional and bilateral agreements are in force, with dozens more being negotiated.
Consequently, free trade agreements between countries or regions are a useful strategy for liberalizing world trade.
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That is because groups that otherwise would be opposed or indifferent to trade reform might join the campaign for free trade if they see opportunities for exporting to the other countries in the trade agreement. Irwin observed: ultilateral reductions in trade barriers may reduce political opposition to free trade in each of the countries involved. Trade agreements have provided another way to reduce trade barriers. According to the Organization for Economic Co-operation and Development (OECD), “Protective measures against imports of intermediate products increase the costs of production and reduce a country’s ability to compete in export markets: tariffs and other barriers to imports are effectively a tax on exports.” Increasing trade barriers has the opposite result. Reducing barriers to imports allows countries to participate in global value chains by encouraging foreign investment and lowering the cost of inputs. As economist Pierre-Louis Vézina observed, “wo decades of unilateral tariff-cutting in emerging economies accompanied the most successful trade-led development model of the past 50 years, i.e., ‘Factory Asia.’” Economist Richard Baldwin described unilateral tariff cuts in developing countries beginning in the 1980s as a “curiously universal phenomenon.” These unilateral tariff cuts generated dramatic results. Many developing countries have taken this route. Reducing trade barriers allows countries to reap benefits including increased foreign investment and accelerated economic growth. The simplest way to achieve trade freedom is to unilaterally reduce tariff and non-tariff barriers. In the United States, for example, the average tariff rate is just 1.5 percent, but pickup trucks face a prohibitive 25 percent tariff, and many types of clothing are subject to double-digit tariffs. Double-digit tariff rates are applied in 37 countries, and even countries with low average tariff rates often have high tariff peaks for specific items. But free trade policies do not just promote economic growth, they encourage freedom-including protection of private property rights and the freedom of average people to buy what they think is best for their families, regardless of attempts by special-interest groups to restrict that freedom.īut not all countries have embraced free trade. These countries with low tariffs and few non-tariff barriers benefit from stronger economic growth. Thirty-eight countries have an average tariff rate of 1 percent or less. The average world tariff rate has fallen by one-third since the turn of the century alone. Today, the average worldwide tariff rate is less than 3 percent. Since World War II, government barriers to global commerce have been reduced significantly. Countries with the most trade freedom have higher per capita incomes, lower rates of hunger in their populations, and cleaner environments.īoosting Trade and Economic Freedom. Why Trade Freedom MattersĪ comparison of economic performance and trade scores in the 2016 Index of Economic Freedom demonstrates the importance of trade freedom for prosperity and well-being. exports and imports increased by $156 billion to $5.2 trillion, the highest overall level in history. In dollar terms, world trade volume is currently larger than ever, and the World Trade Organization (WTO) predicts another 3.9 percent increase in global trade in 2016. Since then, trade volume has increased every year. The volume of world trade in goods and services plummeted during the global recession, declining by nearly 20 percent between 20. The improvement was due to a modest decline in average tariff rates among the countries measured. Worldwide, the average trade freedom score improved slightly, from 75.3 to 75.6 (of a maximum score of 100). The data continue to show a strong correlation between trade freedom and a variety of positive indicators, including economic prosperity, low poverty rates, and clean environments. The latest rankings of trade freedom around the world, included by The Heritage Foundation and The Wall Street Journal in the forthcoming 2016 Index of Economic Freedom, confirm that citizens of countries that embrace free trade are better off than those in countries that do not.