Case for Free Trade: Why Open Up Economies?

Imagine a village market where anyone can sell their products—without paying rent, entry fee, or facing restrictions. That’s free trade at the global level.

What is Free Trade?

Free trade, also called trade liberalisation, is the act of removing or lowering trade barriers such as tariffs, quotas, and import duties to allow unrestricted exchange of goods and services between countries.

Globalisation + Free Trade = Faster, Wider Trade

With better transport and communication, goods can now travel faster and farther. A software developed in India is used in Canada; mangoes from India are eaten in Dubai.

But Is It Always Beneficial? Let’s Critically Examine

While free trade sounds ideal, there are critical issues, especially for developing countries:

Problem	Explanation
Unequal Playing Field	Rich countries often subsidise their goods, while poor countries are pressured to open markets.
Dumping	A major concern. Dumping = Selling a good at a cheaper price abroad than in the home market, often to kill competition.
Market Invasion	Domestic industries, especially small-scale, may collapse under pressure from cheap foreign imports.

🧠 Important Definition to Memorise:

Dumping is the practice of selling a commodity in two different countries at different prices, not because of cost differences, but to manipulate the market.

World Trade Organization (WTO): The Global Umpire

Let us now understand the institutional structure of global trade.

From GATT to WTO: A Brief History

Year	Event
1948	GATT formed to reduce tariffs
1995	GATT converted into the WTO to deal with not just goods but also services, IPRs, and dispute resolution

Role of WTO

• Sets rules for global trade
• Resolves disputes between member nations
• Covers services (e.g., banking, telecom) and intellectual property rights (IPRs)

🧠 Example:

• India had a dispute with the U.S. over solar panel imports—WTO intervened.

Criticism of WTO

While it aims to promote fair trade, many believe the WTO disproportionately favours developed countries.

Criticism	Impact
Rich nations dominate decision-making	Biased trade rules
Developed countries don’t fully open markets	Poor countries can’t export easily
Ignores human and environmental concerns	Workers’ rights, child labour overlooked

👥 Critics say: “Free trade has made the rich, richer and the poor, poorer.”

We will read more about WTO in a greater detail in Economics section.

Regional Trade Blocs: Teaming Up Locally

Now imagine that when global trade negotiations are slow or biased, countries in the same region decide to trade more with each other. This gives rise to regional trade blocs.

Why Regional Trade Blocs Form?

• Geographical proximity – Easier logistics and cultural similarities.
• Complementarity in goods – One has oil, another needs it.
• Frustration with global bodies – Faster progress within the region.

Over 120 regional trade blocs exist today, generating more than 52% of world trade.

Major Regional Trade Blocs (with HQ and Commodities)

Bloc	HQ	Year	Major Members	Key Commodities
ASEAN	Jakarta	1967	Indonesia, Malaysia, Vietnam, etc.	Agro, minerals, software
CIS	Minsk	1991	Russia, Kazakhstan, etc.	Oil, gas, gold, cotton
EU	Brussels	1993	France, Germany, Italy, etc.	Agro, chemicals, machinery
LALA	Montevideo	1994	Brazil, Argentina, etc.	Market expansion goal
NAFTA (now USMCA)	Mexico City	1949	US, Canada, Mexico	Vehicles, computers, textiles
OPEC	Vienna	1960	Saudi Arabia, Iraq, UAE	Petroleum
SAFTA	Kathmandu	2006	India, Pakistan, Bangladesh	Reduce tariffs

🧠 Key Insight:

Regional Bloc	Special Focus
EU	Single market + Common currency (€)
OPEC	Control and coordinate oil production
ASEAN & SAFTA	Promote trade among developing Asian nations

📘 EXAM TIP:

While writing UPSC Mains answers on International Trade, use real-world examples like:

• India’s WTO dispute with the U.S.
• ASEAN’s rise in electronic goods trade
• SAFTA’s challenges due to India-Pakistan tensions