When A Rich Country Enters Into A Free Trade Agreement With A Poor Country

Unlike most other commercial enterprises, the EU uses the „precautionary principle“ to decide whether the products are safe, meaning that something must be scientifically proven to be sure of being sold in the EU. It is therefore easy for the EU to say that a particular product has not met the standards, while it is more difficult for countries to negotiate unfettered trade with the EU in many sectors. The challenge for policy makers is to distinguish real health and safety protection from regulatory protectionism under the guise of consumer safety. Why do governments protect certain industries at the expense of the rest of the economy? Some industries have developed enormous political influence over time, notably through large donations to political parties and campaigns. And some sectors have high-performance public relations machines that have convinced the public to support measures to protect them and to oppose measures that would open them up to foreign competition. On the other hand, consumers do not organize themselves into strong pressure groups. As has already been said, it is jobs in industries that compete with imports that are threatened by open trade. These are usually in low-skilled manufacturing. As noted in the Comparative Advantage section, developed countries are moving towards highly skilled, high-value production, as the comparative advantage of developing countries lies in low-skilled production. Production in the United States and the United Kingdom, for example, does not die, it only changes. The redistribution of jobs that people work in an economy is an inevitable consequence of economic progress to which freer trade is only a part. At the time of Smith, Ricardo and Hecksher-Ohlin, businesses were generally small and most international trade was made in agricultural or mineral products or in small production. However, until 1947, the large industry had evolved and much of the trade was manufactured.

Unsurprisingly, economic theory, as it applies to trade in services, is still under development. In general, economists now believe that the fundamental theory of comparative advantage, as it applies to goods, also applies to cross-border trade in services. Geza Feketekuty says: „The theory of comparative advantage as a theoretical statement on economic relations should be as valid as the products covered by the theory are negotiable physical goods such as shoes and oranges, or tradable services such as insurance and mechanical engineering. [24] The benefits of unilateral removal of trade barriers are particularly evident in cases where the country does not produce the product; in these cases, removing barriers to trade broadens consumer choice. (However, as noted above, an exception appears in situations where removing a trade barrier for a raw material or component not produced by the land increases the effective protection rate of the finished product.) If both countries play this game, both will get worse. However, if only one country adopts this strategy, it can win at the expense of its partner.