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TRADE LIBERALIZATION (FREE TRADE)

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TRADE LIBERALIZATION (FREE TRADE) TOPIC 16: INTERNATIONAL TRADE ~ ECONOMICS FORM 6

TRADE LIBERALIZATION (FREE TRADE)

Trade liberalization

Refers to the economic policy which based on reduction of tariffs and trade barriers to permit more foreign competition and foreign investment in the economic sectors.

It is a term which describes complete of partial elimination of trade restrictions through elimination and reduction of trade barriers such as quotas and tariffs.

Free trade

Is the unlimited flow of goods and services between and/or among countries and is a name given to economic policies and parties supporting increases in such trade.

E.g. Tanzania introduced trade liberalization as from mid-1980’s following the IMF conditionalities to be fulfilled for a country to qualify to be given loan or grant.

Topic 16: International Trade ~ Economics Form 6

IMPACTS OF TRADE LIBERALIZATION/FREE TRADE TO THE LESS DEVELOPED COUNTRIES

QN: Analyse six impact of free trade to the third world countries.

Normally free trade has both positive and negative consequences to the developing countries.

Positive impacts OF TRADE LIBERALIZATION/FREE TRADE

1. It stimulate proper utilization of natural resources

Through trade liberation and free market economy globalization has stimulated much utilization of natural resources. There are many companies which invest natural resources.

For example, mining companies in Mwadui, Bulyanhulu, Geita, Nzega, etc enable Tanzania to utilize her resources for development of her people.

2. It has increase production in different sectors

Free trade has made production and transportation of goods easier and faster than ever before. It enables Tanzania to get different to get different goods from any corner of the world.

For example, getting goods such as computers, mobile phones, food stuffs, medicines, automobile, chemicals, and so on.

3. It has created employment opportunities

Free trade economy creates employment opportunities for many people. For example, telecommunication has contributed significantly to the employment creation of both direct and indirect jobs.

The indirect jobs include Tanzanians selling cell-phone, airtime, cell phone battery charging services, providing call services, money transfer, ect while direct jobs include different people employed to provide services in telecommunication companies like Vodacom, TTCL Mobile, Airtel, Zantel Mobile, Sasatel, Tigo.

4. It has  facilitated the  development  of  democracy

Through free movement of goods and people.

5. It has increased  national  income

Through privatization of public sectors  by government the national income has increased through taxes paid by external investors.

6. It has led to the improvement of quality of goods and services

This is possible due to the competition created by the foreign investors who use new technology in production.

7. It has led to the improvement of infrastructures

Globalization leads to development of sector of transport and communication. E.g the use of electric train, modern cars, etc.

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NEGATIVE IMPACTS OF TRADE LIBERALIZATION/FREE TRADE

1. Decline of industrial sector

For developing countries like Tanzania, free trade causes the decline and underdevelopment of industrial sectors and local technology.

Decline of industrial sector and local technology is due to influx of goods from outside whose are low yet with higher quality than local goods.

2. Intensive exploitation of resources from the poor countries

Presence of multinational companies in Tanzania if not well controlled may acquire super profit through exploiting citizens thus leaving them poor.

3. Source of unemployment

Trade liberalization sometimes creates unemployment. With growth of technology, machines greatly replace human labour.

Therefore, unemployment sometime increases. For example, the introduction of electronic devices like computer technology and its programmes have led to eviction of many Tanzanians from their jobs.

4. Increase in gap of development between developed and developing countries

Though privatization and capital mobility, Northern countries (Europe, North America) undermine Southern Countries (Africa, Asia, South Amerca) through unequal exchange.

Most of the potential natural resources in developing countries are owned by companies from developed countries. Thus undermining local communities.

5. It leads to decline technology to the poor countries

Due to importation of many external goods from the outsiders.

6. Increase in importation of fake goods to the developing countries

This is impact of free trade and democratization.

7. Increase in dependent economy

Due to high debts from the developed  countries imposed under very high conditions.

8. Decline of local currencies in the less developed countries.

9. Increase of debt crisis in the less developed countries.

10 increase in moral decay.

11. It has facilitated the destruction of culture to the poor countries.

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