Free Trade: Under a free trade policy, prices are a reflection of true supply and demand, and are

the sole determinant of resource allocation. Free trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand. These artificial prices are the result of protectionist trade policies, whereby governments intervene in the market through price adjustments and supply restrictions. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers.

Advantages of free trade Free trade occurs when there are no artificial barriers put in place by governments to restrict the flow of goods and services between trading nations. When trade barriers, such as tariffs and subsidies are put in place, they protect domestic producers from international competition and redirect, rather than create trade flows. i. Increased production Free trade enables countries to specialise in the production of those commodities in which they have a comparative advantage . With specialisation countries are able to take advantage of efficiencies generated from economies of scale and increased output. International trade increases the size of a firms market, resulting in lower average costs and increased productivity, ultimately leading to increased production. ii. Benefits to consumers Consumers benefit in the domestic economy as they can now obtain a greater variety of goods and services. The increased competition ensures goods and services, as well as inputs, are supplied at the lowest prices. For example in Australia imported motor vehicles would cost 35% more if the 1998 tariff levels still applied. Clothing and footwear would also cost around 24% more. iii. Foreign exchange gains When Australia sells exports overseas it receives hard currency from the countries that buy the goods. This money is then used to pay for imports such as electrical equipment and cars that are produced more cheaply overseas. iv. Employment Trade liberalisation creates losers and winners as resources move to more productive areas of the economy. Employment will increase in exporting

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industries and workers will be displaced as import competing industries fold (close down) in the competitive environment. With free trade many jobs have been created in Australia, especially in manufacturing and service industries, which can absorb the unemployment created through restructuring as firms close down or downsize their workforce. When tariffs were increased substantially in the period 19741984 for textiles and footwear - employment in the sector actually fell by 50 000, adding to overall unemployment. Economic growth

The countries involved in free trade experience rising living standards, increased real incomes and higher rates of economic growth. This is created by more competitive industries, increased productivity, efficiency and production levels. B. Disadvantages of free trade Although free trade has benefits, there are a number of arguments put forward by lobby groups and protestors who oppose free trade and trade liberalisation. These include:

With the removal of trade barriers, structural unemployment may occur in the short term. This can impact upon large numbers of workers, their families and local economies. Often it can be difficult for these workers to find employment in growth industries and government assistance is necessary. Increased domestic economic instability from international trade cycles, as economies become dependent on global markets. This means that businesses, employees and consumers are more vulnerable to downturns in the economies of our trading partners, eg. Recession in the USA leads to decreased demand for Australian exports, leading to falling export incomes, lower GDP, lower incomes, lower domestic demand and rising unemployment. International markets are not a level playing field as countries with surplus products may dump them on world markets at below cost. Some efficient industries may find it difficult to compete for long periods under such conditions. Further, countries whose economies are largely agricultural face unfavourable terms of trade (ratio of export prices to import prices) whereby their export income is much smaller than the import payments they make for high value added imports, leading to large CADs and subsequently large foreign debt levels. Developing or new industries may find it difficult to become established in a competitive environment with no short-term protection policies by governments, according to the infant industries argument. It is difficult to develop economies of scale in the face of competition from large foreign TNCs. This can be applied to infant industries or infant economies (developing economies). Free trade can lead to pollution and other environmental problems as companies fail to include these costs in the price of goods in trying to compete with companies operating under weaker environmental legislation in some countries. Pressure to increase protection during the GFC During the global financial crisis and recession of 2008-2009, the impact of falling employment meant that protection pressures started to rise in many countries. In New South Wales, for example, the state government was criticised for purchasing imported uniforms for police and firefighters at cheaper prices rather than purchasing Australian made uniforms from Australian companies. Similar pressures were faced by governments in the United States, Britain and other European countries

Free Trade between India and ASEAN (Association of Southeast Asian Nations):
India, which has one of the few national economies still in growth, signed a free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN) in August 2009, reported Economic Times in India. According to the ASEAN-India joint statement, the agreement, required more than six years of negotiations, and will take effect on Jan. 1, 2010. Between 2013 and 2016, tariffs will be eliminated on products including machinery, chemicals, electronics and textiles

ASEAN is India's fourth-largest trading partner after the European Union, the United States and China. Trade between India and ASEAN totaled $47 billion in 2008 and is expected to rise to $60 billion with the signing of the FTA. Trade between Asean and India has risen by more than 27% annually since 2000. The agreement is key to creating an open market across the region. India is looking to boost its export sector, which accounts for only 26% of its economy, said Indian Commerce Minister Anand Sharma. Indias domestic economy continues to remain strong and GDP growth will likely rise by around 6.7% even in 2009 after having grown at the same pace in 2008. "This is due to the domestic economys strength," said Sharma. Indias continuing economic strength partly reflects its high savings rate and high investment rate. However, Indias exports have been declining since the global financial crisis deepened in mid-September 2008. Their value in June was 27.7% down on $17.73 billion in the same month last year.
China and India today represent Asias two largest and most dynamic societies which are emerging as new trend setters in international relations. Especially, with their annual GDP growth rates standing respectively at 9.1% and 8.5% for 2003 and at 9.5% and 6.9% for 2004, China and India have since come to be recognized as the fastest growing economies. According to World Bank estimates, and assessed on the basis of purchasing power parity, China and India have already become respectively the second and fourth largest economies of the world surpassing developed countries.