Free trade is a business policy that allows businesses or persons of business to operate or transact financial endeavors with little or no interference from the government, providing profits from goods and services. Under a free trade association the benefiting individuals, companies, regions, states, or countries engage in a contractual trading agreement while enjoying the comparative advantages. Benefits includes: free tariffs, subsidies, non tariff barriers, free entry and exit etc.; an example of which is the Canadian – United States- Mexican NAFTA free trade agreement. Another example that is still in the offing is the proposed EU and Russian free trade agreement. According to the Prime minister of Russia Vladimir Putin – he wishes to see the commencement of a free trade zone between the European Union and Russia; he expressed his vision in a German newspaper as a “unified continental market with a capacity worth trillions of euros”. Will this vision see the light of day, what will be the likely deterrent to this vision?
Before commencing with the possibility of a trade agreement between EU and Russia, the features of trade zone will be elucidated to create a better understanding of the term free trade.
The idea of free trade did not start with the prospect of the EU and Russia; it has been in existence for as long as the 5 centuries in Europe, in form of mercantilism which was opposed by two great economists: David Ricardo and Adam Smith. Inasmuch as, the story of free trade is long and old, one fact remains – it is still obtainable and highly effective today. Below are some features that free trade agreements have.
- Trading of goods or services without taxes or trade barriers.
- Nonappearance of trade bias policies that offers undue advantage to domestic business more than other businesses in the same market, for example: taxes and regulations.
- Free access to markets.
- Open access to market information.
- Discouragement of monopoly and oligopoly.
- Free mobility of labor between the contractual entities.
- Easy mobility of capital between the entities concerned.
The above are some of the characteristics and motivations behind any free trade proposition. With this knowledge the Russian prime minister’s free trade is clear. The question still stands; will this intent become successful?
The gains or benefits that this proposal stands to gain are very enormous. According to the Several EU and Russian officials the free trade coalition will deliver a new wave in industrialization throughout the European continent in aspects regarding the car, shipping, aviation, space technology, pharmaceuticals, medical technology and nuclear energy industries.
It is a lofty goal to establish free trade agreements between these two entities. Merkel, the German chancellor who on Thursday 25th of November 2010, asserted the concept of free trade, but went on to say: “I have to pour a bit of cold water on it”. Her reason for dampening the free trade motive is generated from the fact that “the steps that Russia has taken recently do not point in the right direction”, referring to the Tariff policy from Russia and the trading bloc in Moscow with Kazakhstan and Belarus posing a possible obstacle to the idea.
Well nothing good has ever manifested without barrages of disagreement, with much push and correction the Russian Prime minister’s Vision might just turn to reality.