What are the pros and cons of the EU having free-trade agreements with third-world countries?

Alfonso Llanes, Master Degree in International Development

Written just now

Economic Benefits from Exports and Imports

The most-direct economic benefits from international trade come from the fact that countries have different production capabilities. The variables include: natural resources, education of the workforce, physical capital, technical knowledge, etc. Without trade, each country must produce everything it needs; including manufactures that is not very efficient at producing. When trade is allowed, each country can concentrate its production on what it does best relative to other countries and export excess output in exchange for imports of products more expensive to produce at home which results in total world output increase. Other reasons for increases in world output is that it links greater use of economies of scale. A factory in one country can assist a market the size of two or more countries rather than just one. Trade also benefits a countries’ economics in other ways, such as expanding the variety of goods available to businesses and consumers, by competing and thereby reducing monopolistic pricing and the inefficiencies of a particular economy. Market forces in general, safeguard that all countries commercially connected share in the benefits from the increased in output.

Irrelevance of the Balance of Trade

Even when trade agreements increase the U.S. balance of trade with the world it would not undermine the benefits of the agreement. In general, trade deficits with the world are not necessarily damaging, and trade surpluses are not necessarily favorable.

The Benefits of Free-Trade Agreements

United States foreign policy is a fundacional second reason to seek FTAs. Proposed free-trade agreements brings substantial benefit to the economies of small developing countries while having little effect on the U.S. economy while at the same time, helping improve the economies of under developed countries.

Supporters of pursuing FTAs could argue that the European Union has already negotiated a number of such agreements with various trading partners. Consequently, the refusal by the United States to negotiate such agreements would not stop the current tendency toward the development of trading blocs. Instead, one could strongly argued that it only cuts out the opportunity of United States to have more trade in its own bloc and influence the setting of equitable rules.