Free Trade Area

Business studies study module

This is a situation where there is unrestricted exchange of goods and services between the countries. It has benefits/advantages similar to those of economic integration.

Disadvantages of free trade area

Some of the problems it is likely to bring include;

  • It may lead to importation of inferior goods and services to the country, as the member country may not be able to produce high quality as compare to other non-member countries
  • It may discourage the growth of the infant industries due to competition from well developed industries in other countries
  • It may lead to reduced government revenue because no tariff may be charged on the goods and services
  • A country may be tempted to adopt technology not suitable for its level of development.
  • If not controlled, it may lead to unfavourable balance of payment, where a country imports more than it export
  • It may lead to importation of harmful goods and services, that may affect the members health such as illegal drugs
  • It may lead to lack of employment opportunities especially where more qualified people have moved from their country to secure job opportunities in the country
  • It may expose the country to negative cultural practices in other countries, interfering with their morals. For example the exposure to the pornographic materials.
  • Compromising political ideologies especially where member countries with different ideologies wants to fit in to the bloc
  • It may lead to over exploitation of non-renewable economic resources such as minerals

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