In theory Trade Liberalization is supposed to bring about greater productivity and improve resource allocation which in effect stimulates economic activity and improves long term welfare. Using the policy of free trade there is an elimination of trade barriers such as taxes, tariffs and import quotas. Subsidies, tax breaks and other support to domestic producers are eliminated in order to ensure that there is a free flow of goods, capital, and labor between nations.
The idea behind free trade is that it will lower prices for goods and services by promoting competition. Domestic producers will not longer be able to rely on government subsidies and other forms of assistance, including quotas which essentially force citizens to buy from domestic producers, while foreign companies can make inroads on new markets when barriers to trade are lifted. In addition to reducing prices, free trade is also supposed to encourage innovation, since competition between companies sparks a need to come up with innovative products and solutions to capture market share. But in reality this has made trade even more imbalanced because Third world countries have no protection against competition from foreign products from other countries especially industrialized nations such as the US and European States.
Although these countries supposedly support and promote free trade, their trade policies still incline towards protectionist policies towards their own national goods. Therefore there is a debate whether trade liberalization really increase the chances of nations to develop equally through free trade and opportunity or not because of certain issues of inequality between rich and poor nations. Examples of these are dumping, race to the bottom, labor and environmental issues as well as human rights violations. With this the fair trade movement was formed in order to ensure that there will be no exploitative relationships in trade especially between consumers and producers.
Fair trade is a trading partnership, based on dialogue, transparency, and respect, that seeks greater equity in international trade. Fair trade is better that free trade because it proves that greater justice in world trade is possible and it contributes to sustainable development by offering better trading conditions to marginalized producers and workers.
Liberalization of Philippine Economy
As the world dramatically changes, nations and regions become more competitive than ever before. Globalization made the world interdependent to other nations especially in terms economic integration. It requires strategic policies that would give the nations the opportunity to gain in globalization and to make this happen, a nation should act on three fronts: national, regional and multilateral. Having said that, Unilateral Trade and Investment liberalization serves as an important role in a country to compete in the global arena and so, the efficient domestic industries is needed to make them use the country’s resources in line with its comparative advantage. As the competitive become aggressive, domestic industries need bigger markets in terms of economies of scale. Philippines answer the increasing globalization by liberalization and regional integration. The Philippines, who has the history of protectionist regime, start to implement substantial industrial reforms in 1980’s through trade and investment liberalization specifically through the services sector such as liberalization, deregulation, and privatization. The country aimed different Tariff Reform Programs that would reduce protection and expand tariff protection within and across the industries. Trade liberalization becomes the reason why manufacturing industry becomes more competitive, as measured by the ratio of the domestic resource cost with the shadow...