IGCSE Development Studies: Specimen Questions with Answers 19 - 20 of 98

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Forms of Free Trade

Question 19 (4 of 7 Based on Passage)

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Which country is an example of free trade?

Explanation

Example of Free Trade is NAFTA. A trilateral agreement was signed by Canada, Mexico, and US known as North American Free Trade. It came into force on 1st January, 1988. NAFTA trade bloc is one of the largest trade blocs in the world. The purpose of NAFTA is to:

  • To allow free movement of goods and services in the free trade areas.
  • To increase competition in the free trade areas.
  • Protect the property rights of people and business in each country
  • To resolve problems that rise among countries
  • Encourage cooperation among countries.

NAFTA eliminated all non-tariff barriers to agricultural trade between USA and Mexico. Other Tariffs such as tariffs on qualifying goods were eliminated and some were phased out for long periods of time (5 - 15 years) . Because of this orderly adjustment were able to free trade with Mexico. It also improved working conditions in North America.

Benerfits of Free Trade

Question 20 (5 of 7 Based on Passage)

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What do you mean by free trade?

Explanation

Regional economic integration is a process in which trade barriers (tariffs and non- tariffs) among member countries of a region are reduced or removed, common external barriers are established and products and services and factors of production can move freely among member countries to earn trade and development benefits.

  • The early stages of economic integration tend to focus on the elimination of trade barriers and the creation of custom union in goods. At the lowest level there is the preferential free trade area, this means that the members charge each other lower tariffs that those applicable to nonmembers, however there is no free movement of goods within the area.
  • A free trade area means that the barriers and quotas to mutual trade are removed. Example- The members of North American Free trade Area (NAFTA) , Canada, Mexico and US, pledge to do away with barriers to mutual trade. Unlike a custom union, each member countries continue to determine its own commercial relations with the non-members.
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