Recently I read a news online that Turkey and Korean signed a Free Trade Agreement on August,2012[i], which will expand bilateral trade between the two countries.
However, it seems that this FTA is not likely to bring significant benefits to the Korean economy. According to the report by the Korea Institute for International Economic Policy, an FTA with Turkey would translate into a 0.01 percent increase in South Korea's gross domestic product in the short term but tariff tax income will decline by 26.44 billion won ($24.25 million) on average every year.[ii]
As we learned on the class, large country gains from tariff in the free trade environment since when the increase of the tariff income outweighs the deadweight loss then the country gain in the net effect. Apparently Korea is a large country so it lost its benefit in tariff income by this FTA. In another hand, a free trade agreement is a good policy to prevent tariff war between countries and promote the expansion of trade. At the same time, home consumers benefit at the expense of home producer’s profit since the price of products will decrease and home producer will be faced with a more competitive market environment.
Free trade help large country gain the tariff income. However, free trade is good for competition since producers make effort to control their producing cost or make their products better and more competitive, That's how competition help develop the world's economy and more.
ReplyDeleteIs free trade better than putting tariff or subsidy on the product, my answer is yes. It improve the living standard of the consumers. However, I also believe that free trade between countries tie the economies together, facing more risks.
Free trade may be good, but if its decreasing tariff tax by that much the it may not be a good idea. Although showing good faith and building good relationship but if the increase in income and GDP aren't more than the loss in tariff tax then they should abandon the FTA
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