Liberalisation of Trade and reduction of protectionism

International trade has increased from $2 trillion in 1985 to over $ 6.4 trillion in 2002.1 This impressive growth is primarily the consequence of various political and technological developments of the past 15 years. The political raise of Russia and Asia, particularly China, has extended the worldwide markets. At the same time, technological changes like the Internet have decreased information asymmetry and lowered costs for logistic services, which facilitated the development of international trade. Moreover, organisations like the World Trade Organisation (WTO) have helped to liberalize and deregulate worldwide markets. Today, all aspects of a nation’s economy are closely correlated to the economies of its trading partners. The world has become a ‘village’ and market players are able to interact and transact around the world within ‘real time’ (Carbaugh 2002).

The liberalisation of international trade can either assume the form of a Free trading area (FTA), customs union, common market or an economic integrated region (Daniels, Radebaugh & Sullivan 2001). The recent ‘boom’ of greater international trade liberalisation can be partly explained by the economic laws of absolute- and competitive advantage. By nature, countries have distinctive immobile production factors and hence different relative production costs for the same good or service (Lawler & Seddighi 2001).2 According to the absolute advantage model, a country can increase its overall output and productivity by focusing on its individual absolute advantage and therefore produce one good with fewer resources than another country (Sloman & Sutcliffe 2001).

Besides the theory of absolute advantage, the law of comparative advantage further reasons why trade between countries is beneficial. According to the concept, the overall output of two nations can be improved when the less efficient nation focuses on the production of those goods, which it can produce relatively less inefficient compared to the more efficient country (Husted & Melvin 2001). The more efficient nation on the other hand, should focus its production efforts on those goods, which it can produce with relatively higher efficiency. Consequently, the specialisation of countries on its ‘core competencies’ and the exchange of produced goods via free trade increase the global productivity and the variety of products available for consumption (Salvatore 1995).