What is meant by "free trade?"

Free trade is the free exchange of goods and services across international borders. Nations have traded with each other for centuries, but frequently tariffs have reduced that level of trade. Tariffs are taxes imposed on goods coming into a country. A country would use tariffs to protect their home industries.

For example, if Canada was more efficient at producing grapefruit than the U.S., they might be able to sell them for $5 a bushel while U.S. producers would sell them for $7. U.S. consumers would logically choose the Canadian grapefruit because they would be cheaper. But, if the U.S. government were to impose a $3 per bushel tariff on every bushel of Canadian grapefruit imported, the price of Canadian grapefruit would rise to $8 per bushel, and U.S. grapefruit would then be cheaper.

By imposing a tariff on imports, a country can the protect its home industries. If a country chooses to use tariffs, though, other countries will likely retaliate and impose tariffs on products from that country. Since classical economic theory argues that there is always benefits to both parties in a trade, escalating tariffs and protectionist policies can be seen as inimical to the overall economic well-being of the world.

Who is the World Trade Organization?

For most Americans, the World Trade Organization came into the national consciousness during the late 1999 protests of the WTO meeting in Seattle. The WTO was actually established on January 1, 1995, as the only global international organization dealing with the rules of trade between nations. The goal is to help producers of goods and services, exporters, and importers conduct their business. The WTO's main responsibility is to encourage and then enforce trade agreements between nations. Many of these trade agreements involve mutual promises to reduce tariffs. If a nation feels an agreement has been violated, the WTO has a procedure for settling the dispute (click here to view settlement process)

What nations belong to the WTO?

Click here to view the WTO's membership list

What is GATT?

GATT, the General Agreement on Tariffs and Trade, was the precursor to the WTO. The rough economic times of the 1930's encouraged countries to enact large tariffs to protect their home industries from foreign competition. In an effort to give an early boost to trade liberalization after the Second World War, tariff negotiations were opened among the 23 founding GATT "contracting parties" in 1946. GATT was not an organization with any enforcement powers as the WTO is. It was a general agreement that spawned several multinational meetings, or "rounds," where the GATT nations made agreements about reducing tariffs. GATT was always considered a "provisional agreement" -- not a permanent treaty. The last major GATT round, the Uruguay Round, which ran off-and-on from 1986-1994, led to the creation of the WTO.

What is NAFTA?

The North American Free Trade Agreement was a treaty signed by the United States, Canada, and Mexico designed to increase trade among the three nations. It was signed in 1992, ratified by Congress in November 1993 and put into effect January 1, 1994. NAFTA eliminated some tariffs among the three nations immediately while others were scheduled to fall to zero over a 15 year period. Some feared that the freer flow of goods and services across borders would encourage American companies to move south to Mexico, bringing with them American jobs. In such a scenario, there could also be a significant environmental impact, as pollution laws are less strict in Mexico.

What is the the IMF?

The International Monetary Fund is an organization of 183 nations established in 1946 to promote the growth of international trade. The IMF facilitates the exchange of currencies among nations and helps countries maintain the stability of their home currency. If the stability of a country's currency is in jeopardy, perhaps because it has fallen behind in its payments to other countries, the IMF can step in and provide temporary funding to boost that country's currency.

Click to learn more about the IMF

Why are some so violently opposed to the WTO and global trade?

The anti-globalization movement views the World Trade Organization as an undemocratic body. While all member nations vote on most proposals, the United States and a few other wealthy nations are thought to basically determine which proposals get voted on. Records and discussions of trade disputes are not open to the public. The WTO can impose fines or authorize sanctions against a nation thought to be in violation of a trade agreement. But, if the U.S. is in a trade dispute with a small nation, sanctions by the small nation on the U.S. would be negligible. On the other hand, U.S. sanctions on that small nation could be crippling. Protestors argue that all of that makes the WTO inherently biased in favor of wealthy nations.

Anti-WTO forces also view the organization as being beholden to large corporations, either directly, or through the influence of the wealthy nations that some say are in the corporations' back pockets. Therefore, the WTO pushes through regulations and agreements that benefit large corporations at the detriment of smaller nations.

Those opposing the WTO also the argue that the WTO frequently strikes down local labor and environmental laws, calling them illegal barriers to trade. According to Lori Wallach and Michelle Sforza, co-authors of Public Citizen/Global Trade Watch's "Whose Trade Organization?" have made a study of the 167 contested trade issues brought to the WTO as of last March. Their conclusion: In every case in which an environmental, health, or food safety law was challenged at the WTO, such laws have been declared illegal barriers to trade. WTO rulings have forced South Korea to lower meat safety rules and the US to weaken its Clean Air Act, to cite just two.

While some view global trade as a good thing, many of those opposed to the WTO are concerned about how it is being implemented.

Some text courtesy of Mother Jones' "Globalization Watch" study