free trade

free trade An economic policy advocating a free flow of goods between countries to encourage mutual economic development and international harmony by the commercial interdependence of trading nations. A policy of free trade prohibits both tariffs on imports and subsidies on exports designed to protect a country's industry. The doctrine's best early statement was by Adam SMITH in his Wealth of Nations (1776). At a conference in Geneva in 1947 a first schedule for freer world trade was drawn up, the GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT). For over a decade after World War II Britain also was a strong supporter of moves to restore freer trade. It was a founder member of the European Free Trade Association (EFTA) in 1958, but as adverse economic conditions developed in the 1960s Britain sought entry into the EUROPEAN ECONOMIC COMMUNITY (now the EUROPEAN UNION). In Eastern Europe a similar community, COMECON, was established in 1949; after 1987 COMECON, sought cooperation with EEC countries. The highly successful growth of the Japanese economy after the war led many countries to seek tariffs against Japan. By the 1990s world economic policies were confused, some policies supporting free trade and others supporting trade protection measures. In 1993, at the conclusion of the Uruguay Round, the members of GATT agreed to further cuts in tariffs and export subsidies and to create the WORLD TRADE ORGANIZATION (WTO). The WTO will enforce GATT rules, especially the agricultural measures agreed in the Uruguay Round, which reduced export subsidies and import duties by 20–36%.