THE NEGATIVE

EFFECTS OF FREE
TRADE AGREEMENTS
ON EMPLOYMENT
Raiyyan Cosain
Introduction
Perhaps, we are all aware that free trade agreements exist for three major reasons. First, is to
heighten economic growth through free inflow and outflow of goods and services between
markets.
Second, is to create a more dynamic business climate, mostly targeted to improve local industries
and have a share in the global market. In closed economies, local industries tend to be babysat by
the government, protecting them from any foreign business activities that may swivel their existing
consumers away from them. While it is beneficial at some point, this exposes local businesses to
more long-term risks, as they are made stagnant and non-competitive in the international market.
By removing this legal “protection” through free trade agreements, these industries are motivated
to compete and trade with foreign providers.
Lastly, it encourages technology transfer. That is, local companies are able to receive access to the
latest technologies from their multinational partners.
We have to admit, all of these benefits are pleasing to the ears and that is why we can notice that
most countries seem to be willing to give up everything just to have this free trade agreement. Free
trade is meant to eliminate unfair barriers to global commerce and raise the economy in developed
and developing nations alike.
That is why we have the North American Free Trade Agreement or NAFTA signed between
Canada, Mexico, and the United States, which has created a trilateral trade bloc in North America.
We have the Philippine-Japan Economic Partnership Agreement (PJEPA) and the ASEAN Plus
Six (ASEAN +6) here in our country itself also meant to have a participation in the international
market. We have Free Trade Areas established by United States in 20 countries targeted to
encourage more outflow of goods and services from all parts of the globe.
However, while being gone to study about free trade agreements, I have also come to know that
this ongoing global event has produced negative substantial effects, particularly in subsiding
working conditions and crowding out domestic industries. Free trade agreements has been one of
the biggest selling points of globalization, which is among the reasons why I specifically chosen
this as a topic. I do not if it is true for others, but I think I have grown much only knowing more
about the positive implications of free trade agreements. In fact, I have mentioned most of them
here in the introduction part. I believe that keeping myself ignorant of the other side of free trade
agreements would seem to be unfair in my part, as a citizen who will sooner or later, participate in
the global workforce.
In this paper, I will tackle some of the negative implications of free trade agreements on
employment, particularly as to how it promotes increase in job outsourcing, theft of intellectual
property, crowding out of domestic industries, and poor working conditions. Moreover, I’ll strive
having some detailed explanations as to why, aside from the benefits it provide, free trade
agreements is deemed disruptive in the overall economic equation.

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 1

What is a Free Trade Agreement?
We’ll basically define first a free trade agreement. So, free trade agreements happen when two or
more nations abide on the terms of trade they had created for them (Amadeo, 2018). It is so called
free because all trade barriers are eliminated. Countries who engage in a free trade agreement are
the ones who determine how much of the tariffs and duties are reduced when they eventually
receive and throw in imports and exports. Despite covering only a specific region or geographic
area, free trade agreements do play a role in the overall international trade. For one, it allows access
to products and services provided by a particular country.
Imports are goods and services produced in a foreign country and are purchased and consumed by
domestic residents. Imports count anything that is shipped into the country regardless if it is a
foreign industry or a foreign subsidiary of a domestic industry. If the consumer is inside the
boundaries of the country and the provider is outside, then the good or service is an import. Exports
are the direct opposite of imports – these are the goods and services that are made in a country and
sold outside its borders. That includes anything shipped from a domestic company to its foreign
affiliate or branch.
Types of Free Trade Agreements
There are only several totally isolated countries which make free trade with them impossible but,
of course, there are a very few of them existing. Countries often negotiate mutually beneficial
agreements with each other to simplify trade between nations, eliminate tariff and non-tariff
barriers, recognize each other’s standards, and other more favorable exchanges (Win Global
Partners, 2012). There are generally two types of free trade agreements. First, is the multilateral or
regional agreements, which as the name suggests, take place in several countries that are housed
in a single region. Second, is the bilateral trade agreements that are, on the other hand, trade
policies created by two countries.
Multilateral trade agreements are difficult to negotiate. These are among three countries or more.
The greater the number of participants, the more difficult the negotiations are. They are also more
complex than bilateral agreements. Each country has its own needs and requests. Once negotiated,
multilateral agreements are very powerful. They cover a larger geographic area. That confers a
greater competitive advantage on the signatories. All countries also give each other most favored
nation status. They agree to treat each other equally.
Multilateral agreements shape international trade unions, such as World Trade Organization,
European Union, North American Free Trade Agreement, and more. For example, WTO is
regulated by General Agreement on Trade and Tariffs. European Union is regulated by several
treaties, such as Treaty of Rome and Treaty of Maastricht.
Bilateral trade agreements work in a different way. Both countries agree to loosen trade restrictions
to expand business opportunities between them. They lower tariffs and confer preferred trade
status with each other. The sticking point usually centers around key protected or subsidized

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 2

domestic industries. For most countries, these are in the automotive, oil or food production
industries.
The Role of World Trade Organization (WTO)
The World Trade Organization (WTO) is an international body whose purpose is to promote free
trade by persuading countries to abolish import tariffs and other barriers (BBC News, 2012). As
such, it has become closely associated with globalization. The WTO is the only international
agency overseeing the rules of international trade. It polices free trade agreements, settles trade
disputes between governments and organizes trade negotiations.
Based in Geneva, the WTO was set up in 1995, replacing another international organization known
as the General Agreement on Tariffs and Trade (GATT). GATT was formed in 1948 when 23
countries signed an agreement to reduce customs tariffs.
The WTO has a much broader scope than GATT. Whereas GATT regulated trade in merchandise
goods, the WTO also covers trade in services, such as telecommunications and banking, and other
issues such as intellectual property rights.
WTO decisions are absolute and every member must abide by its rulings (Shah, 2007). So, when
the US and the European Union are in dispute over bananas or beef, it is the WTO which acts as
judge and jury. WTO members are empowered by the organization to enforce its decisions by
imposing trade sanctions against countries that have breached the rules.
Benefits of Free Trade Agreements
International trade is the modern framework of prosperity. Free trade policies open up new areas
to competition and innovation (Deloitte, 2017). Free trade leads to better jobs, new markets and
increased investment. Free trade spreads values and beliefs as well as goods and services. Since
international trade relies on traders keeping their agreements, countries and companies are more
accountable to each other and therefore more stable.
According to the Heritage Foundation (2000), free trade fosters competition, spurring companies
to innovate and develop better products keeping prices low and quality high. Free trade allows
regions and companies to focus on the goods or services that they do best. International trade
increases a company’s market share. This causes lower cost and increased productivity, leading to
higher rates of production.
Free trade also rewards risk-taking through increased sales and market share. When larger
countries like the United States take advantage of free trade, their economies grow. This growth
overflows into smaller countries that are economically unstable or mired in poverty but are open
to trade. As the Heritage Foundation (2000) reports, the advantage for poor countries in being able
to trade for capital is that the payoff is more immediate in their private sectors.
Free trade improves the allocation of global resources. If countries or people can trade for the items
they need, they can focus on making the ones they do best. Imports tend to suppress inflation, since
each product or service comes from the best supply source. We benefit from the lower prices that

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 3

imports give us, and we can use the money we save to buy things made at home. Moreover,
individual consumers aside, trade agreements also incentivize business firms.
Trade agreements open markets and offer business incentives and protections. They include
commitments to protect intellectual property rights and labor rights and open regions to
competition. They also govern environmental standards and improve customs facilitation.
According to Tupy (2006), exporters tend to be more technologically sophisticated and to create
better jobs, trade and finance are made to be mutually supportive. Finally, global investment allows
for greater diversification and risk sharing.

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 4

Negative Effects on Employment
Free trade agreements, or FTAs, are deals between two or more countries to lower trade barriers,
such as tariffs and import quotas. While trade agreements do make it easier for countries to buy
products from each other, they can also cause a host of serious problems, in particular deplorable
working conditions, job loss, and crowding out of domestic industries. Yet, the World Trade
Organization continues to advocate for free and unfettered trade, much to the detriment of some
national economies and millions of workers (Teeboom, 2018).
Increased Job Outsourcing
Job outsourcing is when domestic companies hire foreign workers instead of those local ones. The
four industries mostly affected by job outsourcing are technology, call centers, human resources,
and manufacturing.
Why does that happen? Reducing tariffs on imports allows companies to expand to other countries.
Without tariffs, imports from countries with a low cost of living cost less. It makes it difficult for
domestic companies in those same industries to compete, so they may reduce their workforce.
Many local manufacturing industries did, in fact, lay off workers as a result of free trade
agreements in their country or region (Amadeo, 2018). Job outsourcing nevertheless helps
domestic companies be more competitive in the global marketplace. It allows them to sell to
foreign markets with overseas branches. They keep labor costs low by hiring in emerging markets
with lower standards of living. That lowers prices on the goods they ship back to the country they
are based on.
But the main negative effect of outsourcing is it increases unemployment rate (Amadeo, 2017).
For example, the 14 million outsourced jobs in United States are almost double the 7.5 million
unemployed local workers there. If all those jobs returned, it would be enough to also hire the 7.5
million who are working part-time but would prefer full-time positions.
Negotiated in secret with hundreds of industry advisors, corporate-driven trade deals like the North
American Free Trade Agreement (NAFTA) include special protections for businesses that offshore
jobs to low-wage countries (Public Citizen, 2017). The result is lower wages for all of us, not just
those who lose a manufacturing job. Contrary to the theory of free trade, broad losses in income
caused by our trade policies outweigh the gains consumers get from cheaper imported products.
Today's trade agreement include investor protections that eliminate many of the usual risks that
make firms think twice about moving to low-wage countries.
These incentives to offshore jobs have contributed to the net loss of nearly millions of domestic
manufacturing facilities and billions of manufacturing jobs – one out of every four – in the era of
corporate-rigged deals. The United States, for example, lists more than 3 million workers as
specifically losing their jobs to outsourcing and competition from imported goods – and that is
under just one narrow program that excludes many people whose job loss is trade-related.

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 5

When trade agreements include incentives to offshore jobs, domestic firms shift production to low
wage countries and then goods with domestic brand names are imported back for sale, exploding
the trade deficit.
Theft of Intellectual Property Rights
Imagine that a group of highly concentrated transnational corporations in the knowledge industries
such as pharmaceuticals, high-tech, and entertainment pack so much lobbying clout that they can
convince the governments of the indus-trialized world to bully developing countries to
“harmonize” their copyright, patent and trademarks laws into a global intellectual property regime.
That is what happened in the 1990s when the bloc made up of the United States, Europe and Japan
was able to incorporate intellectual property matters in the trade agenda (Busaniche, 2011). The
signing of the Agreement on Trade Related Aspects of Intellectual Property, more commonly
known as TRIPS, created a unified global intellectual property regime with minimum standards
and established a dispute settlement system to ensure its application and compliance.
We have to admit, we are living in a post-TRIPS (Trade-Related Aspects of Intellectual Property
Rights) world. Almost every member of the World Trade Organization (WTO) has had to reform
their intellectual property laws in order to meet the minimum standards of protection that TRIPS
prescribes (Pastor, 2006). When acceding to TRIPS most countries that are net-importers of
intellectual property kept their hopes high in the sense that this unprecedented harmonizing treaty
would assure an international minimum standard for intellectual property, but not a stepping floor
for an ongoing international process of intellectual property rights expansion. The latter is being
achieved mainly by the use that the United States of America and the European Union are applying
to bilateral free trade agreements.
In most of the cases these free trade agreements are technologically asymmetric in the sense that
they seem to be designed in the sole interest of countries that are net-exporters of intellectual
property related goods, and thus, put an extreme weighty burden on countries that rely heavily on
goods protected by intellectual property rights.
Many developing countries don't have laws to protect patents, inventions, and new processes. The
laws they do have aren't always strictly enforced. As a result, corporations often have their ideas
stolen. They must then compete with lower-priced domestic knock-offs.
Crowding Out of Domestic Industries
According to WTO’s director-general, trade is responsible for two job losses out of ten. What
happens is the other eight are lost not because of trade but they are lost because of new
technologies, innovation, higher productivity (Policy Institute, 2016).
Many emerging markets are traditional economies that rely on farming for most employment.
These small family farms can't compete with subsidized agri-businesses in the developed
countries. As a result, they lose their farms and must look for work in the cities. This aggravates
unemployment, crime, and poverty.

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 6

Poor Working Conditions
Of all the debates surrounding free trade agreements, one of the most contentious involves trade
and workers’ rights. Multi-national companies may outsource jobs to emerging market countries
without adequate labor protections. As a result, women and children are often subjected to grueling
factory jobs in sub-standard conditions (Lombardo, 2015).
Proponents of workers’ rights argue that trading nations should be held to strict labor standards
and they offer two quite different justifications for their view (Burtless, 2001).
The first is a moral argument whose premise is that many labor standards, such as freedom of
association and the prohibition of forced labor, protect basic human rights. Foreign nations that
wish to be granted free access to the world’s biggest and richest markets should be required to
observe fundamental human values, including labor rights. In short, the lure of market access to
the United States and the European Union should be used to expand the domain of human rights.
The key consideration here is the efficacy of labor standards policies. Will they improve human
rights among would-be trading partners? Or will they slow progress toward human rights by
keeping politically powerless workers mired in poverty? Some countries, including China, might
reject otherwise appealing trade deals that contain enforceable labor standards.
By insisting on tough labor standards, the wealthy democracies could lay claim to the moral high
ground. But they might have to forgo a trade pact that could help their own producers and
consumers while boosting the incomes and political power of impoverished Chinese workers.
The second argument for strict labor standards stresses not the welfare of poor workers, but simple
economic self-interest. A trading partner that fails to enforce basic protections for its workers can
gain an unfair trade advantage, boosting its market competitiveness against countries with stronger
labor safeguards. Including labor standards in trade deals can encourage countries in a free trade
zone to maintain worker protections rather than abandoning them in a race to the bottom.
Reduced Tax Revenue
Free trade agreements are major avenues through which southern countries have faced diminished
tax income (Tax Justice Advocacy, 2009). Many southern countries rely heavily on taxation of
imports, because such taxes are relatively easier to collect and less costly to administer than other
forms of taxation. The proportion of a government’s overall revenue that comes from these taxes
can be up to one-third, or in some countries even higher.

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 7

Conclusion
Basically, while in the process of making this paper, I realized many things behind what seems the
international community has been making us believe of what this free trade agreement is all about.
Perhaps, without undergoing a research, maybe all I can see is just the topmost part of the iceberg
– that free trade is just all about bolstering economic activity, encouraging free flow of goods and
services across the globe, and stimulating technology transfers – without understanding the risks
it also poses, particularly in the third world countries and middle class citizens. It’s sad to note,
too, that the negative effects which has been mentioned previously, aren’t really much emphasized.
The way it took me some time to compile all these effects serves as the proof that only a few
sources are actually into explaining the negative effects of these free trade agreements.
As I scrolled through the search engine, most of the sources on the top page are all about the perks
of having such agreements. There are also some sources that mention some negative implications
and then later on, they say it’s not that harmful. Given all those things, covering this particular
globalization matter is challenging but as what I have told you, I am interested for the things behind
this free trade, which is among the core characteristic of globalization. I stood on the realist
perspective, and learned something which I sadly failed to learn before.

THE NEGATIVE EFFECTS OF FREE TRADE AGREEMENTS ON EMPLOYMENT 8

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