Category: Business

Introduction

Free trade consists in trading activities among different nations, not hampered in any way by trade regulating policies. It involves formulating regulations, which lift barriers to imports from countries abroad or exports to other countries. Policies leading to the formation of open markets are drafted by different states that create trading blocks. Barriers to open trade include tariffs on imports and subsidies for exports. Furthermore, taxes on products, some regulatory legislation and import quotas also restrict free trade. Therefore, to ban free trade, nations impose unfavorable conditions on trading activities involving other nations or regions within a block or a group of partnering countries. It can also include total restrictions on goods or services that are offered by citizens, companies or business organizations from other nations. In other words, it promotes a situation, where every trading activity involves local producers only, and goods of trade are products of a particular country. In this way, free trade is banned by the nation. In the United Arab Emirates, the issue of free trade is very important and should not be banned despite several counterarguments.

Main Argument

The UAE has various free trade agreements. Some are regional, and others are international. The former are a result of economic cooperation and integration among countries that lie in the Middle East and other Arab nations. Since the UAE is the major economic hub and the key gateway to the Middle East, it has entered into agreements with members of the Gulf Cooperation Council (Grant, Golawala, & McKechnie, 2007). They include the Federal Decree No 55 signed in 2002 and the Ministerial Order No. 88 signed in 1990, which provides for open wholesale and retail trading. Additionally, the Greater Arab Free Trade Area Agreement sets out conditions of mutual partnerships and trade collaboration among Arabic countries, which lie in the Gulf region and North Africa (Grant, Golawala, & McKechnie, 2007). International agreements are also negotiated by the GCC to establish free trade conditions with the Mercosur formed by countries in South America, including Brazil, Argentina, Paraguay and Uruguay.

With these agreements in place, there is a free movement of products and services among countries. They have varied advantages, including increased production. The Emirates forming the UAE have seen developments in different industries. Oil refineries have been made more efficient, and production technology has seen great transformations. Due to specialization enabled by free trade agreements, nations leverage what they can produce to scale up production utilizing economies of scale. At the same time, the Emirates have access to a greater market. As a result of its oil and natural gas exports, it receives capital from buyers abroad. Total earnings were $75 billion in 2013; they rose to $123 billion in 2013 (Grant, Golawala, & McKechnie, 2007). Since hot environmental conditions are not conducive for farming, money gained from exports of oil and natural gas is used to buy fresh produce and cheap consumer goods from abroad (Grant, Golawala, & McKechnie, 2007). Free trade therefore allows the UAE to get those products that it cannot produce. It is a means of a mutual benefit for the nations involved. For example, free trade makes it possible for countries that do not produce oil to have a larger market that can meet their oil demands (Keong, 2008). The UAE is among the chief produces of oil that can export it many regions. Considering this, free trade agreements among the Gulf region countries help to form formidable bargaining power for the nation, with which it can determine global oil prices per barrel (Grant, Golawala, & McKechnie, 2007).

There are increased employment opportunities created by free trade. With booming production in the oil and natural gas industry, there are many workplaces in oil rigs and refineries. Additionally, different sectors of the economy open to free trade have created employment. Manufacturing industries and banking services see increased job vacancies all the year round. Further sources of employment are created by citizens of the UAE being able to trade in other neighboring countries freely.

Free trade agreements attract global investors greatly. Agreements between the GCC and Australia have created an environment favorable for business activities (Khan, 2012). It has made the UAE a leading destination for Australian investors with estimates of the market potential for Australian products standing at US$ 2 billion. It offers a broad market for live animals, cereals and motor vehicles. On the other hand, Australia benefits from engineering, construction and architectural services provided by the UAE. It is economically beneficial for both countries since they can exchange different commodities (Grant, Golawala, & McKechnie, 2007). Moreover, free trade creates mutually beneficial relations between the UAE and global partners, such as in the case of the GCC and Australia. Apart from the latter, the UAE has generally attracted global investors.

Counterargument

Analyzing possible reasons why free trade in the UAE may be considered unnecessary, the key factor is in case of a desire of the local industries and businesses to grow into effective and dependable entities (Grant, Golawala, & McKechnie, 2007). Furthermore, it is observed that in cases where nations do not accept trade barriers, developing industries may not be able to outcompete outsourced or imported goods and trading services (Toledo, 2011). Therefore, the UAE may consider banning free trade for these homegrown industries such as manufacturing ones. Local investors are also greatly threatened by foreign ones from nations with a stronger economy. Local investors therefore face a challenge that can be mitigated by banning free trade in the UAE only (El Mallakh, 2014).

Furthermore, in cases where free trade is allowed, the UAE may suffer from being a dumping ground for excess goods from developed or efficient countries. In such cases, the local industries may not be able to sustain the pricing resulting from the excessive availability of products. It causes losses to many local companies (Hashmi, Al-Eatani, & Shaikh, 2013). In addition, the quality of goods in the country may be compromised. For example, if oil trading is open in the UAE, it is possible that countries that have better oil production capacities will outdo oil production by the nation.

Another main reason can be a situation where the impact of globalization and de-acculturalization is not desired. Free trade agreements allow for an exchange of both international and global views and ideas. Most international trade pacts are sure to acculturate in one way or another, particularly through products that get access to the UAE, as well as the entry in trade of persons with cultures differing from the one of the locals (Cavusgil, Knight, Riesenberger, Rammal, & Rose, 2014).

Business in the United Arab Emirates is likely to be affected by cases of economic instability in countries that the nation collaborates with (Khan, 2012). For example, if the UAE partners with Australia, an economic crisis in the latter will affect trading activities in the nation. It may cause currency fluctuation in the UAE, instability in trading activity, or even unemployment indirectly (Ansari, 2013). For this reason, it may be good for the UAE to consider banning free trade.

Rebuttal

Considering why free trade should not be banned in the UAE, it is worth noting that despite many benefits that the absence of barriers has, it is also possible to look at the same advantages from different perspectives. For example, mutual agreements and partnerships created through trading pacts among nations making up the GCC can still be attained through other ways that do not affect trade directly (Grant, Golawala, & McKechnie, 2007). The use of sporting activities can create better agreements. In addition, the involvement in tourism and other cultural, social and religious activities can help the UAE to create mutual friendships with other nations, for example, the energy agreement between the UAE and South Korea. It is not necessarily a trade pact, but an illustration of agreements with the UAE.

Furthermore, the thought that manufacturing and banking industries get a greater market base is based on the assumption that other banks and factories that are not from the UAE are not going to be competitive enough (Ansari, 2013). A proper look into them may indicate the opposite situation, since the entry of other manufacturers and service providers creates competition that could have been avoided otherwise. In addition, it is not certain that the global market base will prefer the local service providers to the international ones (Ansari, 2013).

On the other hand, open trade allows for a variety of goods and service provision to be realized (Toledo, 2011). In nations that have a wider variety of goods, there is greater competition and as a result higher quality. Furthermore, low pricing is favorable for the locals of the UAE as long as the quality of goods provided is at par (Hashmi, Al-Eatani, & Shaikh, 2013).

Globalization and acculturation are also not entirely avoided through banning free trade. It is because people will still get in touch with the world due to modern technology such as the Internet. Furthermore, globalization has its own advantages that cannot be overlooked, such as technological advancements (Cavusgil et al., 2014). Therefore, it cannot be a sufficient reason for free trade to be banned.

Banning free trade may also result in the lack of very necessary commodities that cannot be produced by the UAE. This situation in the nation would have a detrimental impact. An example of these commodities may include food materials. Furthermore, no nation is entirely capable of producing all that it needs (Toledo, 2011). The best way to obtain these products at favorable costs can be through free trade.

Conclusion

Therefore, from the analysis of the arguments and rebuttal presented above, it is evident that free trade is very essential for the United Arab Emirates. Therefore, it should not be banned in the country since many advantages mentioned above are to be enjoyed. It is however important for the regulations developed to govern free trade to consider all shortcomings of the absence of barriers and aim at making free trade a beneficial activity to the UAE.

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