When a government undertakes to promote free trade, it reduces its intervention in the trade and reduces the tariffs applied on imports, subsidies on exports and quotas which limit the quantity of import goods. As a result, this promotes the comparative advantage of the countries hence promoting global trade. The actions taken by governments to promote free trade are divided into; multilateral, unilateral and bilateral. Unilateral involves a country reducing its trade barrier without reassurance that their partners will do the same. Bilateral involves two countries coming together and drafting an agreement to both reduce their trade barrier so as to promote trade between them. Multilateral, on the other hand, involves a group of countries coming together and making an agreement to reduce their barriers. An example of the multilateral agreement is the North American Trade Agreement (NAFTA) involving Canada, US, and Mexico.
These agreements to reduce the trade barriers between countries are induced by four factors. First is the existence of trade opportunities in the global market. Second is the dynamic technological innovation. A country in trade with a technologically advanced country is most likely to gain from quality products and information as well. The Third is continuous and better dissemination of information by the trade and NGO institutions which encourage nations to engage in free trade for both social and economic benefits. Finally is the unilateral opening up of the trade arena facilitated by globalization. This encourages countries to easily reach out to each other and trade arrangements that were initially complex and tedious are now simplified.
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