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Debate: Free trade

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Is free trade and economic globalization (integration) good for the world?

Background and context

Free trade can be defined as a market model in which trade in goods and services between or within countries flow unhindered by government-imposed restrictions such as taxes, tariffs, or subsidies. Free trade, while not an new concept, has emerged in the post Cold War world as a global possibility with the growing economic interconnectedness between countries. But is it beneficial? Does it have an overall, globally beneficial economic impact? Does it benefit all countries the same? Which countries tend to benefit and which tend to lose out? Should those that lose-out still adopt free trade due to the global benefits? Does it benefit all classes and workers the same? If some lose out due to free trade, are these losses outweighed by other benefits? What social costs or benefits does free trade entail? Are there any environmental impacts? Are there certain ways to adjust free trade to ensure the greatest possible benefits are achieved? Even then, do the costs outweigh the benefits?

See Wikipedia:Free Trade and Wikipedia: Free Trade debate for more background.

Contents

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Global economy: Does free trade benefit the global economy?

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Yes

  • Free trade will end the economic costs of protectionism Protectionism can be seen as the opposite of free trade. And, many studies conclude that protectionism has cost the world hundreds of billions of dollars annually in lost revenue as compared to what free trade could have accomplished.
  • It is managed trade, not free that is the problem Some criticize the results of some modern attempts at free trade, such as NAFTA. But, others contend that such examples may not be a fair example of "fair trade" as it would be ideally constructed, but rather of a highly managed form of trade. Therefore, the failures of managed free trade up to this point should not be used too sharply as a condemnation of the potential of real "free trade" in the future.
  • Free trade is better for consumers Free trade is generally known for decreasing prices by ensuring that countries and people specialize in their comparative advantages. Lower prices for consumers means that consumers can spend less on necessities, enabling them to spend more on other things in their lives, thus improving their standard of living.
  • Free trade shifts work to more productive sectors Free trade creates productive domestic jobs when it trades internationally with other countries. The restrictions placed on buying other foreign goods that have less marginal cost of production only encourage production loss by sustaining industries that have high production costs.


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No

  • The main goal of free trade is to maximize profits not welfare. There are two ways to maximize profit, either to increase sales or to cut costs. The easier one to do is cut costs because increased sales is ultimately dictated by the laws of supply and demand. The biggest cost to most multinationals and large corporations is salary pay or wages, so to cut that cost jobs are sent overseas to developing countries where real wages are much lower and the price of doing business is adequately cheaper. In turn that deteriorates the number of existing jobs domestically.



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Freedoms: Does fair trade uphold principles of freedom?

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Yes

An artificial distinction has been drawn between "free trade" and "fair trade." The idea that free trade is fair only if countries share identical labor costs and economic regulations or if domestic producers are compensated for market losses to more compet­itive foreign producers is false. The economic bene­fits of free trade derive partly from the fact that trading partners are different, allowing any country embracing world markets a chance to be competi­tive. Free trade is fair when countries with different advantages are allowed to trade with a minimum of restriction and capitalize on those differences."
  • Protectionism is discriminatory When a country protects its industries, it favors its own people over foreign people. This in itself is discriminatory. Also, a country typically can protect itself in different ways against different countries, and can play favorites in this way. Protectionism, therefore, is inherently discriminatory.
  • Free market economies self-regulate socially, ethically, and morally Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 53. - "Intelligent critics are prepared to accept that a sophisticated market economy works far better than any other economic system. But they would proceed to complain that markets encourage immorality and have socially immoral consequences, not least gross inequality. These views, albeit common, are largely mistaken...All complex societies are unequal. In all societies people (generally men) seek power and authority over others. But, among sophisticated societies with an elaborate division of labour, societies with market economies have been the least unequal and the inequality they generate has been the least harmful."


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No

  • Free trade agreements often force countries to privatize public services Some free trade agreements force countries to privatize certain public service industries such as health care. If some public services, such as health care, are considered a right, however, this privatization of the industry can have the consequence of un-ensuring that this right is upheld.


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Workers: Does free trade benefit workers? Who benefits and loses?

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Yes

  • Free trade creates more jobs (and better ones) than it destroys Federal Reserve Chairman, Ben S. Bernanke, At the Montana Economic Development Summit 2007, Butte, Montana, May 1, 2007 " The U.S. jobs created by trade also tend to offer higher pay and demand greater skill than the jobs that are destroyed--although a downside is that, in the short run, the greater return to skills created by trade may tend to increase the wage differential between higher-skilled and lower-skilled workers and thus contribute to income inequality (Bernanke, 2007). The effects of trade on employment must also be put in the context of the remarkable dynamism of the U.S. labor market. The amount of "churn" in the labor market--the number of jobs created and destroyed--is enormous and reflects the continuous entry, exit, and resizing of firms in our ever-changing economy. Excluding job layoffs and losses reversed within the year, over the past decade an average of nearly 16 million private-sector jobs have been eliminated each year in the United States, an annual loss equal to nearly 15 percent of the current level of nonfarm private employment.6 The vast majority of these job losses occur for a principal reason other than international trade (Kletzer, 2001; Bernanke, 2004). Moreover, during the past ten years, the 16 million annual job losses have been more than offset by the creation of about 17 million jobs per year--some of which, of course, are attributable to the direct and indirect effects of trade. Truly, the U.S. labor market exhibits a phenomenal capacity for creative destruction"


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No

  • Free trade does not sufficiently protect worker rights Adrian Boutureira. "The Hidden Costs of Free Trade". The Boston Globe. November 5, 2007 - "This week, the Democratic-led Congress will have its first vote on the Bush administration’s latest NAFTA-like expansion, the US-Peru bilateral free trade agreement[...]Like many workers in Latin American countries, Peruvians face constant threats to their labor rights. Violations include discrimination against union organizers, illegal firings, and forced overtime without pay. Further, the new system of fixed-labor contracts and subcontracting radically undermines workers’ rights because it does not guarantee a 44-hour work week or labor standards. The new, much-talked-about labor language added to the US-Peru agreement does not solve this or many other key labor rights issues."
  • Globalization is a "race to the bottom" The competition within the global economy is a race to the bottom that pressures countries to lower their production cost and wages to the lowest possible. Competing against each other, developing countries constantly push the cost of their labor force down in order to attract foreign investors. The clear example of Mexico and China continuously lowering their workers wage in order to compete for the US garment market proves that empirically globalization leads to a race to the bottom
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Developing countries: Does free trade benefit developing countries?

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Yes


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No

  • Trade liberalization has been costly to Africa Christian Aid - "Trade liberalisation has cost sub-Saharan Africa US$272 billion over the past 20 years. Had they not been forced to liberalise as the price of aid, loans and debt relief, sub-Saharan African countries would have had enough extra income to wipe out their debts and have sufficient left over to pay for every child to be vaccinated and go to school."[1]
  • The current regional FTAs undermine poor countries' bargaining power “The Pros and Cons of Pursuing Free-Trade Agreements” , Economic and Budget Issue Brief, July 31, 2003 - "Some critics worry that FTAs might divert the world away from multilateral trade liberalization and lead to the development of large, competing trading blocs--the United States and the Western Hemisphere, the EU and nearby countries, and Japan and its trading partners in Asia and the Pacific Rim--a result that would be inferior to multilateral free trade. Critics also note that the large size of the U.S. economy and its consequent desirability as a market give the United States a great advantage in negotiations with individual countries, especially small developing ones. The same is true for FTAs negotiated by the EU or Japan. The result of such unequal bargaining power can be that significant trade restrictions by the large countries remain in place that would more likely be eliminated under circumstances of more-equal negotiating power."


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Vital interests: Does free trade allow countries to protect their vital national interests?

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Yes

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No


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Economic model: Are free trade and integration the most productive economic models?

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Yes

  • Free markets and free trade are ideal economic conditions Vaclav Havel, Summer Meditations (New York: Alfred A. Knopf, 1992), p. 62: - "Though my heart may be left of centre, I have always known that the only economic system that works is a market economy. This is the only natural economy, the only kind that makes sense, the only one that leads to prosperity, because it is the only one that reflects the nature of life itself. The essence of life is infinitely and mysteriously multiform, and therefore it cannot be contained or planned for, in its fullness and variability by any central intelligence."
  • Globalization is not rampant, remaining fairly limited in scope globally Globalization and free trade are in their infancy. The fact that it is not widespread, and that many developed countries continue protectionist policies, is actually the source of many problems for developing and poor countries. These poor countries could use more free trade at this moment, and to attribute the existence of free trade as the cause of these countries' current plight, would be to misunderstand how limited globalization actually is today.
  • Free trade increases the purchasing power of consumers - This is a common counter-argument against concerns surrounding job-loss associated with free trade. While job-loss does occur, the counter-argument is that it is well made-up for by the greater purchasing powers and living-standards of workers in general.
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No

  • Companies that out-source cheaper labor aren't investing enough in innovation Thea Lee and Ralph Nader, The case against free trade; Happily never NAFTER, there's not such thing as free trade. Earth Island Press, 1993 ISBN 156431694. Chapter 5, pp. 71. - "As for efficiency, it is not much to get excited about when the savings come from cheap labor rather than better technology or easier access to resources. In fact, as firms shift production to Mexico, lured by wages of $1 or $2 an hour, they lose some incentive to invest in cutting-edge techniques that improve productivity. For years, U.S. firms have been setting up "maquiladora" factories just over the Mexican border, and NAFTA would simply speed the trend."


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Poverty/inequality: Does free trade help reduce poverty and inequality?

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Yes

  • Globalization and free trade has reduced inequality More open economies have had increasing economic growth and in this way global income inequality between countries has been reduced. Failure for this inequality to be reduced is largely caused by domestic policies, and less global integration which reaffirms the fact that more global economic integration will inevitably lead to less inequality between countries
  • It is OK if free trade increases inequality as long as it is still a net benefit to the poor As long as the circumstances of the poor are improved overall by Free Trade, why should it matter that the wealthy are gaining disproportionately? Any system that benefits everyone on some level is a good system.
  • It is the lack of global free trade that is the cause of continued poverty Poor performance within the global economy has been proven to be linked with domestic factors within countries that close their economies from global free trade.Higher rates of success have been recorded among more open economies to global free trade , that have integrated more successfully in teh global economy
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No

  • Globalization has worsened poverty Studies have shown that despite the increasing rate of the global economy expanding there have been a significant number of countries where there has been no growth recorded over the past thirty years. Numbers also confirm that absolute poverty throughout the world has been increasing.
  • Free trade and investment risks rapid capital flight from developing countries. When massive amounts of capital can flow across borders via wire transfers, the potential for capital flight is created. This occurs when fears arise regarding a certain country and its markets. Investors from around the world may rapidly withdraw their investments, sending a country into financial bankruptcy. This is a major risk associated with free trade and globalization.
  • Free trade worsens income inequality The gap between rich and poor countries has widened .Poor countries has lower incomes that developing and industrial countries positioning them at a high disadvantage when competing in a global economy.
  • Free trade unequally benefits the wealthy It is wrong for free trade to disproportionately benefit the wealthy over the poor. The wealthy are already doing just fine in most countries. Any system that does this is corrupted and regressive.
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Reciprocity: Should countries unilaterally adopt free trade without reciprocity?

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Yes

That is a reciprocity-based strategy, and it is built on a faulty premise, which is that current protectionist measures are good for the United States, but we're willing to abandon them if other countries abandon theirs, since we really want to get into their markets. That is like saying, I'll agree to stop banging my head against the wall, but only if you stop banging yours. The implication is that it makes sense for me to bang my head, but I am willing to negotiate that asset away."


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No

  • Countries cannot be expected to adopt free trade unilaterally. If a nation decides to unilaterally adopt free trade, it runs the risk of other countries continuing to protect their domestic industries from foreign industries, which would put the nation taking unilateral action at a disadvantage. Such action is highly unlikely because it requires that a nation be unilaterally willing to put itself at a disadvantage.
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Sovereignty/interests: Does free trade respect national sovereignty and interests?

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Yes

  • Global governance will make governing free trade possible Economic integration and increasing living standards are dependent on good governance. Globalization has put more pressure on governments to be accountable and promote free competition in order to achieve growth. Countries need to cooperate to achieve common goals and global governance can allow the possibility to avoid the emergence of more failed states.
  • Legislative processes are ineffectual in making trade agreements Negotiations with foreign powers require that the slow and cumbersome legislative processes of many countries are bypassed. This is precisely why executive branches of government are created; to deal with foreign governments and make executive decisions when the immediacy of such decisions is necessary.
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No

  • Free trade intrudes on national sovereignty. Free trade puts a high pressure on competing on a global market. This pressure for developing countries has placed them at crossroads forcing them to chose to keep their currency or pegging it to the dollar or even making the US dollar as their national currency. Giving up a symbol of national identity (one’s currency) for the ability to compete better in a global market is a clear example of a high intrusion of free trade on national sovereignty.
  • Free trade impairs national economic controls. Free trade makes it impossible for a country to control the future of its economy. Multi-national corporations gain influence and the walls of sovereign economic control break-down.


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Relations/stability: Does free trade help improve relations among countries?

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Yes

  • Protectionism causes resentment among nations Protectionism is often seen by countries as hostile trade policy; it can create an unfair advantage for an industry within one country over the same industry in another. This can lead to resentment and strains between citizens and leaders of countries.
  • Trade reduces conflict between countries Evidence shows that empirically it has proven that free trade improves relations between countries and promotes peace. Foreign investment ties countries into a stable framework of interaction significantly diminishing prospects for war.


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No


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Infant industry: Should infant industries be exposed to free trade or protected?

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Yes

  • Protectionism is a poor way to promote infant industries Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 88. - "protection is an indirect an ineffective policy for promoting infants. Apart from the cost it imposes on consumers, it has two other seriously negative side-effects:first, it limits the new industry to the domestic market, since protection, by definition, raises returns only on domestic sales; and, second, it provides protection from the world's most potent competitors. The first limitation may not matter much for countries with relatively big and rapidly growing domestic markets (such as the United States in the nineteenth century), but it is significant for most developing countries, which have tiny markets: Nigeria's dollar purchasing power in 2000 was less than a tenth of London's. The second limitation means that, protected from effective competition, the infants almost always fail to grow up."


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No

  • Infant industries should be protected from free trade Melitz, Marc J, “When and How Should Infant Industries Be Protected?”Department of Economics,The University of Michigan October 11, 1999 "First formulated by Alexander Hamilton and Friedrich List at the beginning of the Nineteenth Century, the case for infant industry protection has been generally accepted by economists over the last two centuries. Although some of the arguments supporting protection have come under successful attacks over the years, most economists would nonetheless agree to a list of specific circumstances that would warrant the temporary and limited protection of an infant industry. In his famous statement supporting the case for infant industry protection, John Stuart Mill alluded to one of the main circumstances on this list: the presence of dynamic learning effects that are external to firms.1 Mill recognized that certain additional conditions must also be met in order to justify protection. He specifically mentioned that protection must be temporary and that the infant industry must then mature and become viable without protection."


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Democracy: Does free trade promote democracy in the world?

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Yes

  • Free trade promotes democracy Political scientists have developed the "Modernization Theory" through which they explain the internal link between democracy and economic development. Free trade promotes a better standard of living and as such creates the higher need for freedom. The flow of trade integrates people into different cultures with different degrees of civil and human freedoms. As this process continues their demand for a more transparent and accountable government establishes the foundations for a democratic society.
  • Free trade promotes peace and stability internationally Daniel Griswold, presented at the Peace Through Trade" Conference”, in Oslo Norway three main reason for which free trade promotes peace. He uses the democratic peace theory to support the fact that democracies do no fight each other. Since free trade enhances democracies it enhances peace between states. He also believes that free trade promotes more economic integration, which constrains the out-break of war by making it highly economically costly. Lastly, he argues that free trade promotes wealth acquisition by mutually beneficial transactions, contrary state economic models that have emphasized territorial expansion, which often incites war.[2]


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No

  • Free trade undermines democratic processes Free trade agreements allow for foreign investing corporations to bypass domestic judicial system. The government in this way gives up its right to regulate foreign investment and citizens cannot be protected against corporation abuses.
Ralph Nader on Free Trade. On the Issues. - "Q: There must be firms or forces in society that you have decided now are more malignant than you thought 25 years ago, and companies on the other hand that actually have improved and are behaving better. There must have been some changes.
A: With the collapse of communism and with the absence of any alternative way of ordering private property and using public assets, we’re entering into a generation of global power of the multi-national corporations. There’s no society that’s able to withstand commercial western culture. Perhaps fundamentalism and Islam is trying to do it.... But that’s going to be the challenge now, whether democracy is going to be up to it. Whether these giant corporations are going to be able to respect instead of erode and control democratic processes and these new trade agreements like GATT and the World Trade Organization are not encouraging."[3]


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Culture: Does free trade and globalization have positive effects on culture?

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Yes

  • Globalization provide people with greater access to different cultures Market analysis offers a powerful tool for understanding the dynamics of cultural evolution. Market forces are determined by cultural understandings and a greater ability to perform in a global economy is highly dependent on understanding various cultures. This provides incentives for tolerance and cultural understanding.
  • Globalization involves positive imitation of cultures Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 102. - "It is true that, today, that western ideas of democracy and the market economy, including business culture (and the intellectual counterculture to business culture) are spreading quite rapidly across the globe. But it was always so. Human beings imitate, or are absorbed by, the ideas of others on what to believe and how to live."
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No

  • NAFTA creates the problem of multilingual labeling on goods and products From the perspective of North American consumers, one of the negative effects of NAFTA has been the significant increase in bilingual (and often trilingual) labeling on products for simultaneous distribution through retailers in Canada, the United States, and Mexico in French, English, and Spanish.
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Environment: Is free trade good for the environment?

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Yes

  • Free markets and trade benefit the environment “Is Globalization Causing A 'Race To The Bottom' In Environmental Standards?” - "A 1998 World Bank study of organic water pollution found that pollution intensity fell by 90 per cent as per capita income rose from $500 to $20,000, with the fastest decline occurring before the country reached middle income status (Figure 6. Hettige, Mani and Wheeler, 1998). Average air quality in China has stabilized or improved since the mid-1980s in monitored cities, especially large ones - the same period during which China has experienced both rapid economic growth and increased openness to trade and investment."
Free trade also enables production to occur in places where it is most environmentally appropriate.
Indian tea pickers Restrictions on trade damage poor people most For similar reasons, most aluminium is produced in places where there is abundant hydroelectric power, which is less resource intensive than gas or coal.
Thus the gains from trade are environmental as well as economic."



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No

  • Free trade and markets harm the environment Free trade agreements cannot discriminate against any products because of their way of production. This allows for trading products that have been grown or processed with techniques that have been harmful to the environment .
  • Trade liberalization is fueling global warming Les Leopold.” Globalization Is Fueling Global Warming”AlterNet.December 28, 2007 ”Global free trade proponents skillfully argue for comparative advantage, opening up markets, and economies of scale. They point to the communications marvels that have flattened and shrunken the world, putting us all in contact and in competition with each other for the best ideas and products. Global warming, however, puts a kink in this new global utopia because it demands that we also include the costs of externalities -- the carbon dioxide emitted from shipping and flying goods all over the globe -- goods that could easily be produced much closer to the point of consumption.It may be marvelous to text message your colleague in Bangalore, but from a CO2 perspective, it's folly to fly fresh raspberries from Chile to California. And under current trade policies, we will import the next wave of high-efficiency light bulbs to save energy while wasting some of the gain on the carbon used to transport them here from around the globe.But the elephant in the room is hyper-development. Expanded trade indeed has contributed to the enormous economic growth rates in China (and India). As a result, China's appetite for fuel and power has grown exponentially: As The New York Times reported (June 11, 2006), every week to 10 days, another coal-fired power plant comes online in China large enough to serve a major U.S. city.”


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Popularity: Is free trade popular in the world?

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Yes

Click on the pencil icon and research and write arguments here

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No

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Pro/con industries: What industries are typically for and against free trade?

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Yes

  • European trade unions frequently support free trade.
  • Scandanavian trade unions support free trade.
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No

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Pro/con organizations

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Yes

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No

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Pro/con resources

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Yes


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No


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