Area 4: Trade

Freedom to trade internationally

Other Information:

In our modern world of high technology and low costs for communication and transportation, freedom of exchange across national boundaries is a key ingredient of economic freedom. Many goods and services are now either produced abroad or contain resources supplied from abroad. Voluntary exchange is a positive-sum activity: both trading partners gain and the pursuit of the gain provides the motivation for the exchange. Thus, freedom to trade internationally also contributes substantially to our modern living standards. At the urging of protectionist critics and special-interest groups, virtually all countries adopt trade restrictions of various types. Tariffs and quotas are obvious examples of roadblocks that limit international trade. Because they reduce the convertibility of currencies, controls on the exchange rate also hinder international trade. The volume of trade is also reduced if the passage of goods through customs is onerous and time consuming. Sometimes these delays are the result of administrative inefficiency while in other instances they reflect the actions of corrupt officials seeking to extract bribes. In both cases, economic freedom is reduced. The components in this area are designed to measure a wide variety of restraints that affect international exchange: tariffs, quotas, hidden administrative restraints, and controls on exchange rates and capital. In order to get a high rating in this area, a country must have low tariffs, easy clearance and efficient administration of customs, a freely convertible currency, and few controls on the movement of physical and human capital.

Objective(s):

4Ai: Revenue from trade taxes (% of trade sector)

4Aii: Mean tariff rate

4Aiii: Standard deviation of tariff rates

4A: Tariffs

4Bi: Non-tariff trade barriers

4Bii: Compliance costs of importing and exporting

4B: Regulatory trade barriers

4C: Black market exchange rates

4Di: Foreign ownership/investment restrictions

4Dii: Capital controls

4Diii: Freedom of foreigners to visit

4D: Controls of the movement of capital and people

4: Freedom to trade internationally

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