Final answer:
The false statement about free trade is that it enhances the sovereignty and independence of states; free trade actually can reduce economic sovereignty due to international agreements. However, free trade does create larger markets and encourages innovation and prosperity.
Step-by-step explanation:
The statement that is not true of free trade is 'A. It enhances the sovereignty and independence of states.' While free trade agreements can lead to increased economic interdependence between nations, they can also result in a degree of loss of economic sovereignty, as states cannot independently control trade policies without considering the multilateral agreements they are a part of. International agreements often set certain rules that member states must follow, reducing their ability to enact policies that are solely in their own interest if these conflict with the trade agreement. Additionally, option 'B. It makes states more prone to the effects of economic downturns in other states.' is true because economic interdependence means that when one country faces a recession, it can affect the trade partners as well.
However, free trade does lead to 'C. It creates bigger markets to which businesses can sell their products and services.' as it reduces barriers, thus broadening the potential customer base for various products and services. Also, 'D. It encourages development, innovation, and prosperity.' holds true as evidenced by the growth experiences of countries like Japan, South Korea, China, and India, which have integrated into the global market and benefited from innovation and economic development thanks to free trade.