Business > How Regional Trade Agreements are Promoting Growth in International Trade?
Regional trade agreements are extremely important in promoting growth in international trade. In fact it is the primary objective of any trade agreement. We’re talking about regional trade agreement when more then just two country (bilateral trade agreement) is involved.
Trade agreements have many benefits in the participating countries. First of all trade agreements provide easy access to goods and services of other countries. They lower the trade barriers and prices consequently. They open up a market for foreign investment opportunities. Increased trade will result in an increased production level, which will create a lot of jobs. Also regional trade agreements can increase the competitive environment which will ensure that a nation can and will adapt to new technologies and demands.
The recent trend in the global environment is the liberalization of trade and investment. It means the negotiation of new trade agreements in order to reduce trade barriers, such as tariffs, quotas, licenses and quality standards. The USA is a member of a number of bilateral and multilateral trade agreements. We have to note that the US is trying to initiate more bilateral agreements in these days because they seem to be less riskier.
The largest trade organization is the WTO (World Trade Organization), with its 140 members, where of course the US is a member. One of the most important regional trade agreements that the US is participating is the NAFTA, where the other two members are Canada and Mexico. These three members are negotiating currently with other South American countries as potential members in the extended organization, which would be called FTAA. As more and more countries are joining the WTO, more and more tariff barriers are lowered, but nontariff barriers are still remain significant. These are the barriers that have to be eradicated in the near future on order to ensure free goods and services flow within the trading block.
Other developing trade agreements such as ASEAN may seem to encounter significant hardships on US markets, but these will be eliminated as these countries are becoming established members of the WTO. Of course there will always be at least a few industries in every country that the government will try to protect at any coat. In the US these industries include the steel industry, the airlines, and its agriculture.
Other trade agreements that are worth noting are the EU, which includes twenty five European nations, and expected to grow with additional countries from the eastern block. Twelve of these countries share the common currency, the Euro. The Mercosur is another important regional trade agreement involving Argentina, Brazil, Uruguay, and Paraguay. This agreement is an example of a multilateral agreement where economic hardships in one country, namely Argentina, caused difficulties for the other three nations by loosing their largest trading partner.
The truth is that regional economic integration can affect member countries not only in economic measures, but also in social, cultural, and political ways. Countries however can create even greater social and economic harmonization by adopting common economic policies. Such as fiscal and monetary policies as we can see in Europe, with the creation of a Central Bank. A common market has the elements of customs union but it also allows for the free flow of production factors such as labor and capital, along with the final products, goods and services. In addition to eliminating internal tariffs, member countries can agree on posing the same or different amount of tariff on goods and services coming from outside of their borders.
As a conclusion we can say that regional trade agreements favor the free flow of goods and services within the member countries. As a trend more and more countries across the world are becoming participants in some kind of agreement. The major focus of these agreements is to reduce trade barriers, while protecting some of the key or most sensitive local industries.
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