International Trade Agreements - Essay Example

?International Trade Introduction International trade is a trade between two or more than two countries located anywhere on the globe, where as bilateral trade takes place between the two parties or countries, and the multi-lateral trade takes place between more than two parties or countries. Since few decades countries all around the world is taking steps towards trade liberalisation allowing free movement of goods and services among them. They are reducing limitations, and in turn facilitate trade between them. Economic integration at regional as well as at global level through trade and investment are becoming a dominant development strategy across the continent. Up course it not new phenomena, instead similar strategies have been pursued by countries from the past few years (1). Countries were taking steps to reduce trade barriers such as tariffs to encourage trade, and opening their markets to the world and gain maximum advantage of it. If we go through the modern history, we can see that there was a shift in world trading system among bilateralism, regionalism and multilateralism. In the late 19th and the early 20th century, there was a dominance of bilateral trading system as the trade agreements were negotiated on a bilateral basis between individual countries. Such activities were initiated by England in the 1860s and 1870s as it pushed its trading partners to sign trade agreements. But, after Second World War, trade at multilateral and regional level was gained importance in place of bilateral system. During the period 1940-1990, multilateral trade system gets importance as more and more nations joined the GATT or its successor, the WTO. But, in contrast post 1990 period once again witnessed the dominance of bilateralism which is dubbed as the failure of WTO negotiations at the 1999 Seattle ministerial conference. In addition, regional trade agreements were also gets importance during the period (2). International trade benefits consumers as they can get best service or goods at lower price, as the number of goods increases because of international trade and in turn it decreases the cost of those goods through competition (3). Adding, it gives an opportunity for domestic industries to ship their products abroad. Barriers such as countervailing duties, taxes, environmental, health and safety certification requirements, duties, anti dumping measures, laws, quotas, customs, and licensees are the main hurdles in the way of international trade. Generally, these trade barriers were necessary for countries to protect domestic producers from foreign competition. But, in modern years, international organisations such as WTO were introduced several measures for improving free trade, and as a result the role played by tariffs in international trade has been declined. World Trade Organisation, which came in place of General Agreement on Tariffs and Trade (GATT) generally, deals with regulation of trade between the participating countries. Countries are using barriers in these days to evade free trade rules framed by international trade agreements such as WTO, North American Free Trade Agreement (NAFTA), or European Union (EU) as they restrict the use of tariffs. Moreover, usage of these barriers in international trade has been raised sharply after the WTO rules led to a very significant reduction in tariff use. Sometimes countries voluntarily restrict imports of goods from outside as a safe guarding measure in limiting the competition that domestic industries have to face from the imported goods. Some times it is a retaliation technique for countries in case they think that a trading partner has not played by the rules. Many a time’s governments intervened in international trade to safe guard their national security. Generally, almost all countries arranged their defence system from military attack and they cannot leave it to the private sector as the national security is a public issue. So, this is a major issue for any country, and taken into account whenever it starts trade with other trade barriers (4). Rise in Regional Trade Agreements Regional trade agreements (RTAs) which are taking place at regional level are a powerful force for globalisation, and are becoming a defining feature of the modern economy. If we take an example of European Union which shows that RTAs could build prosperity and peace in the region. As years are passing there is a growing trend in regional trade agreements. As of December 2005, more than 275 regional trade agreements have been notified to the world trade organisation, which were only 120 prior to 1995. During the period 1948-1994, organisation had received more than 123 notifications related to regional trade agreements (5). As of now 300 more or less trading agreements at regional level are witnessed across the globe, and almost all countries in European union, America, Austrian sub continent, African, and Asian countries are involved in a regional grouping of one sort or the other. Majority of the members of WTO engaged in one or the other agreements at the regional level. The rapid growth in the number of regional trade agreements are the major concern for the multilateral trading system. In 1985, America has signed an agreement with Israel which is its first agreement at regional level. After that USA has signed with nearly 17 such an agreement with other countries at regional level. It has signed with Canada, Oman, Chile, Dominican Republic, the North America Free Trade Agreement (NAFTA), Singapore, Bahrain, Jordan, Guatemala, Costa Rica, Australia, Morocco, El Salvador, Nicaragua, Peru, Colombia, and Honduras. In addition to these, negotiations with Association of Southeast Asian Nations (ASEAN) are on (6). Since 1950s, European countries have engaged in such deals. In East Asia region also there is a growing trend of regional trade agreements witnessed in recent years, (7). The number of free trade agreements notified to the world trade organisation growing rapidly year by year. In 1990 the number was 20, and in 2007 it raised to 159, and by the year 2011, it has been estimated to exceed 400. Just in a span of 13 years, America had signed with 14 trade agreements at regional level with Asian and Middle East countries. At the same time Mexico had signed 12 agreements, and Chile had entered into 7 agreements with China, Mexico, America, and with European Union (8). Compared to other region, Asian countries are the recent entrants to the global RTA area, but they rapidly catching up the race. By the end of September 2008, East Asian countries have signed with a total number of 30 agreements at regional level. Adding, 41 more are in negotiating level and 25 are at proposal stage (9). But in African continent, RTAs seems to be ineffective in promoting trade and foreign direct investment. Many reasons like small market size, poor infrastructural facilities, high trading costs, relatively high trade barriers, low resource complementarily between the member countries were responsible for the same (10). Formation of Regional Economic Communities (RECs) is the main characteristics of RTAs in African continent. There are 14 RECs in Africa, but the Abuja treaty recognises only eight of them as the pillars of AEC. Countries in Africa have Abuja treaty in 1991, and under that they have formed a forum called African Economic Community (AEC). Many of the African countries are the members of multiple RECs, and entered into the agreements with other countries at regional level (11). After the Second World War, multilateral trading system has been created to prevent the dominance of rival trading blocks. This system provides greater security and benefits to its member countries than any other system. But, the emergence of regional trading system signals the failure of global economic cooperation, and in turn leads to weakening of multilateral system of trade. Up course, agreements at regional level could be a powerful complement for the multilateral trade, but cannot be a substitute. Agreements at regional level are allowed under the GATT article XXIV, and most of them have their own mechanisms for the settlement of trade disputes (12). RTAs in modern times have their formal legal mechanisms for the dispute settlement, and are quite different from the older one. Surprisingly, some older RTAs have no dispute settlement mechanisms, and on the other hand, some others have settled their disputes at political level. The relationship between the member countries of RTAs is not only bind to commercial or legal purposes, but also they have political and strategic significance. Generally they have the contemporary equivalents of treaties of commerce, friendship, and navigation. For an example, SADC, which stands for the South American Development Community is a treaty between the member countries of American continent, and it promotes the coordination and harmonisation of the international relations with the member countries. Political consideration is one more significant feature in the creation of agreements between the countries at regional level. For an example, in 1980s, MERCOSUR was formed which is a treaty between Brazil, Argentina, Paraguay and Uruguay. Countries have signed for this treaty with an intention of containing the military hostility between Brazil and Argentina (13). Compare to regional trade agreements; the mechanism of dispute settlement of WTO is more sophisticated. Compare to WTO, many RTAs have lack in effective enforcement mechanisms (22). As a first step in dispute settlement, member countries brought their disputes to the formal forum, and prefer to solve their problems through negotiations. For an example, in 2006, when a dispute arises between Canada and America regarding long-running softwood lumber, former chose a negotiated settlement, even it got favourable rulings by NAFTA, which shows that WTO is still a preferable forum for member countries to RTAs for resolving disputes with their fellow countries (14). Regional trade agreements in force by date of notification to the WTO Source: WTO Secretariat and Regionalism. Growth of RTAs. (RTAs notified to WTO (1948-2010) Source: WTO secretariat. In regional trade agreements, countries offer preferential treatments in trade while eliminating tariffs and other trade barriers, and allow free movement of goods and services. But they continue with their trade policies such as tariffs and other trade restrictions with outside countries. For an example, in 2005, America and Australian signed for a free trade agreement (15). Bind to the agreement, Australia lowered tariffs on almost all American agricultural and manufactured goods. In a similar gesture, America lowered tariffs on Australian dairy, beef, and other items. In the same manner, America had signed for Central America Free Trade Agreement in which it entered into a bilateral deal with member countries. In modern days, regional trade agreements have a much wider network of participants and stretch across continents at different levels of economic development. For an example, Asia-Pacific Economic Cooperation is covering more than 40 per cent of the world's population. In the same manner, America and European Union’s free trade agreements were covering more than 500 million people. Furthermore, RTAs in modern years have an extensive coverage of products, and many have extended their privileges beyond the traditional tariff cutting exercises. They were even covering areas like intellectual property, technology, investment, dispute settlement, services, and so on (16). Positive impacts Trade agreements at regional and bilateral level are helpful in achieving some key non-economic goals such as environmental cooperation (17). They are helpful for developing countries in improving their ability to bargain at regional as well as at global level talks. They would improve trade flows between the member countries. Free trade agreements accomplish the goal of liberalisation for countries and helps in the expansion of markets for their goods and services. An increasing number of free trade agreements would lower the price for consumer goods in the domestic market. It pays an easy way for imports of goods and materials. Free trade agreements are the way for more competition in local markets. These agreements encourage innovation of technology and in turn increases labour productivity. Opening of foreign markets provide better climate for investors which in turn creates employment opportunities in export sectors. They encouraged reform process at domestic level, and provoke countries to pursue further liberalisation (18). Free trade agreements help developing countries in sharpening the efficiency of their industries. Free trade agreements at regional as well as at bilateral level enhance country’s economic efficiency and economic integration.  These agreements help the countries in strengthening their political commitment to focus on an open economy. The success story of regional trade agreements in European Union is a role model for other regions. Free trade agreements are helpful in regulating interstate labour migration. For developing countries they help to achieve a flow of labour to meet the needs of employers. Negative impacts Regional trade agreements have many negative impacts on global economy because of their divisive and exclusive nature. They can even hinder development or trigger violent conflict at regional as well as at global level (19). In some occasions they could undermine attempts to reduce trade barriers and resulted in distracting countries from more important world trade talks. Sometimes developed countries may use these deals as tools for bullying poor or small countries which may detrimental for poor countries. The popularity of regional trade agreements may raises questions about their impact on non-member countries (20).  Agreements at regional level may divert trade by creating preferential treatment for inefficient members versus non-members.  Countries those who are not the members of RTA could get marginalised.  Member countries of regional trade agreements may lose their interest in the multilateral process of trade.  Conclusion The number of regional trade agreements are expected to be increased in future trading process, and the prominence of growing trend of RTAs are seems to be good. Furthermore, future trend may leads to the formation of super RTAs which is the cluster of regional trade agreements. The trend of formation of super RTAs is already taking shape in the continents of Europe, America and Africa. But the growing trend of regionalism in trade among developing countries have to be monitored by world trade organization as well as respective governments, which is essential for minimizing the fallout of the multilateral trade(21). Business groups should have need awareness about the intricacies of various agreements. In addition, civil societies should have also play proactive role in ensuring agreements at regional level adhere to the spirit and purpose of trade creation not the diversion. End notes (1), (Jo-Ann Crawford and Sam Laird, 2000) (2), (20), (21), (Moana Bhagabati, 1999) (3), (4), (Brent Radcliffe, 2010) (5), (6), (8), World Trade Organization. Regional Trade Agreements: Facts and Figures (7), (9), The changing anatomy of regional trade agreements in East Asia', Journal of East Asian Studies (10), (11), (Chiza Charles N Chiumya, 2009) (12), (Nguyen Tan Son, 2008) (13), (Moana Bhagabati, 1999) (14), (Nguyen Tan Son, 2008) (15), (16), (Jo-Ann Crawford and Sam Laird, 2000) (17), (iisd, 2007). (18), (Robert McMahon, 2006). The rise in Bilateral Free Trade Agreements. (19), Oli Brown, Faisal Haq Shaheen, Shaheen Rafi Khan, and Moeed Yusuf, 2005). (22), (Nguyen Tan Son, 2008). References Brent Radcliffe, 2010. ‘The Basics of Tariffs And Trade Barriers’, INVESTOPEDIA, (accessed March 11, 2011). http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp Chiza Charles N Chiumya, 2009. 'Regional Trade Agreements: An African Perspective of Challenges for Customs Policies and Future Strategies', World customs Journal, Vol 2, No 2, P 85-92 http://www.worldcustomsjournal.org/media/wcj/2009/2/WCJ_V3N2_Chiumya_(web).pdf David Vivas-Eugui, 2010. ‘Regional and bilateral agreements and a TRIPS-plus world: the Free Trade Area of the Americas (FTAA)’, TRIPS Issues Papers 1, P. 1-36 (accessed March 13, 2011). http://homepages.3-c.coop/tansey/pdfs/ftaa-a4.pdf David Z. Rich, 1992. ‘The Economics of International Trade: An Independent View’, Quorum Books, London (accessed March 11, 2011). http://www.questia.com/PM.qst?a=o&d=26278014 DG Supachai Panitchpakdi, 2002. ‘Why Cancun matters’, Organizacion Mundial del Comercio (accessed March 13, 2011) http://www.wto.org/spanish/news_s/spsp_s/spsp08_s.html iisd, 2007. ‘Regional/Bilateral Agreements’, International Institute for Sustainable Development (accessed March 11, 2011). http://www.iisd.org/trade/rba. Jo-Ann Crawford and Sam Laird, 2000. ‘Regional Trade Agreements and the WTO’, CREDIT Research Paper (accessed March 13, 2011)  http://www.ppl.nl/bibliographies/wto/files/3170.pdf  Kati Suominen, 2009. 'The changing anatomy of regional trade agreements in East Asia', Journal of East Asian Studies, Jan-April, 2009.  http://findarticles.com/p/articles/mi_hb3241/is_1_9/ai_n35665360/?tag=content;col1 Moana Bhagabati, 1999. 'Expanding scope for RTAs in the multilateral system', Centad (Accessed on March 12, 2011 )http://www.centad.org/relatedinfo14.asp Nguyen Tan Son, 2008. 'Towards a compatible interaction between dispute settlement under the WTO and Regional trade Agreements'. MqJBL, Vol 5, P. 113-135. http://www.accg.mq.edu.au/docs/publications/past_editions/volume_5/06Son.pdf Oli Brown, Faisal Haq Shaheen, Shaheen Rafi Khan, and Moeed Yusuf, 2005. ‘Regional Trade Agreements: Promoting conflict or building peace?’ International Institute for Sustainable Development (accessed March 11, 2011). http://www.iisd.org/pdf/2005/security_rta_conflict.pdf Robert McMahon, 2006. ‘The rise in Bilateral Free trade Agreements’, Council on Foreign Relations (accessed March 13, 2011) http://www.cfr.org/trade/rise-bilateral-free-trade-agreements/p10890 World Trade Organization. ‘Regional Trade Agreements: Facts and Figures’ Accessed on March 12, 2011. http://www.wto.org/english/tratop_e/region_e/regfac_e.htm  Read More