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International Business Practice - Assignment Example

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International Business Practice Introduction: The term ‘Preferential Trade Agreement’ refers to agreements under which member states impose lower incidence of trade barriers on goods produced within a country, offering some degree of flexibility and allowances for member countries to the extent of such reduction…
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International Business Practice

Download file to see previous pages... Trade creation occurs when domestic production is substituted with imports from member states; sometimes it entails the condition of a less efficient system, albeit there is reduction in trade transaction costs. However, trade diversion occurs when it is carried out with member states. Whereas, earlier, trade was being carried out with other countries outside the Union. The portion of trade that was carried out with other countries or states is now diverted to member states under preferential trade agreements and due to this, trade diversion occurs. There are several reasons why countries resort to signing PTA; the main reasons are as follows: The underlying influence of Europe: The shift of the American Position Unbalanced nature of current multilateral trade regime and utmost dissatisfaction with it. Besides modern trade barriers are much more complicated in multilateral settings and most countries find it easier to deal with regional or sectoral trade. Failure of the World Trade Organization (WTO) to become a major stabilizing force in global trade It is now necessary to consider each of these aspects individually and separately. The underlying influence of Europe: The influence of the European Community (EC) now known as the European Union has indeed been formidable. Although it faced several setbacks during 1992, it was successful in overcoming mighty odds in its search for regional trade co-operation The EU has been able to achieve despite the challenges it had to face, a major expansion of the European community, in terms of scope, depth and geographical coverage. “This success has undoubtedly had a demonstration effect, encouraging emulation in the form of regional initiatives in other parts of the world” (Frankel, 1977, P.5). The influence of the EU on setting up of several regional PTAs has indeed been reassuring, especially in the case of PTAs like the European Free Trade Association, (EFTA), Andean Group, Mercosur and ASEAN. The shift of the American Position: With Europe entering into progressive trade unionism ostensibly to avoid the prospects of further wars, America now needed to adopt a stance of its own, although without confronting the EC plans. It turned towards geo-political solutions and “proposing a new round of liberalization negotiations in the GATT so as to keep the momentum in the multilateral direction.” (Frankel, 1977, P.5). Since then American policies have shifted from multilateralism to regional trade partnership, which is quite evident from the US -Israel Free trade agreement and the Caribbean Basin initiative. “Where the Americans had previously reacted multilaterally to European action on the regional front, now they reacted regionally to European Action on the multilateral front” (Frankel, 1977, P.5). The American policies were clear cut and transparent – if the multilateral routes were closed, they were ready to explore regional routes for trade development and believed that the breakdown of such barriers was essential for trade to flourish. There were several factors that contributed to the US trade policy. The first being that over the few decades, the US had lost global hegemony it had enjoyed since World War II, and its trade position has slipped down alarmingly in recent years. Secondly, the EU has been a strong economic and trade force in Europe and has matched US supremacy. Under such circumstances, the ...Download file to see next pagesRead More
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