Bilateral Free Trade and Regional Trding Bls - Coursework Example

Bilаtеrаl Frее Trаdе and/or Rеgiоnаl Trаding Blосs Name: Institution: Date: Introduction Global development an expansion in the recent past has led to increased international and foreign markets. As such, in a bid to increase shareholders values, organizations evolved from local to multinational status in the market. To this effect, the organizations have increasingly invested on the global market regardless of the geographical dispersion of the respective markets. The emergence of multinational organizations led to international trade concept. However, despite its merits, the international trade faced a number of regulation and control challenges in diver's markets. Therefore, international trade players resulted to the development of an international organ, the world trade organization, to regulate international trade (Alexander & Andenæs, 2008). The WTO policy on trade ever since its inception has been free trade advocacy where the global markets allow for free entry and exit of international players with no discriminatory policies. Although the organization has achieved much in its effort to establish free international trade, the emergence of regional trading blocs has presented a new challenge to its success (Wild, Han & Wild, 2006). Arguments have been developed that the regional blocs negate the free trade concept. This essay evaluates this argument and form a conclusion if indeed the regional blocs deter free trade or not. Reasons to Disagree Regional blocs are trade partnerships developed by nations across the globe. In this case, the blocs are in most cases developed on a regional basis such as the Asian market bloc, the European Union, the BRICS (Brazil, Russia, India, China and South Africa) and the NAFTA (Northern America Free Trade Association) trade agreements. All these blocs represent regional trade blocs. Collins (2013) argued that one common aspect in all these blocs is the enhancement of trade between the bloc partners. In this case, the trade agreements establishing the blocs have an objective of enhancing increased trade between the partners. In this case, the trading blocs seek to eliminate all trade barriers between them. Langenfeld and Nieberding (2005) argued on the concept of free trade area establishment. The authors argued that under a free trade agreement all barriers to the movement of goods and factors of production are eliminated. Free movement of factors of production implies that labour, raw materials as well as other factors can be transferred seamlessly across the region. It is this transfer that forms the basis for free trade in the region. Deb and Basu (2012) sought to establish the building issues that characterized free trade in the south Asian market. In this case, the authors sought to establish factors whose presence signified the enhancement of free trade. In its analysis, the study established that the presence of a free movement of the factors of production was an imperative component in the enhancement of free trade in the market. Therefore, through the removal of factors of production movement barriers, the regional trading blocs facilitate increased free trade in the global market. Thus, instead of the allegation that regional trading blocs led to reduced free trade gains by WTO, it is apparent that the regional blocs facilitate increased international free trade concept attainment. Doumbia-Henry and Gravel (2006) conducted a study to evaluate the necessary factors for the attainment of absolute free trade market scenario on the global platform. In this case, the study sought to evaluate and establish free trade supporting factors hose presence in the respective foreign markets would facilitate eventual attainment of this desired status. In this regard, the study targeted at establishing key factors whose achievement and establishment on the international platform would enhance free international trade. In its analysis, the study established that such factors included production capability enhancement and currency stability. On one hand, production capability determines an economy’s exportation and importation values. In this regard, nations with increased production capability in the market have an increased exportation value that exceeds its importation values. As such, the consequent terms of trade in such nations are favourable. Moreover, this allows for a balance of payment in such economies in which the organizations emerge as net exporters (Wild, Han & Wild, 2006). Favourable balance of payment allows for increased economic success in the market through increased economic earnings. Therefore, nations with increased earning potential through the international trade are bond to embrace the free trade concept more. In this case, regional blocs serve as capability building avenues. Partners and members in these blocs, such as the BRICS, support each other through economic consultations, modelling and technical support in order to increase their respective market potential. Therefore, the establishment and spread of such trading blocs’ enables nations increasingly achieve improved productivity and increases their respective production capability. As a result, through increased production activities, a good's surplus occurs in the respective nations that trigger the need for exporting the products to other markets. As such, economies in these situations increasingly support the concept of free trade in the market. Therefore, based on this analysis, it is apparent that the development and establishment of regional and trading blocs in the market enhance increased international free trade. As such, this concept on production capability enhancement supports the free trade policy advocated by the WTO. In addition, the concept of free trade is enhanced through increased protection issues in the market offered by the regional and trading blocs. The established blocs serve a protectionism purpose on the local industries and organizations that lack a strong capital base to compete fairly with the internationally established multinational organizations. Chase (2005).in a review of the role of trade blocs, established that the blocs serve increased management role in offering protection in the local organizations. Insulating them form unfair competition on the international platform enhances their increased development and stability establishment. Therefore, the trading blocs enhance strategic organizational development. The trading blocs offer a platform and framework through which local organizations evolve from their small scale status into international status. Habaradas (2008) classified this concept as business incubation through the use of protective regulations on unfair competition from multinational industry players. Therefore, despite the short run challenges, the establishment and development of trading blocs in the market allow for increased long-term free trade adoption. In the long run, the protected local organizations attain financial and competition stability to face off the international competitors, not only on the local market, but also on a global platform. Therefore, the development of regional and trading blocs enhance increased free trade market in the long run. Thus, it supports the WTO free trade policy. Reasons to Agree Free trade policy is developed on the model idea of reduced regulations. As such, it is managed at minimal or no regulations in the market. The concept seeks to conduct international trade based on the concepts of the law of demand and supply, as well as a comparative advantage concept. On one hand, the law of demand holds that the market prices and policies are regulated by the existing demand and supply forces interplay. In this case, when demand increases in the market at reduced supply, the overall market prices increase. On the other hand, if products demand fall and the supply increases, the overall market prices should fall. On the other hand, the comparative advantage concept in the market raises the issue of markets and economies producing what they are competitive at and can produce at low costs. Free trade seeks to exploit these variables to enhance equal trade opportunities in the market. However, the establishment of trading and regional blocs in the market led to increased market regulations. A past study developed by Elnathan and Krilich (1992) established that regional and trading blocs facilitated increased market regulation. In this case, the respective blocs despite the allowance of free trade among partners and members enacted increased trade barriers on the external stakeholders. As such, through the establishment of such regulations, international market players in the industry are discriminated against. Trade areas and blocs establish market barriers such as tariffs and taxes. In this case, external participants in the market face increased production costs over the local organizations. This exposes them to the risk of increased product prices in the market reducing their competitiveness over the local traders. This concept is a violation of the free trade concept as propagated by the WTO. In its principles, a free trade concept is developed on a principle platform that organizations in the market should be subjected to equal market treatment based on operational regulations. Therefore, the bias developed by regional blocs towards protecting local organizations through regulatory barriers on international stakeholders violates the free trade concept. Thus, based on this analysis, it is apparent that the development of regional and trading blocs in the market serve as a major hindrance to the attainment of a free trade concept as advocated by the WTO. Further, the regional and trade blocs policy on fair competition is a contradiction of the free trade policy as perpetuated by international organs such as the WTO. Teague (2003) argued that the regional and trade blocs in the market advocate for the establishment and utilization of fair competition platform. In this case, the blocs seek to remedy the disadvantages market players to attain equal status with competitors in the industry. This is achieved through increased regulation and protection measures. For instance, the organization's protection policies seek to establish a framework through which to insulate the local organizations against competition by the established multinational organizations. In this regard, the trade blocs seek to establish fair trade scenario where the costs of production are regulated and equalized through subsidies to the disadvantaged groups, as well as tax increments on the international organizations enjoying economies of scale (Wild, Han & Wild, 2006).. Although the concept promotes increased fair competition by establishing a leverage ground in the market, the fair trade policies violate free trade in the market. In this case, fair trade leads to discrimination of international stakeholders in the local market. As such, raising their production costs reduces their market competitiveness in the industry. This is a diversion from the free trade concepts and principles. In this case, free trade advocates for increased competitiveness application. It is hedged on the principle that organizations should acquire and retain market competitiveness through increased competitive edge utilization. Therefore, through the adoption a fair trade approach, regional and trading blocs negate from the WTO free trade achievement in the international market. Conclusion In summary, this essay establishes that the adoption, establishment and growth of regional and trade blocs in the market has led to both the support and obstruction of the free trade concept. The WTO has over the years advocated for the establishment and adoption of free trade policies in the international market in order to enhance increased trade development. On one hand, the essay establishes that the development of regional and trade blocs in the market leads to the support of this concept. In this case, the regional blocs support the establishment of increased production potential between trading partners in the market. Moreover, through industrial protection, the blocs enhance free trade establishment in the long run. On the other hand, the essay establishes that the blocs are based on the fair rather than free trade concept. Therefore, the blocs support discriminatory policies against international organizations through the establishment of market entry and operational barriers, thus reducing the free trade concept spread. Conclusively, this essay establishes that, despite their limitation in the short run, trading and regional blocs enhance free trade in the long run. References Alexander, K., & Andenæs, M. T. (2008). The World Trade Organization and trade in services. Leiden: Martinus Nijhoff Publishers. Collins, D. (2013). The BRIC states and outward foreign direct investment. Oxford: Oxford University Press Langenfeld, J., & Nieberding, J. (2005). The benefits of free trade to U.S. consumers. Business Economics, 40(3), 41-51. Deb, K., & Basu, P. (2012). South Asian free trade area and its impact on exports of SAARC LDCs to India. Decision, 39(2), 21-44. Doumbia-Henry, C., & Gravel, E. (2006). Free trade agreements and labour rights: Recent developments. International Labour Review, 145(3), 185-0_4. Chase, K. A. (2005). Trading blocs: States, firms, and regions in the world economy. Ann Arbor: University of Michigan Press. Habaradas, R. B. (2008). SME Development and Technology Upgrading In Malaysia: Lessons for The Philippines. Journal of International Business Research, 7, 89-116 Elnathan, D., & Krilich, S. (1992). A trend for the 21st century: Accounting harmonization in regional trade blocs. Business Forum, 17(1), 47. Teague, P. (2003). Labour-standard setting and regional trading blocs: Lesson drawing from the NAFTA experience. Employee Relations, 25(4), 428-452. Wild, J. J., Han, J. C. Y., & Wild, K. L. (2010). International business: The challenges of globalization, 5th edition. Upper Saddle River, NJ: Pearson/Prentice Hall. Read More