Regionalism and Multilateralism in the World Organization - Term Paper Example

Regionalism and multilateralism in the world organization Table of Contents Introduction: 2 Part ONE: Reasons for the formulation of trade unions e.g. NAFTA and EU 2 New markets and trade opportunities 2 Promote foreign direct investments 2 External trade liberalization and capital market liberalization 3 Strengthening Domestic Policy Reforms 3 Increased multilateral bargaining power 4 Strategic linkage 4 Multilateral-Regional interplay 4 Improve economic growth. 4 Improve the country’s balance of payment position 5 Open access to new skills and technology. 5 Part TWO: Case study; Kenya –Uganda-Tanzania (Africa) 6 Continued political support/ political stability; 6 Market size and market access 6 Agro Processing 7 Tourism; 7 Multiculturalism 8 Part THREE: Stumbling Blocks for Regionalism 8 Opposition or resistance from the political fraternity in the wealthy member states 9 Increased cost of membership in regional economic committee 10 Increased cost of membership in regional economic committee 12 Multinational Market Organization Introduction: Pursuant to the post 1990 quest for regionalism, there has been mushrooming need for regional integration which is per se a prerequisite for effective competition. As a result many countries from different economic and structural backgrounds are able to come together and pool resources towards economic sustenance. Part ONE: Reasons for the formulation of trade unions e.g. NAFTA and EU New markets and trade opportunities Regionalism by definition refers to an increase in the intra-regional trade flows, the number of RTA s itself notwithstanding. This essentially helps expand the foreign market. A Regional Trade Agreement opens up knew market opportunity through the process of trade creation (this refers to the increase of the level of trade between the member countries at the expense of domestic producers) Promote foreign direct investments Foreign Direct Investment is an important ingredient in the thriving of a global business. Through Foreign direct investment, a trading partner is able to open up new marketing channels, access state of art technology and get cheaper production facilities, these factors work together to create a strong impetus for further business thrive. External trade liberalization and capital market liberalization Regional Trade Agreement is perceived as a provision of underpinnings to strategic alliance that will automatically translate into security provision. By security here we mean economic security. Smaller countries will perceive any alliance with a grand market economy whether regional or multilateral as a source of economic security. Strengthening Domestic Policy Reforms1 Some countries perceive regionalism as a designed arrangement to lock in domestic policy reform making them secure. The security herein refers to binding the country to the master head of an international trade treaty; meaning that there are no chances of future reversal of the domestic policy. For instance, in NAFTA, Mexico’s central preoccupation in the RTA is to establish a stable economic base through domestic policy reform agenda. This is however bound to render the whole process asymmetric wherein the stable market economy is bound to use this tool for non-trade purposes, thereby thwarting the economic ambitions of the infant economy. The domestic policy reforms together with market liberalization help enhance regional growth economically. Some countries enter the regional trade agreements with a tactical consideration. With the prior quest for multilateralism, some countries form regional trade agreements as a spring board for subsequent multilateral negotiations. Increased multilateral bargaining power Pursuant to the quest to have a higher bargaining power in the global or multinational economy, countries adopt regionalism as the password to the big market. This gives a country an upper negotiating power with external barriers thus through a CU instead of an FTA. In this vein, multilateralism propels the GATT negotiations. This increases the negotiating power of the third world countries, for instance Mexico in NAFTA. Strategic linkage Regionalism essentially helps underpin security arrangements among the integrating partner, for instance the post war regional integration between Germany and France. It was meant to prevent a fresh outbreak of war. The European integration has ventured into deeper integration, because the political commitment herein is strong. This only provides a framework for deeper integration; encapsulating the court structure. Multilateral-Regional interplay Some countries negotiate regional trade agreements with their mind focused on attaining a multinational muscle. Economically infant economies use regionalism- multilateral interplay as a way of improving their bargaining leverage in regional arrangement with economically stable states, resulting in multilaterizing of their preferential service pact. For instance in the Canada-U.S. negotiation, tactical interplay between regionalism and multilateralism is evident, this further echoed in NAFTA. Improve economic growth. Improved or increased market flow of goods and services is bound to increase the income of the nations or countries in trade. Increased market flow in return results into increased income which, ceteris paribus, is bound to change the per capita income therein. This in turn has a bearing in the Gross Domestic Product (GDP) and generally the Gross National Product (GNP) . change in per capita income attracts both international and regional investments. This ultimately results in economic prosperity therein. Improve the country’s balance of payment position Amalgamating a developed country with third world country is bound to even out the countries’ balance of payment. When the two countries pool resources, there follows dynamic gains from trade, meaning there will automatically be welfare gain. In foreign trade, the favorability of the terms of payment will determine if the country has got a surplus or deficit. Prior to the formulation of NAFTA (which is a North American Free Trade Agreement), encapsulating the economically well structured U.S and lesser economically endowed Mexican states. With the US priory enjoying a favorable balance of payment vis-à-vis the unfavorable balance of payment experienced in Mexico. Open access to new skills and technology. Technological advancement is a pertinent pre requisite for development, in a multi-faceted manner. With improved technology one is able to have a high bargaining power since industrialized goods earn more than mere agricultural produce. Besides, technology through mechanization of agriculture is bound to yield more produce. Reducing illegal trade and smuggling: Regional Trade Agreements are established institutions that provide shared information and action to reduce illegal trade in drugs and smuggling of weapons which stands out as a security hazard. As a mitigation, establishment or setting of common tariffs for trade between member states helps in undermining the economic incentive for smuggling. Part TWO: Case study; Kenya –Uganda-Tanzania (Africa) RTA name: The East African Community These area countries in the eastern parts of Africa, they have got a common feature in that they share a common lake called Lake Victoria. Amongst them one has got exposure to the Indian Ocean hence able to access cargo. The other two are land locked in such a way that any imports or exports have to pass thro the Kenyan coast. The other countries are agricultural and highly dependent on the multilateral trade. The produce by each member state is channeled to the common market. The countries are largely agricultural. Imports from the international community can only access inland countries in east Africa via the port of Mombasa. Continued political support/ political stability; The region of east Africa has enjoyed and continues to enjoy a stable political atmosphere. This serves to attract foreign investors for purposes of boosting trade. Market size and market access East African Regionalism has the capability of attracting foreign investors to the continent of Africa following the 137 million Nigeria firm. Through Kenya and Tanzania; the east African states are able to again access to the EU. This is so because the economic integration has got preferential market. Infrastructure There exists already reasonable infrastructure within the east Africa. The infrastructure in this regard refers to construction of international highways, superhighways, international air port, railway transport, air navigation structure. Construction of high class hotels, expansion of existing airports on both air sides and landsides, getting the airports in the region commercialized to promote export processing zone, catering service and other logistics. Agro Processing The east African community is richly endowed with abundant resources such as land, rainfall, agricultural institutions, peace and economic stability. These factors combined give the EAC an upper hand in the formulation of such a trade bloc. This provides amble environment for intra community trade and promote export of goods and services. Areas of great capability include commercial farming, agro-processing, agri-tourism biodiversity, bio fuel and organic export potential. Tourism; The EAC is culturally endowed with opportunities for tourism. The sector herein gives the EAC a higher capability of trade because o f the number of tourisms visiting the east African society. Due to a high tourist count, the region has a high capability of flourishing in the business industry. Multiculturalism The fact that the East Africa is richly endowed with an array of culture gives the EAC a high diversity management capability hence the ability to handle regionalism, in addition to this, the proximity of the region to the harbor facilities and the ocean; enhancing trade. Part THREE: Stumbling Blocks for Regionalism Capital Markets/market access. The development of the capital market is at deferent stages with the Nairobi Stock Exchange (Kenya) being in the lead with regard to stock turn over. This therefore calls for harmonization; this is peradventure clearly postulated in the Article 85 of the EAC treaty. This therefore called for the harmonization of the capital market policies in the three countries. Beside this, there was a call to have the capital-marketing policies on cross-border in the three countries harmonized, so as to enhance free border movement. Issues relating to sovereignty Prior to the establishment of the common federal market, there are lots of underhand squabbles regarding the sovereignty. While Kenya sees itself as the best candidate for the post because of a higher living stands, Uganda and Tanzania are not ruled out explicitly. This therefore serves to undermine the process. The president of Uganda Yoweri Museveni has already started campaigning the post of the president of the federal government. Kenya on the other hand being a towering economic country deems itself fit for the job. Multiple / overlapping membership The presence of multiple of trading unions in the member states, there is a great need for harmonization of the constituent unions to tally with them. The existence of Regional Economic Community (REC) and Economic Partnership Agreements (EPA) are overlapping intensively in the regional calls for the harmonization. This is meant to avoid undue competition for donor resources and ensure a harmonious working environment. Amongst the overlapping and conflicting organizations include the IGAD, EAT, SADC. The policy formulation should seek to come up with a harmonized opinion. Political instability The political instability in the countries of the bloc and developing partner rendered the quest for a united federal front a hard nut to crack. This was evident in Uganda with the Lords resistance army’s effect and the post election violence in Kenya; and their effects in Kenya. Opposition or resistance from the political fraternity in the wealthy member states The implementation of policy in the East Africa is squarely in the discretion of the political fraternity. As a result, they will always address any given matter of national importance with a political mind frame, this is evident in the regional committee for the EAC;2 most of the committee member are political puppets to satisfy their appointees ego.. The game of politics rules over the economic and social spheres. Most of the agreements arrived at in their conventions are normally sabotage. Undermining union’s negotiating power. Some countries generally have a high bargaining power than others. Kenya with a high per capita income will have the greater advantage. On the other hand, a blend of three countries means that workers from a poor state will evoke a spectre of a growing informal sector, eventually undermining the union’s negotiating potential, leaving the poor member states with nothing to fear. Tanzania with a lower economic growth will need to do lots of menial jobs and export mostly agricultural good. Increased cost of membership in regional economic committee The appointed steering committee for any multilateral organization often calls for exorbitant monetary investment, a venture that is bound to prove limiting curtailing any meaningful involvement in regionalism adventures. With the escalating economic impact particularly in the East African community means hiking the registration fees. Global warming3 With most of the member countries relying on agricultural production as their economic mainstay, the prevalence of climatic problems, eg global warming. Cost of production in producer country is bound to affect the economic developments in the region Infrastructuranl development The intensification of trade in the East African community calls for an improved infrastructure net work. Infrastructure here in calls for improvement of the road transport system; it is for this very reason that that the member countries agreed in a Convention in Nairobi in 2004 have a network of roads ramifying the region. Construction of airports New airport eg Wilson, Entebbe, have been identified as requiring expansion and construction of new air port to increase the carriage of each airport. There shall be need to set up a modern airport to be able to handle the voluminous cargo from the farm produce. In RTA encapsulating a poor and rich country, there are high chances of the poor state facing greater challenge for enlargement than the rich partner. This is so because the enlargement treaty is not only envisaged in the elimination of barriers to product/capital movement but also mitigating barriers to movement of services and people. Arrival of workers from a poor state will evoke a spectre of a growing informal sector, eventually undermining the union’s negotiating potential, leaving the poor member states with nothing to fear. Increased cost of membership in regional economic committee The appointed steering committee for any multilateral organization often calls for exorbitant monetary investment, a venture that is bound to prove limiting curtailing any meaningful involvement in regionalism adventures. 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