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Bilateral Trade Agreements - Essay Example

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In the recent years, there is an observed rise in the number of bilateral trade agreements between countries. Experts say that for a powerful country like the USA, "smaller FTAs accomplish the goal of liberalization and the expansion of markets for U.S. goods" in the absence of a broader agreement like the Doha round (MacMahon)…
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Bilateral Trade Agreements
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Bilateral Trade Agreements

Download file to see previous pages... Bilateral trade agreements can also create political and economic ties between the parties, which in turn provide more stability" (Rodrguez). However, it provides loopholes wherein powerful nations can exploit the agreements to the disadvantage of the developing countries.
One of the opposition to the free trade, such as the bilateral trade agreements is the "infant industry argument" (Mankiw). It is based on the belief that the industries of the developing nations might not be well equipped to compete against the giants of the more powerful nations. This then will lead to the death of the local industry. Bilateral trade agreements simply kill the local industries who have not exhibited economies of scale. In economics terms, the failure to achieve economies of scale on the part of the local industries, because they are relatively new will result to a less efficient production compared to those who are old in the industry and this will be manifested in the relatively high prices of the former (Robert S. Pindyck).
This argument is validated by the study of Rodriguez. According to him trade agreements between nations with large economic level discrepancy can actually hurt the weakest party (Rodrguez). Moreover, he gave the following effects on the developing nations of trade agreements.
Reciprocity and national treatment (the obligation whereby foreign goods, services and economic operators must receive the same treatment as local ones) oblige developing countries to implement broad liberalisation in market access in goods, services and government procurement, which may result in surges of imports; moreover, tariff elimination, besides depriving developing countries of revenues, removes powerful instruments of industrial and agricultural policy to protect their infant industries.
Market access gains for developing nations may be limited if agricultural subsidies in rich nations are not reduced; restrictive rules of origin, technical barriers to trade (TBTs) such as quality standards and supply-side constraints also limit the possible gains from improved access to developed countries' markets.
Reduction of policy space for developing countries; many of the issues included in the current North-South FTAs 'reduce or fully remove policy options and instruments available to a developing country to pursue its development objectives' (UNCTAD, 2007)
Source: Rodrguez
The United States is one of the countries who have been very active in pursuing bilateral trade talks against smaller nations. Some of these agreements are with Costa Rica, Chile and Singapore. "In the past two years, the US has initiated comprehensive free trade negotiations with 19 countries, a market representing an estimated US $2.5 trillion worth of opportunities to American business. Simultaneously, however, these agreements open the American market, exposing, in particular, US industries dependent on sweat labour that cannot compete with low labour costs in poorer countries around the world. The difference is that the US has the resources to diffuse the pain of the transition, amounting to support of US$1.8 billion in 2003, while developing ...Download file to see next pagesRead More
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