The North American Free Trade Agreement and Central European Free Trade Agreement Trade Blocs - Essay Example

Purpose of trade blocs was primarily identified to be instilling efficiency in international trade and thus, assistance in globalization. Prior to trade liberalization moves, economies around the world maintained artificial barriers hindering transaction of goods and commodities across national premises. Hence, the concept of trade blocs was put forth to border a region free of such discriminations. The idea is actually conceived to be a success in burying every possibility of a nation indulging in such activities. The present paper assesses this very fact through evaluating the functions of NAFTA and CEFTA towards ensuring a liberal trade environment. NAFTA is the short for North American Free Trade Agreement, with partners including United States, Canada and Mexico. Officially agreed upon in 1992, the concept already had been conceived during 1980s when US President Ronald Reagan expressed his desire to form a unified North American market (Baliles, 2010, Para. 1). CEFTA (Central European Free Trade Agreement), also signed in 1992, on the other hand is an association formed between the non-Euro nations, which are mainly concentrated around Central and South-Eastern Europe. Initially comprising fourteen nations, the number of membership gradually receded to five with some of them moving into the Euro zone. The five member nations are Poland, The Czech Republic, Slovakia, Hungary and Slovenia) (Pal, n.d., p. 1). Purpose behind the formation of either trade bloc had been promotion of economic growth over the respective regions. Consolidation of nations to form an entity actually facilitates in gaining market and bargaining powers among the international community. These were indeed, the fundamental objectives which played in the minds of the founders while shaping their ideas Consolidation of the NAFTA has resulted to an agricultural boom over the region, which has added to the aggregate agricultural supplies of the world. Moreover, Canada had almost been unnoticed prior to its incorporation, but the world soon realized the nation’s immense investment potentials once that its presence was felt. Member nations of CEFTA too are primarily dependent upon agriculture. Given their enhanced power, the CEFTA nations now export their produce more efficiently and in a manner so as to trigger widespread market demand (Pal, n.d., p. 3). Hence, they too have added to aggregate agricultural products, besides expanding the consumption goods basket. Reasons behind seeking membership of a trade bloc are mostly purported towards attaining financial stability and thus, a robust economy. NAFTA was actually the brain-child of US President Ronald Reagan, who mainly wanted to establish a North American power with a significant bargaining edge. Though USA already had a wide international exposure, the economies of Canada and Mexico were not so lucrative destinations for investors who could actually prop up economic prospects. Moreover, Mexico was suffering from an apparently unending problem of hyperinflation which could be solved with increased volumes of trade revenue. Hence, the peer nations decided to tie up with the USA and form NAFTA. On the other hand, the member nations of CEFTA had actually been given a side berth after the formation of Euro, which emerged out to be a global power. Economic downfalls were faced by many during this state. In order to retain their position and push further towards improvement, 14 European nations, located in not-so-advantageous regions, decided to unite and contend with their West European counterparts. Success of their efforts could be assessed from the fact that both entities are regarded as global powers today. Individually, member nations of the trade blocs spoken of did not have ample power to bargain for themselves in the international arena. However, as soon as they united under a single organization, their power soared up so that now they attained an upper hand in every deal. Moreover, the member nations do not indulge into any hindrances among themselves since they belong to the same free trade zone; this has resulted to the generation of higher trade revenues and an end to financial nuisances such as inflation. NAFTA in particular has boosted up agricultural growth in Mexico, which has significantly bailed out the nation from the clutches of inflation. Lastly, given their consolidated power, external investors also seem to be confident enough to invest in nations previously considered as some of the worst investment destinations (viz., Mexico). Thus, the nations have upgraded their investment potentials as well. The nations which have included themselves in a trade bloc have done so to bail out of persistent economic problems. Need for membership is urgent enough to have convinced them of losing their individuality and to think as a group. Hence, there seem to be no fruitful alternative for them. However, many a time, the nations might seek refuge with the World Trade Organization to protect their individual interests from issues raised by a co-member. Though the terms of trade are lenient among member nations of a trade bloc, they might not be so in inter-trade bloc relationships. Many a times however, two trade blocs have friendly pacts between them and agree not to cross each others’ ways regarding certain issues (Busek, 2008, p. 1). But, in such cases there is usually some trade-off involved which representatives of the WTO are responsible to monitor. Canada, in 1995 brought issues to the WTO, about the US of denying the paying of trade tariffs on its agricultural exports. WTO had supported the claims made by Canada during that time. Given that most of the nations have to register under the WTO to be a part of a trade bloc, there seldom arise problems between nations with the WTO. NAFTA and CEFTA comprise of some of the most resource enriched nations in the world, though individually they lack the power to tackle their economic issues efficiently. Formation of trade blocs has helped in bringing them closer and run the organization efficiently. A remarkable point about the formation of trade blocs is that, consumers around the world can now afford imported goods at far cheaper and competitive rates than they used to in the absence of free trading zones. Thus, people are now in an advantageous position to enhance their consumption baskets, leading to an improvement in their marginal utility. Globalization via trade blocs has helped in enhancement of bargaining power in the international arena, so that the member nations have obtained a political upper hand. However, there is a single disturbing fact about the formation of trade blocs – the member nations lose their individual power of administering over their own national interests. In most of the cases, they have to consider the influence of any step over their co-members, owing to the orders of a centralized body. In many of the cases, these central bodies are oblivious of the domestic situation of a nation and stress upon the adherence of common agreements, thus, diluting the political powers of the national authority. Simultaneously, the economic woes of the nations have also been solved by a large extent given that they no longer are dependent upon the entire globe for economic stability; rather member nations are always there to take care of each other. Moreover, as NAFTA constitutes of USA, its power is naturally greater than other trade blocs, given the fact that USA accounts for one of the biggest markets in the world; in addition, the US government had for long been involved in long-term investments unlike most other nations, which have reaped their fruits today. References Baililes, G. Events in Presidential History. 2010. University of Virginia. September 20, 2010. < http://millercenter.org/academic/americanpresident/events/12_08>. Busek, E. 2008. CEFTA and Beyond. September 20, 2010 < http://www.investmentcompact.org/dataoecd/1/54/40315616.pdf>. Lee, Don. “Canadas economy can teach the U.S. a thing or two”. Los Angeles Times. July 11, 2010. September 20, 2010 < http://articles.latimes.com/2010/jul/11/business/la-fi-econ-canada-20100711>. Pal, M. No Date. The Role of the CEFTA in Member States’ EU Integration Efforts. September 20, 2010. . Read More