Download Regional Trade Agreements

Running Head: REGIONAL TRADE AGREEMENTS.
Regional Trade Agreements
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REGIONAL TRADE AGREEMENTS.
Table of content
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Page
Introduction…………………………………………………………………………………..3
A list of the nations involved in the RTAs’………………………………………………..…5
The type of membership each nation holds within the RTA…………………………………5
When and why the RTA was created………………………………………………………..6
The qualifications that nations need to meet in order to join the RTA………………………7
The application process for each nation to be considered for membership………………….8
The benefits and the disadvantages of belonging to the RTA………………………9, 10, 11
Why a nation’s membership may be rejected and what it can do to be reconsidered……..11
Whether or not the RTA has successfully achieved its goals……………………………..12
The mitigating factors that have stifled the success of the RTA…………………………..12
Political, social, economic and religious challenges that the RTA has created……..…….13
Solutions to alleviate the challenges faced within the RTA……………………………….13
Conclusion and suggestion for further studies…………………………………………….14
Bibliography……………………………………………………………………………….15
REGIONAL TRADE AGREEMENTS.
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Introduction
Regional trade agreements can be defined as multilateral agreement between two or
more nations to eliminate barriers of entry into a market or economy. Such barriers include taxes,
tariffs, quotas and trade restrictions. Regional trade agreements thus encourage the flow of
goods, services, capital as well as labor between member states.
The European Union and NAFTA are examples of two trade agreements in the world.
Each nation holds a specific membership within its regional trade agreement. Regional trade
agreements were formed for purposes such as increasing the flow of goods and services between
member countries. Nations need to meet a certain criteria in order to be accepted in a regional
agreement and a process of joining the agreement needs to be followed. The agreement for
joining a trade agreement also contains the criteria to be followed for rejecting a member as well
as rules of reconsidering a member. Not all regional trade agreements achieve their goals and
there are advantages and disadvantages of joining a regional trade agreement. Several factors
deter the success of regional trade agreements such as political, social, economic, and religious
factors.
In this document, I will identify two regional trade agreements and identify the
various nations that are involved in the regional trade agreements. These two regional trade
agreements were the European Union and the North American free trade agreement. The E.U has
28 member countries while NAFTA has 3. There has been an increase in the flow of services,
capital, goods and labor after the formation of the two regional agreements between member
states. This document contains the criteria a member requires in order to join the EU as well as
the criteria each member of NAFTA had to have in order to become a member. Although no
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member in the two trade agreements has ever been ejected, there are rules to be followed in order
to eject a member as well as rules to reconsider a member. This document contains the benefits
and disadvantages of the formation of the two regional trade agreements towards members. The
document also explains factors such as political, social, economic, and religious that has
prevented the success of the two regional trade agreements.
REGIONAL TRADE AGREEMENTS.
The European Union
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The European Union is an economic integration between 28 countries within Europe. The
Union was started back in 1958. The total GDP of the Euro area is 18.4 trillion US dollars. The
main goal of the union during its development was to develop a common market as well as
customs union between member states. Other objectives are to have a common currency as well
as political federation (Scot at. el. 2014). The member’s states of the Euro area are, Austria,
Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,
Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands,
Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden as well as the United Kingdom.
NAFTA
NAFTA or the North American Free trade agreement is an agreement that was signed
between, Canada, Mexico and the United States. NAFTA was formed in the year 1994. The total
GDP of the NAFTA area is 20 trillion US dollars.
The type of membership each nation holds within the RTA.
Within the Euro area, all countries can trade freely with each other. Imports as well as
exports conducted within the area are not taxed or subjected to custom duties or import quotas.
Capital, labor as well as services can also move freely amongst member states within the area.
Non-EU member such as Iceland, Norway, Liechtenstein and Switzerland participate in the
single market but not in the customs union. The United Kingdom, Bulgaria, Czech Republic,
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Hungary, Poland, Romania and Sweden are in the free trading zone but do not use the Euro as
their national currency (Scot at. el. 2014).
All NAFTA countries on the other hand equal membership of the NAFTA agreement. All
three countries have thus eliminated some barriers to trade as well as investments that are done
amongst them. When the agreement was signed in the year 1994, half of Mexico’s exports to the
United States were not charged any tariff while more than one thirds of U.S exports to Mexico
were not subjected to Mexican tariffs as well. By the year 2004, all U.S-Mexico tariffs were
eliminated except for some U.S agricultural exports to Mexico. Tariff on the agricultural
products were however eliminated in the year 2009. At that time, most US-Canada goods traded
were not taxed. NAFTA also seeks to eliminate non-tariff trade barriers as well as to protect the
intellectual property right of products that are being traded. The trading of agricultural products
still remains an issue amongst country members such as the trading of sugar, dairy, and poultry
products between the United States as well as Canada (Scot at. el. 2014).
When and why the RTAs’ were created
The European Union was created back in 1958 through the Rome treaty that sought to
establish the European Economic Community. The first member states were Belgium, France,
Italy, Luxembourg, Netherlands as well as West Germany. Later, the Maastricht treaty was
signed which lead to the creation of the European Union in February 7th 1992. The main goal of
signing the treaties between the member states was to create a common market for the trading of
goods, services as well as the movement of workers and capital. Other goals were to create a
common policy for transport as well as agriculture (Kristine & Andreas 2015).
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st
NAFTA came into force on January 1 1994. Its goals were to establish a common
trading zone for goods and services between Canada, Mexico and the United States. The easy
mobility of labor was also another goal of the treaty as well as to stimulate trade amongst trading
members. Other goals of NAFTA were to promote corporation between member states on
intellectual property rights, the environment, infrastructure as well as the trading of agricultural
products (Oli at. el 2005).
The qualifications that nations need to meet in order to join the RTA
In order to join the European Union, members that wish to join must have, have no more
than 1.5% inflation rate percentage points higher than the three best performing members that are
already in the Euro Zone, government deficit to gross domestic product must not exceed 3%,
government debt to GDP must not exceed 60%, currencies should not be previously devalued
while interest rates should not be more than 2 percentage points higher than in the three lowest
inflation member states (Kristine & Andreas 2015).
The above criteria was agreed on so as to prevent the devaluation of the Euro or the
increase in inflation rate within the Euro Zone. NAFTA was however an inter-government
agreement between three members states, mainly Canada, Mexico and the United States. Other
countries cannot join the trade zone.
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The application process in which each nation must engage in order to be considered for
membership
Since the NAFTA is only a treaty between three countries, there are no application
processes for the admission of another country into the trading zone.
A country that wishes to join the EU must have achieved the following, have no more
than 1.5% inflation rate percentage points higher than the three best performing members that are
already in the Euro Zone, have a government deficit to gross domestic product must not exceed
3%, government debt to GDP must not exceed 60%, currencies should not be previously
devalued while interest rates should not be more than 2 percentage points higher than in the three
lowest inflation member states.
When the above has been met an achieved, the country needs to conduct an economic
analysis that will analyze the costs and benefits of joining the Union. If the benefits outweigh the
costs, the country will then seek the approval of its parliament or through a national wide
referendum. The country will then move to the negotiations that will involve adopting EU laws,
preparing for changes in its Judicial, administrative as well as economic. When an application
has been made, the E.U membership council must also agree accepting the new member state.
Negotiations mainly take between the ministers and ambassadors of member states through
intergovernmental conferences. The speed at which the country can fully join the union will
depend on the speed at which the involved parties are implementing reforms as well as the laws
of the joining country. The accession treaty is a document that contains the terms and conditions
of members as well as any financial arrangements that should be made (Caroline & Emanuel
2010). The accession treaty is final and binding when, The joining country wins the support of
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the EU Council, the European Parliament and the EU Commission, the treaty is signed by the
joining country and representatives of all existing EU countries, the treaty is ratified by the
joining country and every individual EU country, according to their individual constitutional
rules and the country then adopts and adheres to EU laws and economic standards (Kristine &
Andreas 2015).
Benefits and the disadvantages of belonging to EU
Since European Union member countries are free to trade as well as invest and allow the
movement of people amongst one another, the benefits and disadvantages of becoming an EU
member are, a country can export to 27 other countries within the EU without its exports being
charged tariffs as well as quotas, the sales of businesses will increase since businesses can sell to
consumer in all 27 member states, export time is less because export hurdles such as border posts
have been eliminated between member states. There is thus ease of doing business amongst EU
members, labor can freely move between member countries. Countries with high unemployment
rates can thus export labor to countries with low unemployment rate, inflation in high inflation
countries will reduce because cheaper goods can be imported from low inflation countries,
competition within the marketplace because of the presence of multiple players will reduce
prices of goods and services, integration improves the relations of member countries, goods that
are imported become cheaper because they are no longer double taxed while businesses can
easily take advantage of investment opportunities that exist in other member countries with little
or no restrictions (Bela 2013).
REGIONAL TRADE AGREEMENTS.
The disadvantages of being an EU member are
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Countries that produce and export cheaply will benefit more than countries that find it
hard to produce and export cheaply, if cheap imports flood a particular country, businesses
within that country will be forced to reduce their prices or close. Jobs will be lost as a result, if a
country no longer imposes tariffs, quotas and taxes on imports and exports, government revenue
will reduce while Immigration may be higher in countries with lower unemployment rate such as
Germany (Bela 2013).
The benefits belonging to NAFTA
A country can export to member countries without its exports being charged tariffs as
well as quotas, the sales of businesses will increase since it can sell to a wider market, cheap
products can be imported from Mexico into the United States as well as Canada, NAFTA has
improved the relations of member countries, goods that are imported become cheaper because
they are no longer double taxed, businesses can easily take advantage of investment
opportunities that exist in other member countries with little or no restrictions, US businesses can
move and produce in Mexico and benefit from cheap labor. The same US businesses can export
their produce to the US and because of increase in business as well as investments between
member countries, jobs have been created as a result. Statistics from the U.S. Chamber of
Commerce show that 5 million jobs are supported by the NAFTA agreement (Bela 2013).
REGIONAL TRADE AGREEMENTS.
The disadvantages of the NAFTA membership are
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American and Canadian businesses are unable to compete with cheaper Mexican
products; jobs have been lost in some US sectors because of cheap imports from Mexico, if a
country no longer imposes tariffs, quotas and taxes on imports and exports, government revenue
will reduce, there has been a rise in the number of illegal immigrants from Mexico into the U.S
while subsidized agricultural products from the U.S have flooded Mexico and thus jobs have
been lost in the Mexican agricultural sectors (Marcus 2012).
Why a nation’s membership may be rejected and what it can do to be reconsidered.
A NAFTA member country can be rejected if it does not abide to the rules and laws of
the treaty and if the country is involved in gross human rights violations. A country can be
recognized if it agrees to abide to the rules and laws of the treaty and that human rights within
the country are respected.
For the EU member countries, a country can be rejected if its economy is negatively
affecting the economy of the member countries or of the whole region, a country can also be
rejected if it does not abide to the EU laws and if the country is in gross violation to human rights
such as war crimes. A country will be reconsidered if its economy improves, if it agrees to abide
to the rules and laws of the treaty and that human rights within the country are respected.
REGIONAL TRADE AGREEMENTS.
Goals achieved by NAFTA
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Under NAFTA, the sales of businesses have increased since it can sell to a wider market,
NAFTA has improved the relations of member countries, and businesses can easily take
advantage of investment opportunities that exist in other member countries with little or no
restrictions.
Goals achieved by EU
The Euro has strengthened because of a bigger economy and a globally accepted
currency, relations amongst members have improved, there is multiculturalism within the EU
because of both immigration and Emigration amongst citizens of EU member countries, export
hurdles have been removed and thus improving the business environments while inflation rate
within EU is low because of increased competition (Marcus 2012).
Mitigating factors that have stifled the success of the RTA
Strict immigration controls have locked out Mexican workers from entering the US
workforce. US government budgets have been strained due to stimulus programs to create e jobs
as well as payment of subsidies to agricultural products. Greece has a high Euro debt. The bond
purchasing program of the Eurozone will devalue the Euro as well as increase inflation rates
within the Euro area due to the creation of money supply (Kristin 2015).
REGIONAL TRADE AGREEMENTS.
Political, social, economic, and religious challenges that the RTA has created
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Political
There have been riots in the past by some US business as well as farmers in the creation
of NAFTA. Riots have also occurred in Greece over the poor handling of the Greek crisis.
Social
Some businesses both in the US, Mexico as well as in some EU countries’ have been
closed or their businesses have reduced due to competition from countries that produce cheaply.
Thus has caused high unemployment rates as a result.
Economic
Government budgets have reduced because of the elimination of tariffs, quotas and taxes
in both trading agreements. Countries such as Greece have been unable to maintain their
economic status in the Euro area.
Religious
There are threats to terrorism in the EU is because of the easy movement of people within
the EU zone.
How to alleviate the issues
A gradual approach to entering a regional agreement can be used so as to prevent social
unrests, members of the public should also be consulted and referendum on the issues should
also be used. This will help prevent riots and public outrage. Government stimulus programs
should be used so as to prevent the closure of businesses and the increase in unemployment rates.
Surveillance should be increased so as to prevent the threat of terrorism (Kristin 2015).
REGIONAL TRADE AGREEMENTS.
Conclusion
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The contents of this document identified two regional trade agreements and the
various nations that are involved in the regional trade agreements. I have also included a list of
the nations that are involved in the regional trade agreements. The document also includes the
type of member ship that each nation holds in the trade agreement and the reason as to why both
trade agreements were established. Also in the document are the qualifications that nations need
to meet in order to join the RTA and the processes of rejecting and disqualifying a member. I
have also included the advantages and disadvantages of being a member of the trade agreements
and whether or not the trade agreements have achieved their goals. Lastly, I have identified
factors such as political, social, economic, and religious challenges that the RTA has created and
recommended some solutions to alleviate the challenges.
Suggestions for further studies for this case are, the various ways that can be used to
enhance regional integration such as the issuance of a common travel documents to member
citizen from regions such as E.U passports as well as a Political a Union between E.U states.
Other studies should include the effects of trade unions to non-member countries for example,
the effects of E.U union to a country such as Turkey as well as the role of the international trade
organization to regional trade agreements.
REGIONAL TRADE AGREEMENTS.
Bibliography
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(2014) Everything you always wanted to know about European Union health policies but
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Integration: New Evidence from the EU Springer Science & Business Media
Osvaldo Saldias (2013) The Judicial Politics of Economic Integration: The Andean Court as an
Engine of Development Routledge
Bela Balassa (2013) The Theory of Economic Integration (Routledge Revivals) Routledge
Caroline Freund & Emanuel Ornelas (2010) Regional Trade Agreements
Caroline Freund (2010) Regional trade agreements: blessing or burden?
Kristin Archick (2015) The European Union: Questions and Answers