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Running Head: REGIONAL TRADE AGREEMENTS. Regional Trade Agreements Students Name: Lecturers Name: Unit Title: Submission Date: 1 REGIONAL TRADE AGREEMENTS. Table of content 2 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. 3 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 REGIONAL TRADE AGREEMENTS. 4 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 5 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, REGIONAL TRADE AGREEMENTS. 6 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). REGIONAL TRADE AGREEMENTS. 7 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. REGIONAL TRADE AGREEMENTS. 8 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 REGIONAL TRADE AGREEMENTS. 9 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 10 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 11 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 12 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 13 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 14 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 15 Heather A. Elliott, Nick Fahy, Scott L. Greer, Holly Jarman, Matthias Wismar, & Willy Palm (2014) Everything you always wanted to know about European Union health policies but were afraid to ask Elias G Carayannis, George M. Korres (2012) European Socio-Economic Integration: Challenges, Opportunities and Lessons Learned Springer Science & Business Media Marcus Kappler, Andreas Sachs (2012) Business Cycle Synchronisation and Economic 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