International Trade Agreements
International Trade Agreements
International Trade Agreements
&
Regional Economic Integration
Multilateral Regionalism:
With the U.S. and Britain emerging from World War II as the two great economic superpowers,
the two countries felt the need to engineer a plan for a more cooperative and open international
system. The International Monetary Fund (IMF), World Bank, and International Trade
Organization (ITO) arose out of the 1944 Bretton Woods Agreement. While the IMF and World
Bank would play pivotal roles in the new international framework, the ITO failed to materialize,
and its plan to oversee the development of a non-preferential multilateral trading order would be
taken up by the GATT, established in 1947. While the GATT was designed to encourage the
reduction of tariffs among member nations, and thereby provide a foundation for the expansion
of multilateral trade, the period that followed saw increasing waves of more regional trade
agreements. In less than five years after the GATT was established, Europe would begin a
program of regional economic integration through the creation of the European Coal and Steel
Community in 1951, which would eventually evolve into what we know today as the European
Union (EU).
Following the breakup of the Soviet Union, the EU pushed to form trade agreements with some
Central and Eastern European nations, and in the mid-1990s, it established some bilateral trade
agreements with Middle Eastern countries. The U.S. also pursued its own trade negotiations,
forming an agreement with Israel in 1985, as well as the trilateral North American Free Trade
Agreement (NAFTA) with Mexico and Canada in the early 1990s. Many other significant
regional agreements also took off in South America, Africa and Asia.
In 1995, the World Trade Organization (WTO) succeeded the GATT as the global supervisor of
world trade liberalization, following the Uruguay Round of trade negotiations. Whereas the focus
of GATT had been primarily reserved for goods, the WTO went much further by including
policies on services, intellectual property and investment. The WTO had over 145 members by
the early 21st century, with China joining in 2001.
While the WTO seeks to extend the multilateral trade initiatives of the GATT, recent trade
negotiations appear to be ushering in a stage of “multilateralizing regionalism.” The
Transatlantic Trade and Investment Partnership (TTIP), the Transpacific Partnership (TPP), and
the Regional Cooperation in Asia and the Pacific (RCEP) comprise a significant portion of
global GDP and world trade, suggesting that regionalism may be evolving into a broader, more
multilateral framework.
Trade Benefits.
Employment.
Political Cooperation.
More specifically, economic integration typically leads to a reduction in the cost of trade,
improved availability of and a wider selection of goods and services, and efficiency gains that
lead to greater purchasing power. Employment opportunities tend to improve because trade
liberalization leads to market expansion, technology sharing, and cross-border investment flows.
Political cooperation among countries can improve because of stronger economic ties, which can
help resolve conflicts peacefully and lead to greater stability.
Trade Diversion.
Erosion of National Sovereignty.
For example, trade unions can divert trade from nonmembers, even if it is economically
detrimental for them to do so. Additionally, members of economic unions are typically required
to adhere to rules on trade, monetary policy, and fiscal policy, which are established by an
unelected external policymaking body. Because economists and policymakers believe economic
integration leads to significant benefits for society, many institutions attempt to measure the
degree of economic integration across countries and regions. The methodology for measuring
economic integration typically involves the combination of multiple economic indicators,
including trade in goods and services, cross-border capital flows, labor migration, and others.
Assessing economic integration also includes measures of institutional conformity, such as
membership in trade unions and the strength of institutions that protect consumer and investor
rights.
Trade blocks:
The Advent of Trade Blocks tend to draw in some parity between high-income industrial
countries and developing countries with a much lower income base in that they tend to serve as
equal partners under such a system. The concept of equal partners grew out of the concept of
providing reinforcement to the economies to all the member countries. The various countries
then agree upon the fact that they will help economies to maintain the balance of trade between
and prohibit the entry of other countries in their trade process.
An important example would be the North American Free Trade Area, formed in 1994 when the
Canada - US Free Trade Agreement was extended to Mexico. Another vibrant example would
entail as to how EU has formed linkages incorporating the transition economies of Eastern
Europe through the Europe Agreements. It has signed agreements with the majority of
Mediterranean countries by highly developing the EU-Turkey customs union and a
Mediterranean policy.