Regional Trading Agreements

This article discusses the impact and benefits of regional trading agreements, focusing on NAFTA and its effects on the US, Canada, and Mexico. It also explores the reasons behind the development of RTAs and their role in ensuring economic growth.

Running head: REGIONAL TRADING AGREEMENTS
Regional Trading Agreements
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1REGIONAL TRADING AGREEMENTS
The presence of many regional trading agreements can be seen in United States
(US) and one of them is NAFTA (North American Free Trade Agreement). This particular
regional trade agreement covers US, Canada and Mexico. Due to the effect of NAFTA, there
were elimination of all tariffs between US, Canada and Mexico (naftanow.org, 2019). This
trade agreement was signed on 17th December, 1992 and it was came into effect on 1st
January, 1994 (naftanow.org, 2019). NAFTA can be considered as a broad regional trade
agreement that is introduced for setting the rules of trading and investment between these
three countries (naftanow.org, 2019). It needs to be mentioned that the introduction of this
regional trade agreement has ensured the systematic elimination of both the tariff and non-
tariff barriers for free trading and investment between these countries (naftanow.org, 2019).
The introduction of NAFTA has many positive effects on the trading of US,
Canada and Mexico. As a result of the introduction of NAFTA, trading within North
America increased intensely. There is an increase of 150 per cent in the exports from US to
Mexico; and 66 per cent increase can also be seen in exports to Canada. At the same time, the
introduction of NAFTA has increased the imports of US from Canada and Mexico; and it is
more than the amount of increase (Caliendo&Parro, 2015). Moreover, since the introduction
of NAFTA, the trade deficit of US with its North American trading partners has increase
majorly. This increase in import in US has destroyed certain portion of job opportunity
because the significant portion of important displaces the scope to manufacture the goods in
the country by the domestic workers of US (Villareal& Fergusson, 2017). The introduction of
NAFTA has majorly benefitted Mexico as foreign investment into the country tripled due to
the rapid growth. However, there is not much development in the employment opportunity in
Mexico due to NAFTA (Villareal& Fergusson, 2017). Thus, it can be said that NAFTA had
produced a mixed result where these three countries have faced both benefits and
disadvantages in their trading.

2REGIONAL TRADING AGREEMENTS
Regionalism is regarded as a crucial phenomenon in the present global situation
and it can be considered as an identifiable future for the international business. Major growth
can be seen in regionalism along with the increase in their importance. In this situation,
Regional Trade Agreements (RTAs) are the best option with the aim to reach global trade
agreements. Some other purpose of RTAs are ensuring stability and addressing the security
policy issues (Gray, 2014). It needs to be mentioned that in the recent years, the RTAs take
into consideration more economic sectors across the countries; at the same time, importance
of RTAs can be seen in addressing the trade barriers among the countries beyond tariffs.
After that, RTAs play a crucial role in creating favourable trading conditions with the aim to
increase the volume of trade between two or more than two countries (Gray, 2014). At the
same time, increase in trade volume helps the countries in creating new jobs along with the
expansion of the markets (Gray, 2014). Hence, based on the above discussion, it can be said
that RTAs plays a crucial role in ensuring the economic growth of the countries.
There are certain reasons for which countries make RTAs. RTAs are made for
increasing the access of marker as the presence of RTAs increases access to the foreign
market by implementing low tariff barriers among countries. Another major reason for the
development of RTAs is the promotion of investment as better access to the foreign markets
makes the countries more attractive investment sites (Urata& Okabe, 2014). Moreover, RTAs
are introduces with the aim to enhance the competitiveness in the world markets in the
presence of effective regional production strategies. Most importantly, one major reason for
the development of RTAs is to develop a shield for the restriction of unfair use of trade
agreements like antidumping measures, safeguards, countervailing duties. After that,
governments of the countries form RTAs with the aim to guard themselves against the slowed
multilateral liberalization at the time when multilateral trade negotiation are slowed down
(Urata& Okabe, 2014). Another crucial reason for making the RTAs is to ensure the

3REGIONAL TRADING AGREEMENTS
solidification of the domestic reforms. Moreover, intensifying power in the international
negotiation can be considered as another major reason for the introduction of RTAs
(Acharya, 2016). Most of the countries all over the world form RTAs with the aim to
accomplish economic stability. These are the major reason for the development of RTAs.

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References
Acharya, R. (Ed.). (2016). Regional trade agreements and the multilateral trading system.
Cambridge University Press.
Caliendo, L., &Parro, F. (2015). Estimates of the Trade and Welfare Effects of NAFTA. The
Review of Economic Studies, 82(1), 1-44.
Gray, J. (2014). Domestic capacity and the implementation gap in regional trade
agreements. Comparative Political Studies, 47(1), 55-84.
North American Free Trade Agreement | NAFTANow.org. (2012). Naftanow.org. Retrieved
20 February 2019, from http://www.naftanow.org/
Urata, S., & Okabe, M. (2014). Trade Creation and Diversion Effects of Regional Trade
Agreements: A Product‐level Analysis. The World Economy, 37(2), 267-289.
Villareal, M., & Fergusson, I. F. (2017). The North American Free Trade Agreement
(NAFTA).