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.
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Running head: REGIONAL TRADING AGREEMENTS Regional Trading Agreements Name of the Student Name of the University Author’s Note
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1REGIONAL TRADING AGREEMENTS The presence of many regional trading agreementscan be seen in United States (US) and one of them isNAFTA (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 17thDecember, 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 producedamixedresultwherethesethreecountrieshavefacedbothbenefitsand 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 agreementslikeantidumpingmeasures,safeguards,countervailingduties.Afterthat, 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 negotiationcan be considered asanother major reason for theintroductionof 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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4REGIONAL TRADING AGREEMENTS 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).Domesticcapacityandtheimplementationgapinregionaltrade 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).