The Pros and Cons of Regional Trade Agreements
A trade agreement is a contract between two countries regarding the sale and trade of goods. The agreement can be bilateral, meaning that it only involves two countries, or multilateral, involving multiple countries. Trade agreements are designed to lower trade barriers, such as tariffs, and increase trade between the countries involved.
2. What is a regional trade agreement?
Regionalism is the process of integration between states within a certain geographical area. Unlike globalisation, which refers to the integration of the world economy, regionalism is more focused on smaller areas. Regionalism can take many different forms, but one of the most common is regional economic integration. This is where states agree to remove barriers to trade between them and to coordinate their economic policies. There are various levels of regional economic integration, from free trade areas, where states agree to remove tariffs on goods traded between them, to customs unions, where states also agree to have a common external tariff on goods imported from outside the region.
2. 1 New Zealand’s free trade agreements
New Zealand has free trade agreements with a number of countries and regions, including Australia, China, the ten members of the Association of Southeast Asian Nations (ASEAN), and the Pacific island nations of Fiji and Papua New Guinea. These agreements cover a range of different products and services, and provide New Zealand businesses with preferential access to markets worth billions of dollars.
3. Economic development and benefits of trade agreements
3.1 Regionalism and globalisation
The rise of regionalism has often been seen as a response to globalisation. As globalisation has increased, so has the level of economic competition between firms operating in different parts of the world. In this environment, firms have been under pressure to lower their costs in order to remain competitive. One way in which firms have attempted to do this is by moving production to countries where labour and other production costs are lower. This has led to fears that jobs will be lost in developed countries as firms relocate to take advantage of cheaper labour costs.
One way in which developed countries have responded to this pressure is by signing regional trade agreements. These agreements lower barriers to trade between the member countries, making it easier for firms operating in one country to export to another country in the region. This enables firms to specialise in the production of goods or services that they are able to produce more cheaply than their competitors in other parts of the world. By doing this, they are able to reduce their costs and become more competitive.
Another way in which regional trade agreements can help firms become more competitive is by increasing their access to new markets. When firms expand their sales into new markets, they are able to achieve economies of scale and spread their fixed costs over a larger number of sales. This can lead to a reduction in the unit cost of production and make the firm more competitive.
There are also a number of non-economic benefits that can be achieved through regional trade agreements. For example, by reducing barriers to trade between member countries, regional trade agreements can help improve relations between them and create opportunities for cooperation on other issues such as security or environmental protection.
4. Negative impacts of trade agreements
One negative impact of regional trade agreements is that they can lead to an increase in protectionism. Protectionism is the practice of shielding a country’s businesses from foreign competition through the use of trade barriers such as tariffs or quotas.
While protectionism can have some benefits, such as providing a temporary respite for businesses that are struggling to compete with foreign firms, it can also have a number of negative effects. Firstly, it can lead to higher prices for consumers as businesses pass on the cost of the tariffs to them. This can reduce people’s purchasing power and reduce their standard of living. Secondly, protectionism can lead to a decline in the efficiency of businesses as they are sheltered from competition and have no incentive to become more efficient. This can lead to a decline in economic growth and living standards over time. Finally, protectionism can lead to an increase in tensions between countries as they try to defend their own interests.
In conclusion, trade agreements can have both positive and negative impacts. Countries should carefully consider the various factors involved before participating in one.