Free Trade Agreements and New Regionalism, Essay Example

In the recent past, free trade agreements characterize commercial regions operating under capitalistic economic principles. Free trade agreements draw their integral values from the principles of free market or free enterprise, which makes the pillars of capitalism. In this regard, free trade agreements aim at increasing economic freedom within any given commercial environment. In this context, free trade agreements are consensus pacts established between two or more business parties. At the national level, these agreement pacts lifts trade barriers between countries and loosen trade regulations practiced by the involved governments. Loosening such trade regulations like tariffs and quotas facilitates faster and substantial business activities between two or more nations (Malcolm, 37).

Based on an economic perspective, free trade should provide a comparative advantage to all the involved parties. A comparative advantage postulates a situation where there will be a mutual economic benefit between the trading countries. This mutual benefit comes from the difference in the nations’ natural resource bases and human capital. In this case, nations engaging themselves in free trade agreements aim towards reaping the wealth benefits that comes with withdrawal of trade barriers in potential markets. Despite the superficial benefits of free trade agreements, these pacts create some negative political and social situations. The economic benefit of free trade centers on the total wealth of a nation and not on equitable distribution of wealth within a country’s population. At this juncture, it is contextual to acknowledge the link between trade agreements and both the social and political aspects of the society.  Affects of free trade agreements within a nation’s economic environment translates correspondingly into the social and political elements of the subject society. Therefore, it is objective to conceptualize the idea of free trade from the social, political and economic perspective (Malcolm, 41). In this regard, the next section provides an illustrative context where one can conceptualize both the pros and the cons of free trade agreements.

GATT

One example of free trade agreements is the General Agreements on Tariffs and Trade. GATT started its operation in 1948-present. Currently, the World Trade Organization propagates GATT’s principles. The purpose of this agreement is to reduce imports and exports tariffs between trading nations as well as to remove trade barriers. GATT is a multilateral trade agreement, which means that the agreements contained in the pact are selective on the type of commercial activities taking place between involved nations. From the economic perspective, GATT presents a good opportunity for wealth generation in a nation. In this case, the result translates into a positive economic outcome between both parties involved. From the social perspective, trade activities operating under GATT agreements undermine development of domestic productivity, especially in local manufacturing industries. Deregulation of import tariffs means cheaper goods finds their way to any subject nation. This situation interferes with domestic productivity, hence increases the chances of a collapse in local production. In this case, members of the effected society may lose employment due to closing down of manufacturing plants. In the context of politics, free trade may improve a nation’s government’s relationship to outside institutions (Schaeffer, 22). GATT trade activities serve to facilitate diplomatic exercises between nations with conflicting political opinions.

Uruguay Round

The Uruguay Round worked towards amending regulations outlined under the GATT. One such regulation focused on the multilateral nature of earlier agreements. Uruguay Round transformed GATT to the World Trade organization. In the past, GATT agreements were selective on the nature of goods traded between involved nations. However, the Uruguay Round provided an opportunity to expand the types of commercial activities allowed under this international trade agreement. It expanded trade activities to include the exchange of goods and services between trading partners. In addition, Uruguay Round stipulated liberalized regulations concerning trade of agricultural products and inputs. On the economic perspective of this agreement, member nations, especially those producing surplus agricultural products found lucrative markets for their excess produces. With respect to the social point of view, skilled citizens of one nation could look for employment in another nation under the agreement. In this case, a positive outcome dominates because employment of the population results in improved living standards within the society. However, Uruguay Round placed restrictions on foreign investments. This caused discomfort between political institutions of nations involved in trade activities. Restriction of foreign investment opportunities compromises the diplomatic ties already developed between two or more trading countries (Malcolm, 46).

World Trade Organization

The GATT, through the Uruguay Round negotiations transformed into the World Trade Organization. This body aims at streamlining and amending agreements made over the years since commencement of the GATT. The WTO acknowledges economic and social dynamics within the current societies. In this regard, the body incorporated certain agreements meant to supervise and mediate trade activities between two nations. The bilateral trade agreements contained in the pact provides a considerate opportunity for improving economic status of trading parties. In case of conflicts between trading nations, the WTO will provide a mechanism for solving disagreements. In this context, the WTO provides an effective mechanism of addressing political-related conflicts between trading partners. On the social aspect of the organization, WTO still works towards developing regulations involving trade with developing nations (Schaeffer, 29). These agreements will consider the needs of developing nations and formulate programs meant to address those needs.

Role of Regional Trade Agreements

Regional trade agreements first emerged after the first and the second world wars. Currently, many economic units continue to embrace the concept of regional trade agreements. Before developing a comprehensive content on the role of regional trade agreements, it is inherent to understand the concepts of regionalism. Regional economic units are those economic sub-units with some similarities in economic factors of production. These factors may include a common natural resource base, similar skilled labor force and compatible economic objectives (Gantz, 79). These similarities integrate economic sub-units into powerful regional groups. On the other hand, multilateral economic systems aim at integrating economic and trading activities of many nations. In this case, economic units with similar objectives may decide to integrate their efforts in order to participate in multilateral trade systems like the GATT. In this context, regional trade agreements serve numerous purposes aimed at merging the involved sub-units into one body. Some major roles include harmonizing economic policies, improve economic sustainability and to counteract the consequences of unfavorable external economic affairs. In recent years, numerous regional trade agreements aim at harmonizing political temperatures between neighboring economic units. Stable political relationships between nations translate into improved economic environments and trading practices. In addition, regional agreements motivated by political reasons aim at developing stable diplomatic relationships between neighboring nations. The stable diplomatic ties reduce the chances of confrontations resulting from trading disputes. With respect to multilateral trade systems, regional economic units can benefit by pulling resources together and channeling them into their economic systems (Gantz, 76). In this case, one member of a regional unit stands a chance of benefiting economically from the contributed efforts of other member nations.

New Regionalism

The concept of new regionalism developed as a result of the social and economical dynamics within the 21’ST century societies. History sites that new regionalism developed out of political interests of the founding members. However, economic and social factors seem to be the most rational causes of new rationalism. In essence, various nations making regional units today lies in similar geographical positions. This means that nations within a given geographical regions may be sharing the same natural resources. In this case, new regional integration aims at managing a common resource base found in the member units. In addition, the aspect of environmental concern is a common threat to nations within the same geographical position. Therefore, regionalism may serve the purpose of addressing environmental issues and structuring environmental regulation programs within a given region (Gantz, 48). In addition, economic competition as a result of globalization led to the need for integrated economic efforts. These integrated economic efforts are necessary in order to gain a regional competitive advantage. One example of new regionalism units is the North America Free Trade Agreement (NAFTA) developed in 2003. This regional unit rose due to increased commercial activities between nations within the North American geographical region. NAFTA aims at providing an effective mechanism of addressing the increased human transactions between North American nations. In addition, this new region aims at integrating national efforts in order to pursue a common economic objective.

Works Cited

Malcolm, Donald. Understanding the Free Trade Agreement. California: Institute of Research and Public Policy, 2010. Print.

Schaeffer, Robert. Free Trade Agreements: Their Impact on Agriculture and the Environment. California: San Jose State University Press, 2011. Print.

Gantz, David. Regional Trade Agreements: Law, Policy and Practice. New York: Carolina Academic Press, 2009. Print.