Issues To Consider When Deciding On A Trade Agreement With The U.S

Issues

You are asked to advise the Government of the Republic of San Martin with regard to a trade agreement that it is considering entering into with the United States. Until recently, the Republic had a centrally-planned economy and allowed foreign investment only under very strict conditions. In February 2015, however, a new government came to power, which is somewhat more outward looking.

Advise the Ministry of Trade of the issues that it should consider when deciding whether to enter into a trade agreement with the U.S., or indeed any jurisdiction, and what safeguards should be included as clauses to such an agreement.

Agreements regarding Trade can form opportunities for Americans and facilitates to raise the economy of United States. USTR has primary responsibility for administering U.S. agreements trade. Through, this agreement U.S. govt. supervises the implementation of their trading partners' trade agreements with the United States, America's rights become compulsory under these agreements. The signing of these Trade Agreements makes the President's Trade Policy advance. The United States is Member of the World Trade Organisation (WTO). The United States has Free Trade Agreements (FTAs) in effect with 20 countries. There are other types of Trade Agreements known as, Trade and Investment Framework Agreement. It helps the government by providing a framework where they can discuss and resolve any issues related to trade and investment.

Recently the United States settle the Trans-Pacific Partnership Agreement (TPP) with  number of 11 Asia-Pacific countries such as Australia, Canada, Japan, Singapore, Brunei Darussalam, Chile, New Zealand, Malaysia, Mexico, Peru and Vietnam. Trans-Pacific Partnership is a comprehensive type agreement that is why it become widely spread open markets, set high-standard trade rules and deal with the 21^st century’s issues in the global economy. There also have many other problems related to Free Trade Agreement. They are as follows-

• Unrealistic Policy

Policy of Free Trade depends on the theory of laissez-faire or government non-involvement. Its achievement also requires the prerequisite of ideal competition. However, these types of conditions are impractical and do not exist in the actual world.

• Non-Cooperation of countries

 Policy of Free Trade works effortlessly, if all the countries works together with each another and obeys the rules of this policy. If the countries started to decide to acquire more by imposing import restrictions, then the structure of free trade cannot work.

• Economic Dependence

Free Trade enhances the economic dependence on the other countries for some basic products such as food, raw materials, etc. During wartime, particularly this relationship proves too much harmful to that country.

• Political Slavery

Effect

Free trade leads to economic dependence, and hence this economic dependence shows the ways to political slavery. Therefore, financial independence is essential for political freedom, and this requires desertion of free trade.

• Unbalanced Development

Due to Free Trade Policy and consequential international specialisation, it shows the way to the uneven development of national economy. Only those sectors of the country are developing under this system, which has comparative advantage whereas, the remaining segments are undeveloped.

• Dumping

Free trade leads to competitive competition and dumping. Under dumping, the goods sold at a very low price. Sometimes they sold the products below their production cost due to capture the foreign markets.

• Harmful Products

Under free trade they may produce, buy, and sell dangerous and injurious products. That is why during import of such dangerous and detrimental products Trade Restrictions are necessary to verify and check.

• International Monopolies

Sometimes free trade may show the way to international monopolies. It promotes the establishment of various multinational corporations (MNCs). These businesses try to acquire monopoly position by destroying the interest of local people.

• Reduction in Welfare of Certain Groups

While free trade has a tendency to maximize the world production of goods and services, at the same time it may spoil the welfare of different panel in each country. Under free trade, the production of those goods in which the country has comparative advantage has a tendency to increase the export demand and the production of those goods in which the country has comparative disadvantage deals due to pressure from import rivalry. That is why the actual income of the groups occupied in the export industries will increase, and the real income of the groups held in the import industries will decrease.

• Harmful to Less Developed Countries

The following reasons that free trade is dangerous for the less developed countries are as follows-

Under free trade, competition is not fair and very harmful. The less developed countries face too many difficulties to compete with the economically advanced nations.

Dependent on the level of improvement of different countries of trade are unfairly distribute in Free Trade policy. The conditions of trade are favourable for developed countries than poor or underdeveloped countries.

Poorly developed countries face the adverse balance of payments. Under free trade policy, the negative dues of payments are not solvable.

Under free trade policy, the underdeveloped countries cannot protect their newborn industries.

Free trade may create danger situation for a financial and civic independence of the underdeveloped nations.

The Obama Administration follows the Trans-Pacific Partnership Agreement (TPP) to open the opportunities American workers, manufacturers, farmers, service providers and ranchers. Trans-Pacific Partnership Agreement (TPP) will be a comprehensive agreement, which provides new and meaningful market access for goods and services.

Impacts

Effect

User Choice

Generally, users feel he profits of free trade. When goods are imported of other countries, then consumers have options to choice from wide range of variety of brands and styles. Sometimes the imported products are of same quality at lower price. Sometimes the goods may be of inferior quality. For example, there is a small price coat made of synthetic materials made in Mexico, and there is another pure wool coat made in America at much higher price. Now the consumer has to decide about their priorities at the time of choosing the product.

Competition

When a user wants the imported goods and services from different countries, then local companies have to put in more effort than the foreign countries to make sure that customers still want local products. For example, nowadays French banks compete with Spanish, German, and Dutch banks for investment product sales and accounts. French banks have more incentive than other banks to offer better interest rates, products, and services.

Threats And Protectionism

Quite a few countries are opposed to free trade due to the fact they may protect some individual companies, industries, and classes of jobs. Extra-terrestrial competition may undercut the labour cost and make threats to the industry. For example, Suppose America has free transaction with China then it might be a grave concern for the American automotive industry. After that, the labours in china’s factory or industry earn lower wages as they produced manufacture goods at low price. However, American workers want higher wages. The United States has invested significant public resources in getting its automobile manufacturers back on their feet to help protect the trades brought by that industry, which is a large amount of the U.S. economy.

Impacts

The literature offers clear guidance to policymakers in numerous areas. It is excellent at estimating the effect of Free Trade Agreements (FTAs) on the parties’ trade flows. All controlled quality primary studies determine business growth and found that the Free Trade Agreement (FTA) has the positive effect in some cases, and nobody found it to be negative. However, in some cases, the estimated trade impact is considerable; in others, it is unassuming and discovered that some partners gained nothing. Growths of trade generate new jobs, raise incomes, and encourage economic development. 

Benefits of u.s. Free trade agreements

The United States has executed 14 free trade agreements (FTA) with an overall of 20 countries. The United States also plays a part in consultation of the Trans-Pacific Partnership (TPP) with countries of the Asia-Pacific and the Transatlantic Trade and Investment Partnership (T-TIP) with the European Union.

1. Australia

Free Trade Agreement (FTA) consultations between the United States and Australia bring to a close in February 2004. Because the fact that, the agreement went into force in January 2005. The United States- Australia Free Trade Agreement (FTA) has inspired 104% increase in the United States trade surplus with Australia. In 2013, the United States sold to other countries around $26.1 billion in goods and brought in within the countries around $9.2 billion in Australian products.

2. Bahrain

The United States- Bahrain Free Trade Agreement (FTA) has implemented in August 2006. This Free Trade Agreement has increased the opportunities for selling American products outside the country and raised the business value of America. From 2005 to 2013, the United States exports $1 billion to Bahrain, which increases the trade surplus by 190%, imports $635.6 million from Bahrain, and increased the business surplus by 47.2%.

Central American Free Trade Agreement (Cafta-Dr)

COSTA RICA: In Costa Rica CAFTA-DR put into action from 1^st January 2009. The President of United States has signed the implementing legislation on 2^nd August 2005. In 2013, the American industries exports around $7.2 billion amount of products as well as services to Costa Rica and imports around $11.9 billion from Costa Rica.

DOMINICAN REPUBLIC: In Dominican Republic CAFTA-DR put into action from March 2007. In 2013, the American firms exported around $7.1 billion in products and services to Dominican Republic and imports around $4.2 billion amount of goods from the Dominican Republic. The United States increased the trade excess with the Dominican Republic by 254% and raised value of American business.

EL SALVADOR: In El Salvador CAFTA-DR put into action from March 2006. After implementing CAFTA-DR, the bilateral trade liaison between the United States along with El Salvador has flourished. Within 2005 - 2013, the United States exports $3.2 billion in goods to El Salvador and increase the trade surplus by 76%. In the year of 2013, the United States brought in around $2.4 billion amount of products from the firms of El Salvador.

GUATEMALA: In Guatemala CAFTA-DR put into action from July 2008. In the year of 2013, the United States exports $5.5 billion amount of goods to Guatemala as well as imports $4.1 billion amount of goods from Guatemala and increase American trade surplus by 95%.

HONDURAS: In Honduras CAFTA-DR put into action from April 2006. In 2013, the business firms of the United States exported around $5.3 billion in products and services to Honduras. The U.S. business export has increased by 65%. The United States imports around $4.5 billion amount of products from Honduras.

NICARAGUA: In Nicaragua CAFTA-DR put into action from April 2006. In 2013, the business firms of the United States exported around $1.06 billion in products and services to Nicaragua. The U.S. business export has increased by 69%. The United States imports around $2.8 billion amount of products from Nicaragua.

USTR CAFTA-DR

CHILE: From implementing the United States- Chile Free Trade Agreement (FTA) in the year of 2004, January, the American export business has increased by 545%. In the year of 2013, the United States exported over $17.5 billion amount of goods to Chile. In 2011, the United States imported $10.3 billion amount of goods from Chile as well as increased the trade surplus of America by 180% under the Free Trade Agreement (FTA).

COLOMBIA: Discussions between Colombia and the United States bring to a close in February 2006, but the agreement put into service on 15^th May 2012. According to the Free Trade Agreement (FTA), Colombia removes their barricades to do business. Moreover, provide a safe, expected legal framework for the investors of the United States functioning in Colombia, make available for successful enforcement of labour as well as environmental laws, take care of the rational property, and offer a sound system to resolve disputes. In the year of 2013, the United States imported around $21.6 billion in products from Colombia and exports around $18.3 billion in goods and services to Colombia.

ISRAEL: The United States- Israel Free Trade Agreement (FTA) is country’s first free trade agreement. In Israel, it put into action on 1^st September 1985. In 2013, the business firms of United States exported around 413.7 billion amount of products to Israel and imported $22.8 billion amount of products from Israel.

JORDAN: The U.S.–Jordan free trade agreement (FTA) implemented in the year of 2001, December. In 2013, United States exported over $2 billion in goods to Jordan and increased the export trade surplus by 514%. The United States imports from $229 million in the year of 2001 to $1.1 billion in 2013 in goods from Jordan, which increase the trade surplus by 422%.

MOROCCO: The U.S. – Morocco free trade agreement (FTA) implemented in January 2006. The United States exports over $2.4 billion in goods to Morocco and increase the American business by 514%. The United States imports $977 million in goods from Morocco and increase the business surplus by 119%.

CANADA: North American Free Trade Agreement (NAFTA) come into action at the beginning of January 1994. In 2013, United States exported $301 billion amount of U.S. goods to Canada. The United States export business surplus has increased by 200%. At the same period, the United States imports goods from Canada rose by 199 % in 1993 to $332 billion in 2013.

MEXICO: North American Free Trade Agreement (NAFTA) put into action at the beginning of January 1994. In 2013, United States exported nearly $226 billion in U.S. goods to Mexico. The United States export business surplus has increased by 443%. At the same time, the United States imports goods from Mexico rose by 602 % in 1993 to $280 billion in 2013.

Ustr Nafta

OMAN: Oman is the fifth Middle Eastern country who signs a free trade agreement (FTA) with the United States. The U.S. - Oman free trade agreement come into force in January 2009. The United States exports $1.02 billion amount of American-made products to Oman and imports $1.5 billion in products from Oman.

PANAMA: In October 2011, Panama trade promotion agreement was signed by the president of United States, Barack Obama. It put into action on 31^st October 2012. The whole trade agreement eliminates the tariff and other barricades to the trade of products and services, spread out the business relation between the Panama and United States, and encourage financial growth and opportunities. Due to this agreement, almost 90perecnt of tariffs on the industrial merchandise immediately reduce. In 2013, United States exported around $10.5 billion in American- made products to Panama and imports around $448 millions in goods from Panama.

PERU: The United States – Peru Trade Promotion Agreement is signed and comes into action in December 2007. In 2013, the United States imported $8.1 billion in goods from Peru and increased the trade surplus by 38% while the business firms of United States exports $10.1 billion in goods to Peru and increases the business surplus by 245%.

SINGAPORE: In Singapore free trade agreement (FTA), come into action from January 2004. The business surplus of United States increases by 801% to $12.8 billion with Singapore. The United States exports $30.6 billion in American products to Singapore and imports $17.8 billion in goods from Singapore.

SOUTH KOREA: The Korea – United States Free Trade Agreement (KORUS-FTA) comes into practice on 15^th March 2012. The agreement signifies the United States’ most commercially important FTA in over ten years. Korea is the sixth largest partner in trade with the United States. In 2013, the United States exported $41 billion in American products to South Korea while from Korea the United States imports $62 billion in Korean products. The KORUS-FTA increases the business and investment flows between these two countries transverse through a broad list of sectors

Free Trade Agreements (FTAs) are deals between two or more than two countries to lower business barricades such as taxes and import quotas. These agreements make easy for the countries to buy and sell the products from each other. These agreements can also cause many serious problems. The problems are as follows –

1. Labour Practices

Due to free trade agreements (FTAs) it becomes easier for a big trade to bring in merchandise from developing countries as lower trade barricades allow the bid industries to take benefit of cheap labour costs. The problem is that cheap labour often has a high human expenditure.

2. Environmental Destruction

Free trade agreement (FTA) can cause massive environmental damage by permitting companies to transfer their manufacturing amenities to nations with few or no environmental policies and by increasing right to use the natural resources in those countries. Previous to the North American, Free Trade Agreement (NAFTA) become law in 1993; there has a little requirement for timber and metal ores from Mexico. In 2014, a report passed where it is found that the Sierra Club declares that NAFTA encouraged the creation of poorly synchronized, highly caustic mining operations in Mexico that cannot exist without the trade agreement.

3. Loss Of Domestic Industry

Sometimes Free Trade Agreements (FTAs) frequently damage a nation's local productions by exposing them into a contest with foreign producers with lower costs. For example, the United States industries get damage due low labour costs in Mexico. That is why the Mexican manufacturers have allowed undercutting the American producers.

4. The "noodle bowl."

However, the proponents of free trade agreements (FTAs) highlight their capability to develop economic efficiency. Some contracts can produce complex networks of guidelines that harm the business. The problem is that every bilateral business deal consists of various instructions defining tax rates, products, a point of origins, and other features of the firm. So many numbers of different bilateral deals in the world create legal complications for buyers and sellers. According to Global Accounting Alliance, all complications can increase the transaction costs for businesses for which frequently they have to appoint lawyers and accountants to find the way to a harsh environment.

Conclusions

Free Trade Agreement is an adamant and beneficial agreement; this is an excellent agreement for the manufacturers. While accepting the challenges faced by U.S. car makers, the Free Trade Agreement (FTA) result in the elimination of Korea's 8% tax on U.S. automotive accessories. This agreement will consist of an investor-state dispute settlement provision. Once a free trade agreement has brought to close, it needs to be verified lawfully, signed and then approved by the government of the parties those who are concerned in this agreement. Changes to legislation may be required. For this reason, the FTA takes time from when the discussions are finished to when the agreement implemented.