INTERNATIONAL TRADE AGREEMENTS

Trade agreements are when two or more nations agree on the terms of trade between them. They determine the tariffs
and duties that countries impose on imports and exports. Ever since Adam Smith extolled the virtues of the division
of labor and David Ricardo explained the comparative advantage of trading with other nations, the modern world has
become increasingly more economically integrated. International trade has expanded, and trade agreements have
increased in complexity. While the trend over the last few hundred years has been toward greater openness and
liberalized trade, the path has not always been straight. Since the inauguration of the General Agreement on Tariffs
and Trade (GATT), there has been a dual trend of increasing multilateral trade agreements, those between three or
more nations, as well as more local, regional trade arrangements.
Trade agreements regulate international trade between two or more nations. An agreement may cover all imports and
exports, certain categories of goods, or a single category. The United States is currently engaged in some 320 trade
agreements with various nations. (These are listed at www.tcc.mac.doc.gov.) However, several general trade
agreements have shaped trade policy on broad levels.
The most important general trade agreement is called, simply enough, the General Agreement on Tariffs and Trade
(GATT). GATT was signed in October 1947 to liberalize trade, to create an organization to administer more liberal
trade agreements, and to establish a mechanism for resolving trade disputes. The GATT organization is small and
located in Geneva. More than 110 nations have signed the general agreement, which originally was signed by 24
nations, including the United States. To a large degree, the role of GATT as an organization has been superseded by
the World Trade Organization, which I discuss later in this section.
There are three types of trade agreements.

1. Unilateral trade agreement.

It occurs when a country imposes trade restrictions and no other country reciprocates. A country can also unilaterally
loosen trade restrictions, but that rarely happens. It would put the country at a competitive disadvantage. The United
States and other developed countries only do this as a type of foreign aid. They want to help emerging markets
strengthen strategic industries that are too small to be a threat. It helps the emerging market's economy grow, creating
new markets for U.S. exporters.
For many countries, unilateral reforms are the only effective way to reduce domestic trade barriers. However,
multilateral and bilateral approaches—dismantling trade barriers in concert with other countries—have two
advantages over unilateral approaches. First, the economic gains from international trade are reinforced and enhanced
when many countries or regions agree to a mutual reduction in trade barriers. By broadening markets, concerted
liberalization of trade increases competition and specialization among countries, thus giving a bigger boost to
efficiency and consumer incomes.
Some countries, such as Britain in the nineteenth century and Chile and China in recent decades, have undertaken
unilateral tariff reductions—reductions made independently and without reciprocal action by other countries. The
advantage of unilateral free trade is that a country can reap the benefits of free trade immediately. Countries that
lower trade barriers by themselves do not have to postpone reform while they try to persuade other nations to follow
suit. The gains from such trade liberalization are substantial: several studies have shown that income grows more
rapidly in countries open to international trade than in those more closed to trade. Dramatic illustrations of this
phenomenon include China’s rapid growth after 1978 and India’s after 1991, those dates indicating when major trade
reforms took place

2. Bilateral trade agreements

Trade are between two countries. Both countries agree to loosen trade restrictions to expand business opportunities
between them. They lower tariffs and confer preferred trade status with each other. The sticking point usually centers
around key protected or subsidized domestic industries. For most countries, these are in the automotive, oil or food
production industries. The United States has 14 bilateral agreements. The Obama administration was negotiating the
world's largest bilateral agreement.
The best possible outcome of trade negotiations is a multilateral agreement that includes all major trading countries.
Then, free trade is widened to allow many participants to achieve the greatest possible gains from trade. After World
War II, the United States helped found the General Agreement on Tariffs and Trade (GATT), which quickly became
the world’s most important multilateral trade arrangement

3. Multilateral trade agreements

It is the most difficult to negotiate. These are among three countries or more. The greater the number of participants,
the more difficult the negotiations are. They are also more complex than bilateral agreements. Each country has its
own needs and requests. Once negotiated, multilateral agreements are very powerful. They cover a larger geographic
area. That confers a greater competitive advantage on the signatories. All countries also give each other most favored
nation status. They agree to treat each other equally. Multilateral reductions in trade barriers may reduce political
opposition to free trade in each of the countries involved. That is because groups that otherwise would oppose or be
indifferent to trade reform might join the campaign for free trade if they see opportunities for exporting to the other
countries in the trade agreement. Consequently, free trade agreements between countries or regions are a useful
strategy for liberalizing world trade.
The largest multilateral agreement is the North American Free Trade Agreement. It is between the United States,
Canada and Mexico. Their combined economic output is $20 trillion. Over NAFTA's first two decades, regional trade
increased from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. But it also cost between 500,000 to
750,000 U.S. jobs. Most were in the manufacturing industry in California, New York, Michigan and Texas. For more,
see Pros and Cons of Free Trade Agreements. The United States has one other multilateral regional trade agreement.
The United States negotiated the Dominican Republic-Central America FTA (CAFTA-DR) Central American-
Dominican Republic Free Trade Agreement. It was with Costa Rica, Dominican Republic, Guatemala, Honduras,
Nicaragua, and El Salvador. It eliminated tariffs on more than 80 percent of U.S. exports. The Trans-Pacific
Partnership would have replaced NAFTA as the world's largest agreement. In 2017, President Trump withdrew the
United States from it.

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The Role of the WTO in Trade Agreements
Once agreements move beyond the regional level, they usually need help. The World Trade Organization steps in at
that point. It is an international body that helps negotiate global trade agreements. Once in place, the WTO enforces
the agreements and responds to complaints. The WTO currently enforces the General Agreement on Tariffs and
Trade. The world almost received greater free trade from the next round, known as the Doha Round Trade Agreement.
If successful, Doha would have reduced tariffs across the board for all WTO members.
The most important general trade agreement is called, simply enough, the General Agreement on Tariffs and Trade
(GATT). GATT was signed in October 1947 to liberalize trade, to create an organization to administer more liberal
trade agreements, and to establish a mechanism for resolving trade disputes. The GATT organization is small and
located in Geneva. More than 110 nations have signed the general agreement, which originally was signed by 24
nations, including the United States. To a large degree, the role of GATT as an organization has been superceded by
the World Trade Organization, which I discuss later in this section.
Since GATT was signed, several “rounds” of talks to liberalize trade have occurred. The most significant of these
were the Kennedy rounds, which eventually led to a one-third reduction in tariffs and, more recently, the Uruguay
rounds. The Uruguay rounds dealt with general barriers to trade and the relatively new issues of intellectual property
rights, fishing practices, and environmental concerns.
A major trend of the past 25 years has been the creation and growth of free trade zones among nations agreeing to
form regional trade blocs. The agreements that create free trade zones all share the same aims: to liberalize trade,
promote economic growth, and provide equal access to markets among the member nations. The most significant free
trade zones are the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Association
of Southeast Asian Nations (ASEAN).
From time to time you will hear about so-called fast track trade legislation, in which Congress would give the
president the authority to negotiate trade agreements. This legislation has not been passed, and it remains
controversial. Supporters of the legislation believe that the present method of negotiating trade agreements, which
requires Congressional approval, is too slow and cumbersome for today's world. Opponents point out that trade
agreements are treaties with other nations and that the Constitution invests Congress with the authority to enter these
agreements. They also point out that the fast track legislation would limit public debate on trade policy. That debate,
of course, is one of the reasons that the present method is slow and cumbersome.
In addition, the World Trade Organization (WTO) is a global organization, headquartered in Geneva, for dealing with
trade between nations. Established in January 1995 by the Uruguay round negotiations under GATT, the WTO
included 144 nations as of January 2002. The WTO administers trade agreements, provides a forum for trade
negotiations and resolving trade disputes, monitors trade policies, and provides technical assistance and training for
developing countries
Unfortunately, the two most powerful economies refused to budge on a key sticking point. Both the United States
and the EU resisted lowering farm subsidies. These subsidies made their food export prices lower than those in many
emerging market countries. Low food prices would have put many local farmers out of business. When that happens,
they must look for jobs in congested urban areas. The U.S. and EU refusals to cut subsidies doomed the Doha round.
It is a thorn in the side of all future world multilateral trade agreements. The failure of Doha allowed China to gain a
global trade foothold. It has signed bilateral trade agreements with dozens of countries in Africa, Asia, and Latin
America. Chinese companies receive rights to develop the country's oil and other commodities. In return, China
provides loans and technical or business support
 ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL
TRADE AGREEMENTS
Free trade agreements are designed to increase trade between two countries. Increased international trade has six
main advantages:

 Increased economic growth:

The U.S. Trade Representative Office estimates that NAFTA increased U.S. economic growth by 0.5 percent a year.

 More dynamic business climate:

Often, businesses were protected before the agreement. These local industries risked becoming stagnant and non-
competitive on the global market. With the protection removed, they have the motivation to become true global
competitors.

 Lower government spending:

Many governments subsidize local industry segments. After the trade agreement removes subsidies, those funds can
be put to better use.

 Foreign direct investment:

Investors will flock to the country. This adds capital to expand local industries and boost domestic businesses. It also
brings in U.S. dollars to many formerly isolated countries.

 Expertise:
Global companies have more expertise than domestic companies to develop local resources. That's especially true in
mining, oil drilling, and manufacturing. Free trade agreements allow the global firms access to these business
opportunities. When the multinationals partner with local firms to develop the resources, they train them on the best
practices. That gives local firms access to these new methods.

 Technology transfer:
Local companies also receive access to the latest technologies from their multinational partners. As local economies
grow, so do job opportunities. Multi-national companies provide job training to local employees.
The biggest criticism of free trade agreements is that they are responsible for job outsourcing. There are seven total
disadvantages:

 Increased Job Outsourcing:

Why does that happen? Reducing tariffs on imports allows companies to expand to other countries. Without tariffs,
imports from countries with a low cost of living cost less. It makes it difficult for U.S. companies in those same
industries to compete, so they may reduce their workforce. Many U.S. manufacturing industries did, in fact, lay off
workers as a result of NAFTA. One of the biggest criticisms of NAFTA is that it sent jobs to Mexico.

 Theft of Intellectual Property:

Many developing countries don't have laws to protect patents, inventions, and new processes. The laws they do have
aren't always strictly enforced. As a result, corporations often have their ideas stolen. They must then compete with
lower-priced domestic knock-offs.

 Crowd out Domestic Industries:

Many emerging markets are traditional economies that rely on farming for most employment. These small family
farms can't compete with subsidized agri-businesses in the developed countries. As a result, they lose their farms and
must look for work in the cities. This aggravates unemployment, crime, and poverty.

 Poor Working Conditions:

Multi-national companies may outsource jobs to emerging market countries without adequate labor protections. As
a result, women and children are often subjected to grueling factory jobs in sub-standard conditions.

 Degradation of Natural Resources:

Emerging market countries often don’t have many environmental protections. Free trade leads to depletion of timber,
minerals, and other natural resources. Deforestation and strip-mining reduce their jungles and fields to wastelands.

 Destruction of Native Cultures:

As development moves into isolated areas, indigenous cultures can be destroyed. Local peoples are uprooted. Many
suffer disease and death when their resources are polluted.

 Reduced Tax Revenue:

Many smaller countries struggle to replace revenue lost from import tariffs and fees.
PAKISTAN INVOLVEMENT IN INTERNATIONAL TRADE AGREEMENTS
CONCLUSION
Trade protectionism is rarely the answer. High tariffs only protect domestic industries in the short term. But, in the
long term, global corporations will hire the cheapest workers wherever they are in the world to make higher profits.
The best solutions are regulations within the agreements that protect against the disadvantages. Environmental
safeguards can prevent the destruction of natural resources and cultures. Labor laws prevent poor working conditions.
The World Trade Organization enforces free trade agreement regulations. Developed economies can reduce their
agribusiness subsidies, keeping emerging market farmers in business. They can help local farmers develop sustainable
practices. They can then market them as such to consumers who value that. Countries can insist that foreign
companies build local factories as part of the agreement. They can require these companies to share technology and
train local workers. The business environment is very dynamic the one who is quicker can take the advantage before
the windows of opportunity is closed for that matter. In conclusion, for emerging countries, bilateral agreements are
preferred than multilateral agreements.
International trade increases the number of goods that domestic consumers can choose from decreases the cost
of those goods through increased competition and allows domestic industries to ship their products abroad. While all
of these seem beneficial, free trade isn't widely accepted as completely beneficial to all parties. And, Trade facilitation
relates to a wide range of activities at the border (import and export procedures, transport formalities, payments,
insurance and other financial requirements)