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Trade agreement is the covenant between different nations that accept to do something in common they exist between two countries or more which gives an outline on how the countries will be able to work together so as to be able to ensure that there is mutual benefit in the trade and investment field to all the countries which are involved. The trade agreements in most occasions involve the lowering of the import duties which are levied on all the participating countries and they also guarantee all the investments which are usually made by the partner countries.
These trade agreements are either bilateral trade agreements which are the trade pacts which exist between two countries and the multilateral trade pacts which are trade agreements among more than two nations. It is an agreement that must be well documented and assigned by both parties willingly in order to promote economic growth and development in those nations by alleviating the barriers that hinder free trade among nations. Those barriers includes nation tariffs, importation duty, quotas and exportation duty
Nations have come up with various ways of working together to promote and advance their economic interest and to enhance trade diversity in order to improve the well-being of human being. For example, a lot of trading blocs, alliances and the confederations were initiated to smoothen and free the flow vocation among the member of the nations. United States of America was one of the countries that relied heavily on trade agreement to succeed in their life. United State Representative (USTR) together with ministers signed free trade agreement (CAFTADR) in 2004 which it was passed on 28th July 2005 after contentious debate and members vote. Later on Caribbean Basin Trade partnership Act (CBTPA) and the Generalized System of Preferences (GSP) were initiated.
NAFTA is considered the main international trade agreement as it is the World’s largest free trade area in terms of its combined Gross Domestic Product of its members as at the year 2010. It outdated the free trade agreement between Canada and the United States. It also links over 450 million people and produces over $17 trillion worth of goods and services. NAFTA gets backup from American Agreement on environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). According to the former United States President while signing the agreement in 1993, NAFTA meant well-paying jobs for the American people (Hufbauer & Schott, 2005).
NAFTA brought with it the economic and trade freedom because the barriers to trade and other investments were eliminated by a number of ways including the elimination of tariffs on more than one-half of U.S. imports from Mexico and more than one-third of U.S. exports to Mexico. Apart from tariff elimination it also provides dispute resolution procedure among the member states to ease the trade within the block as conflict is always a barrier to freedom of trade. However, NAFKA also has a number of negative effects.
Globalization affects the trade agreements. Globalization is the aspect that refers to inexistence of the barriers of communication or access to different parts of the globe that all the nations have been facing because of suspicion, ambitions and mutual mistrust. Previously, many countries were different and were divided into many and diverse worlds. Such countries were unable to handle key challenges of life including the disasters and disease epidemics.
In essence, it is believable that the impact of globalization has been felt and has shaped political leadership and economies of many countries (Steger, 2002). It has impacted on the minds of people to change and their culture is changing in the way they perceive and react to the issue of globalization. It is an applicable phenomenon where people do not change back but with some time like a decade change begins to show and seem to be radical. Modernization has also come up as a result of globalization and the emergence of the free trade agreements.
Modernization is very important in the improving the living standards of the human life in a country. Traditional cultures don’t need to reject the modernization opportunities that may be exposed and they still should not be absorbed by these modernization streams. Each nation should be able to embrace modernization as a step towards the economic growth of the country since modernization helps in the total outputs which are produced by the factories because of the presence of new and advanced technology and it also leads to the improved learning facilities which can help in the provision of skills and reducing the illiteracy rates that are still a major problem in very many countries of today. Modernization in a country is very essential especially when it comes to issues which relate to international trade and trade agreements between nations.
Types of Trade Agreements in History with Latin American
The United States of America was involved in quite a number of free trade agreements (FTAs) throughout the whole world since it was a major international trade player with many of its neighboring territories which included the Caribbean and Latin America (Baier & Bergstrand, 2004). Various international trade agreements exist among the Latin America countries including the free trade agreement between United States and Peru signed in December 2005, United States and Columbia signed in February 2006, Free Trade Area of the Americas (FTAA) agreement, North America Free Trade Agreement (NAFTA) which came into force on 1st Jan 2004, Dominican Republic – Central America Free Trade Agreement (DR-CAFTA). Apart from FTAA, other agreements; NAFTA, DR-CARTA and bilateral free trade agreements such as Canada-Costa Rica free trade agreement are seen as block agreements (Peraza, 1991).
North American Free Trade Agreement (NAFTA) was one of trade agreement signed by the governments of Mexico, United State and Canada leading to trade bloc in northern part of Latin America (Hufbauer & Schott, 2005). This trade agreement was launched in January 1994 which is now the biggest trade agreement nationally. NAFTA has another two compliments, that is, North American Labor Corporation (NAALC) and (NAAEC) i.e. Northern American on Environment Cooperation. The main objective of this trade agreement was to enhance good job and well paid job. Again they wanted to expand the market and to diversify the products to enhance economic growth and to promote good living standard of people in Latin American
NAFTA eliminated trade barriers among traders and investors in northern part, southern part of Latin America. Tariffs were eliminated in more than one half of the United States imports from Mexico and about one third of united state exports to Mexico. This promoted high degree product exchange.
Free trade agreement is among the trade agreement in Latin America. Its main aim is to improve the economic welfare through eliminating taxes, tariffs and quotas that hinder free movement of goods and services in the region. These trade agreements promote international trade not only in Latin America but in the whole world. As a result, product price reduces leading to abundant food in the market promoting the desirable living standards(Baier & Bergstrand, 2004).
Few years ago, United States of America launched free trade agreement FTA negotiation with Peru in December 2005 and Colombia in 2006. The main a gender is was to analyze the largest context of Latin America trade agreements and to assess whether there will be a broader overview of the challenges with inequality. Stagnant concerns of inequality and development were discussed(Peraza, 1991).
International labor organization formed trade agreement with business people in Latin American. This trade agreement objective was to eliminate child labor, forced labor and job biasness in terms of gender, class and race. Laws were formulated and implemented that give all traders the bargaining power. It also ensures all precautions are put into consideration that protect workers in different occupations. It is an agreement that promote justice for the work done in terms of payment and duration of working per day, humanity where everybody is supposed to be treated with a lot of dignity and respect whether is a casual worker or senior workers.
Change occurred in the form of Partnership and collaboration where nation agree to do something common in order to eliminate a certain problem in the region. For example food crisis and oil crisis in Latin American led to free trade agreement (FTA) in order to enhance more importation of food and oil in this region.
Trade agreement keep on changing because of numerous factors that need maximum collaboration and partnership in order to eliminate the alarming problem in the region. For example in Latin America, collapse of oil price and too much foreign debts led to collaborative reforms that pulled in different regions to make an agreement on the approaches that can be followed to alleviate this problem in early 1980’s. As a result, the Mexican government in United States of America reinvented some approaches to the global economic community that can be followed to cease the problem and also joined the GATT meaning the General Agreement on Tariffs and Trade in 1986. Therefore trade barriers were alleviated in Latin American to comply with the international trade standards.
Technology revolution have come up with new ways of doing thing that have made regional and nations to partner and collaborate so that they can help each other to develop economically. Latin American regions have formed trade agreement with Mexico to intermingle and follow the prescribed international standards of economy. They innovated new ways of producing enough oil in order to reduce oil crisis in Latin American which used tools and equipment that are efficient and effective to extract oil from underground.
Globalization has created better ways in business and international trade and this has changed communication among different and distant countries of the world. It has the capability to change the world and the way or place where people live. It is making beneficial changes in the political scenario hence living hardships or challenges like poverty, unemployment and shift in power to be addressed with ease in the world. The marginalized countries or parts of the globe in business are even getting opportunities to trade in the markets of the world. For instance, the aspect of branding goods is developing in the continent of Asia although it was not relevant in the past years.
Due to globalization, there have been international markets for international and national firms, and for the world’s trading population. There is an effective access to services and products from different parts of the world. This has created continuous flow of cash to developing world that rapidly lowers the differences in dollar values across the world. Globalization has been robust in fostering the development and information exchange among the developed and developing countries regarding all aspects of development and trade (Steger, 2002). Due to the presence of the international markets, there has been a continued growth in the production sectors, and there are many approaches for companies to use in enhancing effective productivity.
The Effects of Income Inequality on International Trade Agreements
Economic inequality represents the manner in which income is distributed among different households. America has been reported to have the greatest income inequalities in the whole world. This has been so because the trend in the income inequality in America has been on the rise for the last decades.
An increase in the economic inequality in a nation’s capital abundant economy can cause a rise in the trade barriers. This economic inequality had effects on the trade agreements between north, south, Caribbean and central America. Since the countries were already industrialized, they had capital labor ratios which were very high and the inequality further led to the increment in the tariffs.
Trade liberalization and economic inequality has been a feature which has been dormant in Latin America’s economic environment which was explained by the fact that the openness to trade which was commonly found in the developing countries helped in the efficiency but it led to the reduction in the wage inequality (Wood, 1997).
According to the hecksher-Ohlin theorem and the Stolper-Samuelson theorems, it was predicted that the main reason as to why Mexico decided to join the NAFTA is that it would be able to export many of the low skill goods which was meant to increase the wages of all the unskilled workers and with so doing, it was intended to reduce the wage inequality (Weinstraub, 2004).
Due to free trade agreement (NAFTA), periphery nations continued to be dependent and poor more than well-established nation in Latin American (Weinstraub, 2004). Rich people make use of poor people in the this region to work for them at a cheaper cost whereas they gain a lot of benefits for the work done, This has continued building a broad inequality between the poor and the rich because of capitalist economic system that have been favored by the free trade agreement (Peraza,1991).
The Impact on Trade Agreement
Trade agreement has brought in a lot of positive and negative impacts not only in Latin Americans but also in countries all over the world. First, international market has widened up because trade agreement has brought in more people with diversity thus increasing the demand and the supply of goods and services in the market. International labor organization (ILO) was initiated to check the interest and concerns of labors in all sectors. This organization pulls in more experts, professionals and competent personnel in order to make them readily available in the market when needed. Again it ensures that every laborer is paid well and are not oppressed or exploited by their employees (Rodrik, 1995).
Economic growth was experienced even president Moreno acknowledged that. These economic growths pulled approximately thirteen million people out of poverty. More job opportunity was created by NAFTA leading to high level of employment and low rate of idleness in the Latin American. Approximately twenty five job opportunity were created in Latin America for every one billion dollars added in the economy. The surveyed report shows that, almost one hundred and fifty thousand job were created in the past five years as a result of free trade agreement implemented. It is also focused that NAFTA would bring a disposable job opportunities ranging from one hundred and thirty thousand and one hundred and fifty thousand which is quite good for all people living in Latin American.
Also Trade agreement stimulated the presence of dialogue among nations. It is through these dialogues that nations can discuss their challenges and find out a solution that can be planned, implemented, monitored and evaluated that can improve the living standards of all citizen in Latin America. For example, labor market reforms and migration policy was one of the challenges discussed out to find out what can be done to eradicate problems. Therefore socialization has closed boundaries in southern and northern parts of United States of America. This has led to prosperity and coexistence of nations in Latin American.
Wealth was created as a result of trade agreement that decreased poverty among the people in Latin American. The report shows that, about 60% of poor people in Latin America were able to improve their living condition due to more surpluses obtained as a result of importing and exporting their products. Health was also enhanced because majorities were able to provide nutritious foods that are very useful in human body thus healthy growth and development (Weintraub, 1993).
Investments have also increased at an alarming rate in Latin American because all investors from different regions are treated equally in terms of credit accessibility and resource accessibility, there is free transfer of currency in the market place and trade barriers such as tariffs, importation duty, and exportation duty are removed. If prediction comes to happen, the foreign owned institutions are going to be established in the Latin American region which will be allowed to invest in insurance, banks and brokerage firms.
Labor standards were improved in Latin American which was highly triggered by the trade agreement among the counties Implementations of laws including 2002 reforms were done which was consistence with the international standards according to the rights of all workers. International labor organizations (ILO) initiated in Lima stated that workers in Peru should possess international workers’ rights. ILO also prohibited child labor not only in Latin America but also internationally, prohibit forced labor where the victims do job that they are not willing to do, discouraged job opportunity discriminations i.e. (encouraged elimination of gender bias race bias and class bias) and finally it ensures that every trader has been given the right to associate with the with anybody in the market and bargain collectively without anybody disturbances.
Gap between the poor and the rich was enlarged because of NAFTA where rich people continued earn more at the expense of poor people. Low wages and salaries were paid to Latin American Laborious for the job done which was below the proportion of work done whereas the employer got more benefits leading to inequality. Surveyed report indicates that the wealth and income disparities are wider in Latin America than in any other place globally. It shows that approximately 10% of rich population receives 43% of the income in Panama while 10% of the poor population receives 0.7% of the income in the country. This creates a big difference of approximately 42.3% of the county’s income leading to great gap between the poor and the rich in Latin American.
Removal of trade barriers agreement has led to collapse of domestic industries in the region. This is because majority prefers to buy imported products arguing that they are of high quality and they are cheap. For example corn farmers were left complaining about their little surplus obtained from corn exportation because a lot of famers have been supplying this product in the market. This has demoralized the corn growers making them to convert corn farm land to something else like construction of building I Latin American. As result, these people continued to live at a very critical condition thus living below the poverty level that is living under one dolor per day.
NAFTA has led to drug and substance trafficking in Latin American. This is because of free and lax laws that allow traders to import and export their goods freely. As a result, drug and substance trafficking have brought in a lot of health problem leading to chronic diseases that affect performance of human being. Some people end die and others get terminal diseases that can only controlled not to cause other health implications such as lung cancers but cannot treated completely. Again black markets came to operation because of NAFTA leading to a lot of illegal product in the market. For example importation and exportation of mercury and uranium in Latin American has caused a lot of serious problem in life. These products are illegal because they are very risky and can be used for mass distraction e.g. bomb explosions that destroy property and lives of so many people.
Also has led to an increase in the flow of diversified goods and services among these countries. People in southern and northern Latin America concentrated on what they can produce efficiently and effectiveness. This yielded to low cost of goods and services because trade agreements have diversified investment all over in Latin American that has spread the risk too resulting to high rate and level of production of goods and services. Also it is through trade agreement that has enhanced free trade and international trade in Latin America.
How Non-Governmental and Transnational Corporations Have Promoted Economic Inequality and Affected Trade between the Countries
When there are trade agreements which are made in a country, it means that the resources of one country are made to be available to the other country’s citizens. Most of the resources in a country are usually very scarce and there are differences in the in the availability of all the proportions of the input factors of the country as the trade catalyst where the factors include enterprise, capital, labor, and land.
It is believed that non-governmental and transnational corporations have promoted economic inequality and they also have affected the trade which is between the countries because they can undermine the third world, labor rights, the environment, and the national sovereignty. This has explained the reason as to why the income gap has greatly increased between the countries which are very rich and the countries which are poor. This inequality which exist in these countries is not because the countries which are rich are taking a great advantage of the poor countries but the main reason being that the non-governmental and the transnational corporations have taken a great advantage of the market forces and they have also introduced them to the nations which are developing as a means which can help the economic growth of the nation.
The non-governmental and the transnational corporations have total control over all the resources which are available which shows that they have a lot of power when it comes to the negotiation of the trade terms with the countries which are poor. These non-governmental and the transnational corporations are private investments which the government does not have control over and the government can only benefit from them indirectly through the form of taxes which can be levied on the corporations since the corporations hire all the workers in the factories and although they pay them above the local wage of the country, the wage is usually below the minimum set wage in their country of origin.
This has led to the poorer nation’s unwillingness to international trade because the country is afraid of losing its own identity due to these non-governmental and the transnational corporations which have made the poor nations to continue to be poorer since the citizens continue to live in extreme poverty levels. This has led to the economic inequality between the rich countries and the poor countries (Wolfgang, 1984).
Regionalism is the splitting of a regional trading bloc which is organized by protagonists like the United States of America and Germany. This regionalism is very compatible with globalism and it is the route into which there can be the achievement of a global economy can be achieved due to the many political constraints and other complexities which can make global trade agreements like the GATT, and the trade agreements in America like the CAFTA, NAFTA to be extremely difficult to craft and to enforce (Scheve &Matthew, 1998).
Regionalism can imply that an element of globalism which can be seen when there is the formation of regional trading associations which can help very much in the minimization of all the incentives which are aimed at erecting all the barriers against all the non-members of the trade agreements. The reason as to this is that the members of the trade agreements may have interests which in most cases are very conflicting and in most cases, they may tend to offset each other.
The countries which are in a regionalism Trade area could benefit from it in one way or the other which could be measured in terms of the income redistribution and the trade diversion effect. Like for example the costs are usually very high with the presence of the free trade as compared to the costs when there is the absence of the free trade. The countries which benefited from regionalism in the western hemisphere were Mexico, the Central America, and the Caribbean which was reported to having displayed trade flows in the United States which were very highly concentrated (Scheve &Matthew, 1998).
Regionalism has gradually evolved from the old regionalism to the new regionalism in Latin America where it has been accompanied by very new changes in both the content and the context. The contextual changes have a policy environment which is more outward oriented which is as a result of the of the multilateral liberalization and the unilateral liberalization
A trade agreement helps in the supporting of the global free trade since all the trade barriers are diverted in the favor of all the countries which are involved in the trade agreement. The FTAA process helps in the demonstration as to how it is very difficult in negotiating the reciprocal of the North and the South trade agreements which shows that most of the trade agreements are very problematic.
The WTO should help nations in working towards a trade which is global free by the allowing of many countries so as to increase the competition levels and this could further lead to an increase in the domestic industries. The RTAs which are the Regional Trade agreements are very important especially in the handling of the trade issues which are very volatile like the agricultural subsidies and other trade services. Regional diplomacy and political pressures can help very much in the resolving of issues which can cause deadlocks in the negotiations which are multilateral. All the proponents of the RTAs, like the US trade representatives, economists, and policy makers often describe them as the free trade circles which can expand until to a point that they can actually converge and form multilateral agreements which are expansive in nature.
The FTAA are considered to be the most ambitious RTAs. The US policy of recent has been out wined by many political objectives of the many allies who are rewarding in the antiterrorism and the promotion of the national security like for example the case where the US representative had to delay in the signing of the RTAs with New Zealand and Chile the main reason being that the countries had opposed the US war on Iraq openly and the President Bush tried to garner support in the 2004 elections.
Most of the countries from Latin America agree that the access to the market of US would help many countries in the reinvigorating the countries’ economies since there have been present disagreements as to the FTAA was very beneficial to all its members or not. This is because, according to a research carried out by analysts and researchers, it was found out that Mexican real wages had a downward movement which showed that there was an increase in the income inequality which was rising at a very fast rate and there was also an immigration rate to the United States which has also been on the rise and the subsistence farmers have suffered the most in Mexico together with the environments health of the country.
The issue of globalization has enhanced interaction and helped people to understand each other in a better way. It has been necessary in enhancing quick access to other parts of the globe regardless of the distance separating these countries. Some barriers separated people and maintained people’s natural heritage as well as identities. It has become an important issue, but the impacts are not limited to only the economic field of countries, it also reflect all aspects of life like the psychological, cultural, social and political issues.
Globalization is the representation of a world which has no barriers, which is for others, it resembles doom and destruction. It is considered to be a tool which is aimed at benefiting mankind and one should not only look at the negative side of globalization but he/she should also consider the positive aspects of it. Underdeveloped economies are able to provide all the basic needs to their citizens through the countries’ domestic production which shows that globalization can help in the development of a country. Globalization has led to the modernization of countries throughout the globe.
Free trade agreements in Latin America have been very important because there is the removing of all the tariffs and other trade barriers which involve the free movement of services and goods from one nation to another nation across borders. They are known to affect the unemployment rates and the real wages and also the structure and the investment rates in a country’s industry. Trade agreements have a political significance importance.
Under the Free trade agreements like the NAFTA and the CAFTA which are found in Latin America help in the assisting of firms to be able to in countries to be able to receive better markets for their produce by gaining the access to a market which is larger than the domestic market that they are used to. This access to a larger market can be very beneficial to a country since it leads to the acquisition of foreign direct investment which is very desirable to so many governments of today and all over Latin America.
Due to the increase in the competition levels, there has been the ease in the movement of production from one country to another since there are no barriers to trade and many countries can end up increasing their rates of unemployment while on the other hand, to other countries, there will be the creation of new job opportunities since there will be the emergence of new market opportunities for the exporters. It has been argued that job loss in a country is usually offset by the issue of job creation (Wood, 1997).
There are the sectors which cheaper imports affect their economic activities which can lead to the decrease in the real wages and the workforce’s bargaining power where there are cases where some workers in some sectors receiving very high wages because of the extra demand which is normally spurred by the emergence of the free trade agreements (Rodrik, 1995). According to many countries, they get into free trade agreements in the economic cooperation that they get from these free trades would eventually lead to the improvement of political ties like in the areas where there is illegal immigration, drug smuggling, international terrorism, and organized crime.