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International trade is so common in today’s business world. No country can fulfil everything it needs by itself, due limited resources and capabilities. There is a great need of collaborations between nations especially in this era of globalisation. A country can import and export its goods and services to other countries or from other countries. This can be done through bilateral or multilateral trade agreements, where by two countries can agree on trade or more than two countries agrees on trade issues regardless their level of development. These Agreements aims to reduce trade barriers and increase the movement of factors of production which are persons, goods, services and investments within countries. These two ways has impacts on trade when Emerging countries enter into agreement with EU countries as it will be illustrated later. As stated by Wikipedia (20101) increasing international trade is very vital to the continuation of globalization.
FREE TRADE THEORIES
Countries need to trade in order to exchange their goods and services as no country can be self-sufficient through local production of goods and services. There are two theories which support free trade, proposed by different economists:
Theory of comparative advantage: According to Daniels, Radebaugh and Sullivan (2009 pg.274) in 1817, David Ricardo proposed this theory which states that countries should specialize in areas in which they have a comparative advantage.
Theory of absolute advantage: This theory was proposed by Adam Smith in 1776 (Daniels, Radebaugh and Sullivan, 2009 pg.272) which states that countries should specialize in producing goods in which they have an absolute advantage.
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Emerging countries are those countries that growth has come very drastically and so is the level of industrialization, whereby industrialization is driving the economies of those markets/nations. There are about 28 nations that are regarded emerging with China and India topping the list respectively. (More details in appendix 1).
Supporting my illustration behind, I’m delighted to mention some of the characteristics of these emerging countries.
Characteristics of Emerging Countries
Considering a country like India, I have realized its importance in the world due to the fact that, it is one of leaders in technological advancement because so far it has been accepted and relied upon. So, India is not expected to be a burden in the trade agreements with any EU country as itself could offer something beneficial.
The second characteristic of an emerging country is labour pool availability at large. Country like China or India itself can be mentioned as those where cheap labour can be relied upon because of poor economic situation and poverty facing its people. So, this results in looking for job vacancies.
Thirdly, considering production capacity as one of the characteristic of emerging countries in the sense that, it will be excited on looking for external markets of their products mainly goods and services. So far, I had heard that Brazil is the world’s best coffee producer as well as bananas.
Therefore, from my definition above, I dare say that because of the efforts shown by these emerging countries in various aspects there is a great possibility for countries like India, China, Brazil and South Africa to fasten development within their countries.
THE EUROPEAN UNION
‘This is the largest and most comprehensive regional economic group. It began as a free trade agreement with the goal to become a customs union and to integrate in other ways’. (Daniels et al, 2009, p.346)
Why do business with EU?
The EU promises for market in terms of both population and income. It is economically strong and stable so companies cannot ignore this potentiality of profit.
‘Is the political and economic agreements among countries that give preference to member countries to the agreement.’ (Daniels et al, 2009, p.339)
In other words, economic integration is similar to a situation whereby two or more countries come into collaboration especially in economic issues. From my understanding, economic integration has to be of mutual interest among the participating members.
However, elements of any economy must be put into consideration so as to attract economic cooperation among different countries. These elements are inflation or deflation, rate fluctuation and money circulation.
Before a country engages itself in international trade, it is wise for the country to decide on the type of trade agreement it is going to take because they have significant influence on the strategies countries choose to trade. These agreements tends to remove trade barriers such as tariffs and quotas which used to protect domestic countries from foreign competition
Daniels, Radebaugh and Sullivan (2009 pg.54) stated there are two types of trade agreement that the country can choose from:
Multilateral trade agreements
Bilateral trade agreements
BILATERAL TRADE AGREEMENTS:
Is ‘where two countries decide to cooperate more closely together, usually in the form of tariffs reductions’ (Daniels et al, 2009, p 339)
The term bilateral is a little confusing because EU negotiate trade as on trading block, its agreement with other countries, such as between the EU and Brazil, are technically bilateral agreements (Daniels et al 2009 pg.342). EU comprises of about 27 countries.
Advantages of Bilateral Agreement
First and foremost, as the name itself suggests, it seems that, this is the most efficient and effective way which is also easier to be implemented by the member countries. It is easily done in the sense that, decision making process is not hardly arrived at probably due to the fact that only a few countries mainly two are in.
Secondly, through international bilateral relationships it is my hope that, single member country priorities might be considered hand-in-hand with the group’s partnership manifesto activities.
Disputes difficulties isn’t an issue when it comes to bilateral trade agreements because as I said only a few countries take part so dispute settlement won’t be time consuming or quarrelsome.
Additionally, it’s quite obvious that these countries in a bilateral trade agreement won’t be negligent when it comes to environmental issues as a matter of fact that, maybe such might be having standards and procedures agreed upon so as to preserve environmental degradation. This traces a country like India which environmentally disturbed.
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However, the legal aspects will be adhered to because bilaterally EU won’t hesitate to stop some of the ‘dirty tricks’ played by dishonest countries as India and probably maybe China. For instance, document and product forgery is a common thing used to falsify business agreements. Therefore, India and the like countries will have trustworthy in globe.
Disadvantages of Bilateral Agreement
Bilateral accord brings forward trade diversion this is whereby the formation of free trade agreements diverts trade from more efficient exporter to a less efficient exporter. These trade agreements would bring obstacles to trade duties by adding administrative complexity to the customs.
http://en.wikipedia.org/wiki/Trade_diversion accessed on 4/8/2010
MULTILATERAL TRADE AGREEMENTS:
Is agreement whereby three or more countries come as one to normalize trade between the nations without discriminations, frequently multilateral trade agreement intended to worse trade barriers between participating countries, as a result, increase the degree of economic integration between the participants, never the less the most valuable way of liberalizing trade in an interdependent global economy are considered multilateral trade agreements. (K. Alex, 2010)
World Trade Organization (WTO), the successor to the General Agreement on Tariffs and Trade and the major multilateral forum through which government can come to agreements and can settle disputes regarding trade. According to in 1947, in order to remove quotas and lessen tariffs, GATT was set up. The basic principle of GATT was to forbid any sort of unfairness that occurs when trading by making each member nation to equally open its markets to every other member nation. For example, most of the times, developed nations take advantage of developing nations; GATT was established to remove these trading unfairness( Daniels et al 2009 pg.340).
Advantages of Multilateral
The main benefit that countries can benefit from multilateral is the equal treatment.
In a multilateral trade agreement it is very easy for member countries to share common standards and procedures that have been agreed upon. For instance, the movement of goods and services from Brazil to different EU countries won’t face trade restrictions, embargoes or quotas. So in this case, it will be easy for investors from emerging countries can have start-ups.
Also, from my opinion, culture can be used to the maximum advantage because countries in the cooperation will be able to share the good values, beliefs and assumptions when it they aspire to achieve high development goals and objectives. However, this could involve techniques which simplify complexities.
Promotion of Transparency ‘This also contains an equity contemplation in that the worse, less powerful countries are more likely to benefit from this transparency than richer, more powerful ones (not that there isn’t much more to be done.’ (R.Pollock, 2003)
Disadvantages of Multilateral Agreement
To begin, it is not like bilateral trade agreement because decision making process is very complex in the sense that, until all the countries reach into an agreement so that other activities will follow. Such agreement mostly takes lengthy of time. Also multilateral agreement leads to trade diversification. .
The main disadvantage that emerging countries can suffer from multilateral is the equal treatment between countries, this levels the playing ground while the levels of economic development is different. How can a China company that are less competent by nature ‘though not all’ compete with an American conglomerate company in the same bases? Can it be a fair trade?
Such an agreement is bound to exploit small economies. This agreements will not consider small economies well being and moreover this agreement will halt the success of small nation to prosper further. This disadvantage will conflict with political ideology of G8 whereby the agenda for G8 summit is to boost developing countries’ economies and to eradicate poverty.
Due to these reasons this type of agreement is not preferable to be taken by emerging countries.
Benefits of international trade agreements with the EU
EU member countries are more advanced in technology, thus emerging countries trading with them they could benefits by employing it to innovate their business processes to increase their productivity and hence grow.
Emerging countries have a plenty of raw materials used by developed counties in their industries, so engaging in multilateral agreement they would be able to export more and increase their foreign exchange reserves. Also this will improve the balance of payment of emerging countries.
Expand sales of the existing product:
It creates a second market and the global market when a country enters itself in international trade .hence it widens its sales by selling its active products both domestically and globally.
Impact of trade agreement
These international agreements have profound effects on member states both negatively and positively.
Nations sovereignty is threatened to some extent as countries could be interfered on making their decision to progress economically. For instance the EU would want a certain course of action to be taken and on the other hand the emerging countries would want the opposite.
International trade agreement between European Union (EU) and emerging nation would impact the culture for both parties unconstructively and optimistically. There is always a chance for culture to be diluted and enriched respectively.
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. Reasons:
Bilateral is attractive because most emerging countries prefer quick results stated by Lamy (n.d.). Bilateral agreements take shorter time to reach agreement and conscious as it involves fewer participants compared to multilateral. This is good because of the dynamic nature of the businesses.
Bilateral agreements is a free trade where by all tariffs that restrict trade are removed; for this reason emerging countries engaging in bilateral agreement are not bound to any trade restrictions. No need to agree with WTO members they can trade with any country they wish, so long as they share the common goal and interest and they don’t block the laws.
Bilateral agreements are easier for countries to pursue because it is easier to resolve issues in a smaller setting. (Daniel et al 2009.p342) It is easier to resolve and settle issue between two countries than among many different countries because each country may have its own opinion and interest hence misunderstanding can occur due to the complexity of culture.
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