International Trade Agreements between EU and Emerging countries

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BACKGROUND

International trade is very crucial in the global arena, the reason behind being that not a single country is as self adequate or sufficient as it would aspire to be. Countries depend upon one another for abundant resource acquisition and ready made finished products that they can't manufacture themselves.

However, an international trade agreement wasn't a familiar phenomena long time back. This phenomenon came to be known when emerging countries realized that there was an urgent need to opt trade agreements as a way to minimize poverty and reach higher development goals and targets.

Analysts say that, international trade grew at a high pace than it was thought previously for the reasons that; emerging countries were highly in need of experts in various fields as they lacked technical know-how to harness the available resources.

ANALYIS OF CURRENT SITUATION

Beginning my analysis, I would rather say that it's quite crucial for emerging countries to ensure that macro-environment of countries within the EU is known. A thorough study of macro-environment promises the emerging countries more advantageous outcomes. Obviously, it would be much more meaningful if the current situation will be illustrated through PESTEL Framework which 'categorizes environmental influences into six main types':

P - Political

E - Economic

S - Social

T - Technological

E - Environmental

L - Legal

(Johnson et al, Fundamentals of Strategy (2009), pp.25)

Political

Political factor is given much priority due to the fact that, the a country as Brazil won't enter international trade agreements with an EU country deepen in civil wars or inter-country disputes so as to avoid destroying their well known reputation and recognition in the international community.

Economic

Also, awareness of macro-economical factors is at large required by the emerging countries before entering bilateral or multilateral trade agreements. These macro-economic factors include 'exchange rates, business cycles and differential economic growth rates around the world' (Johnson et al, 2009:25). For instance, Brazil wouldn't have a second thought if it was asked to sign agreement with Poland which was having bad economy.

Social

Social factors such as 'culture and demographics' (Johnson et al, 2009:25-26) are very crucial when analyzing a potential market. Culture is associated with a social glue binding the community together while demographics is a study of people in terms of age, sex and so on and so forth. It would be much more advantageous if the emerging countries realize social impacts and consequences likely to be caused following an international trade agreement either on a bilateral or multilateral basis.

Technological

Looking at the technological factor, most of the emerging countries such as India are one among the technology leading experts in the world. This might be an attractive situation for emerging countries who would want to enter international trade agreements because they won't have to spend a lot of capital and time for technical aspects.

Environmental

Observing the environment clearly will be an advantageous to both emerging countries as well as EU countries intending to form bilateral or multilateral agreements. First the location and surroundings of countries like India and China in terms of geography; they are highly populated with majority low class people which will surely address properly employment creation policy. On the EU countries' extreme, it would be a source of cheap labour because there won't be a need to move people from other parts of the globe.

Legal

The last factor I should consider when assessing the current situation in any country that another country would wish to invest is legal aspect. Suppose there happen to be an EU country with legal complications, the emerging countries won't be attracted to those countries. EU Governments which will impose heavy laws for the sake of protecting its own countries business operations are likely distract investments from emerging.

OPPORTUNITIES AND THREATS

SWOT Analysis comprises of four key issues which are Strength, Weaknesses, Opportunities and Threats. These four aspects measure the strategic capability of an organisation. Through my analysis, I will only be interested in Opportunities and Threats as far as emerging countries entering international trade agreements is concerned. The other two are internal tools for analysis.

Opportunities and threats are the key issues to be kept an eye when it comes to the businesses as they are external environment compared to the other two. External environment analysis of a country gives an overview of situation in a particular country.

Although emerging countries entering either bilateral or multilateral trade agreements is beneficial, there are some negative impacts too which pose a threat to these emerging countries. In most cases, different parties simply remember the ascribed advantages to be gained forgetting to address the risks and consequences that one might face.

Henceforth, once the situation is clear emerging countries will be in a good position to fetch other countries to take part in their efforts to revive their economies. On the Emerging countries extreme, clarity of the situation will result to a maximum awareness of trade directions in the EU countries as it is common that, not a single country would risk itself before knowing exactly the country it is tied to trade agreements.

INTERNATIONAL TRADE:

An Introduction

Frankly, international trade is like a two-sided coin which gives a wider room for every participating country to either benefit equally, more or less than the others. In this context, I'm fully delighted to examine how advantageous are emerging countries likely to be on agreeing international trade agreements with the European Union (EU) on a bilateral or multilateral basis.

A bilateral agreement is a way of economic integration, whereby, two countries arrive at an agreement to cooperate closely by reducing tariffs, quotas, embargoes and other forms of trade barriers. On the other hand, multilateral agreements are those involving a few or many countries. This could be global (through World Trade Organisation) or regional integration (African Union or European Union itself). (Daniels et al, 2009, pp.54 & 339)

The two above mentioned economic integrations are crucial to the development of emerging countries and the betterment of its people. Examples of emerging countries are Brazil, China, India; etc.The governments of these emerging countries need to be sure of more safer environments which will drive towards working more closely with EU countries as a whole or with a single European country.

Comparing to developing countries, emerging countries happen to be those which could compete in the global market more effectively in a more challenging manner. 'In some countries such as Brazil and Vietnam, increased investment and technological advances have transformed agriculture, rising productivity and output to meet food requirements as well as laying the foundation for a rapid economic growth.' (Ochieng. R, 2010, pp.8)

MERITS AND DEMERITS OF BILATERAL AGREEMENTS

MERITS

It is much more advantageous to a certain extent to enter international trade agreements with the European Union (EU) on a bilateral basis because emerging countries like the third world countries tend to benefit a lot but in return for something almost equally valuable. It's sometimes seems like a tricky game. Risks can be controlled.

Furthermore, Bilateral trade agreements as mentioned previously, promises the emerging countries when it comes to expatriates and field specialists availability, technical support from technologically advanced EU country and also, massive capital inflow to carry trade activities in exchange for something.

Another advantage to be enjoyed by emerging countries from bilateral agreement could probably be to outperform long time competitors because after tying trade agreements it is obvious that these emerging countries will gain tactics and different rules of the game which won't be easily imitated by close arch-rivals.

DEMERITS

It's somehow a misleading term because not always the case that, bilateral is a treaty between two countries but a particular trading block as the European Union of nations. A good example is between EU and Brazil.

At times diplomatic relationship between an emerging country and an EU country tied in bilateral basis might weaken due to misunderstandings and conflicts of interest.

This form of economic integration lacks input from different people from different countries with different opinions and understanding concerning different issues.

MERITS AND DEMERITS OF MULTILATERAL AGREEMENTS

MERITS

'The EU is a tremendous market in terms of both population and income, and so it is one that companies cannot ignore.' (Daniels et al, 2009, pp.349) EU is among the successful regional groupings for which it is advantageous for emerging countries to enter into strategic partnerships. Here under, are the likely benefits to be enjoyed.

Emerging countries would get an opportunity to move their goods and services in the EU through Foreign Direct Investment (FDI) or Portfolio Investments. FDI is 'the investor taking a controlling interest in a foreign company while Portfolio is 'a non-controlling interest in a company or ownership of a loan made to another party'. (Daniels et al, 2009, pp.63)

In these ways, trade will be up-dated in the emerging countries on an international bases and standards. For these developing countries not to lose its entire ownership, joint ventures and mergers could be a lot more meaningful.

'The World Investment Report (WIR) 2009, which credits FDI for contributing to the annual growth of developing economies, says the short-term prospects for FDI flows from developed countries have deteriorated considerably. This year, developed countries plunged into the severest economic and financial crisis in decades, and the ramifications are fast spreading to developing nations as multinational businesses scale back on expenditures.' (Ochieng. R, 2010, pp.8)

Countries collectively paying attention on global issues would find a mechanism which will find a solution towards problems in common.

DEMERITS

Contractual agreements are mostly longer in most cases in such a way that, it might be very difficult to take any action against the contract for any country because breaking the contracts might lead to serious legal problems.

It becomes difficult to merge trade laws of more than two countries to fit together as some country laws are unaltered.

Also, the degree of dependency among countries is likely to be so high in such a way that, some countries won't make efforts to perform even not so difficult activities for themselves once the trade agreements isn't effective and efficient anymore.

However, multilateral trade agreements isn't anymore preferred by most countries due to the consequences likely to be faced as a result of countries are far geographically located from other countries

THEORIES OF TRADE PATTERNS

The theories try to explain the necessity of countries to agree on an international trade agreements either on a bilateral or multilateral basis. It's my belief that, these trade theories influence the degree to which international trade agreements are tied on. My desire lies in examining countries using the Free Trade Theories which is comprised of:

The Theory of Absolute Advantage

The Theory of Comparative Advantage

The Theory of Absolute Advantage

In accordance with Adam smith, 'a country's wealth is based on its available goods and services rather than on gold.'(Daniels et al, 2009, pp.272). He kept insisting a 'country's advantage would be either natural or acquired'.

The Theory of Comparative Advantage

According to David Ricardo,' gains from trade will occur even in a country that has absolute advantage in all products because the country must give up less efficient output to produce more efficient output.' (Daniels et al, 2009, pp.274)

International trade agreements allow countries with unfavorable climates for growth and positioning of related industries to enjoy products and services from countries with favorable climates.

These above theories aim at creating specialization to every country in something it is doing good, it could be in manufacturing or other industries. However, the theories also proclaim that the degree of dependability is important for sustainability of any country because doing something familiar would reduce the wastage of resources and vice-versa is quite true.

CONCLUSION

Form my analysis I have came across the advantages and disadvantages of both bilateral and multilateral trade agreements. Emerging countries has got lot to benefit because EU markets are more attractive with immense growth in terms of profitability and increasing chances for market share growth. Countries like China, India and Brazil might be lucky enough to fetch markets in the European countries due to the fact that, it could be possible that their inside markets has been saturated. Saturation in the sense that nothing more can be sold out maybe because people are used to the same kinds of products or production is in surplus.

RECCOMENDATION

For sure I would recommend emerging countries to opt a bilateral trade agreement when considering issues concerning international trade because it is an economic integration with a mutual interest among the parties. An international trade agreement in a multilateral form seems to be awkward to countries as it places other countries in an uncomforted position.

Nowadays many countries in the world think of bilateral than multilateral agreements because of its simplicity.

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