{"id":6589,"date":"2016-08-23T20:37:24","date_gmt":"2016-08-23T20:37:24","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/masterybusiness2xngcxmasterspring2016\/?post_type=chapter&p=6589"},"modified":"2019-01-05T01:41:24","modified_gmt":"2019-01-05T01:41:24","slug":"reading-trade-agreements","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wmintrobusiness\/chapter\/reading-trade-agreements\/","title":{"raw":"Reading: Trade Agreements","rendered":"Reading: Trade Agreements"},"content":{"raw":"\"Arch<\/a>\r\n\r\nSo far you have seen how international organizations such as the WTO, IMF, and World Bank support global\u00a0trade, but this is only part of the story. Where global trade really gets a boost is from trade agreements (also called trade blocs). This where the term \"global economic integration\" gets its legs\u2014 from the process of modifying barriers among and between nations to create a more fully integrated global economy. Trade agreements vary in the amount of free trade they allow among members and with nonmembers; each has\u00a0a unique level of economic integration. We will look at four: regional trade agreement (RTA) (also called a \u201cfree trade area\u201d), customs unions, common markets, and economic unions.\r\n\r\nRegional trade agreements\u00a0<\/strong>are reciprocal trade agreements between two or more partners (nations).\u00a0Almost all countries are part of at least one RTA. Under an RTA, countries\u00a0\"huddle together,\" forming an international community that facilitates the\u00a0movement of goods and services between them. For example, the North American Free Trade Agreement (NAFTA) enacted between Canada, the U.S., and Mexico facilitates trade among these countries through tariff reductions and elimination. The Association of Southeast Asian Nations (ASEAN), shown below, provides\u00a0for the free exchange of trade, service, labor, and capital across ten independent member nations to provide a balance of power to China and Japan.\u00a0The Central American Free Trade Agreement (CAFTA) (Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua, and El Salvador) eliminated tariffs on more than 80 percent of U.S. exports and opened U.S. trade restrictions for Central American sugar, textiles, and apparel imports, thereby reducing costs on these products for American consumers[footnote]USTR, CAFTA-DR Dominican Republic-Central America FTA[\/footnote].\r\n\r\n[caption id=\"attachment_6765\" align=\"aligncenter\" width=\"501\"]\"Map<\/a> The Association of Southeast Asian Nations (ASEAN) as of 2015.[\/caption]\r\n\r\nCustoms unions<\/strong>\u00a0are arrangements among countries whereby\u00a0the parties agree to allow free trade on products\u00a0within<\/em>\u00a0the customs union, and they agree to a\u00a0common external tariff (<\/em>CET) on imports from the rest of the world.\u00a0It is this CET that distinguishes a customs union from a regional trade agreement. It is important to note that although\u00a0trade<\/em>\u00a0is unrestricted within the union,\u00a0customs unions do not allow free movement of capital and labor among member countries. An example is the customs union of Russia, Belarus, and Kazakhstan, which was formed in 2010. These countries eliminated trade barriers among themselves but have also agreed to some common policies for dealing with nonmember countries.\r\n\r\nCommon markets<\/strong> are similar to customs unions in that they eliminate internal barriers between members and adopt common external barriers against nonmembers. This difference is that common markets also allow free movement of resources (e.g., labor) among member countries. An example of a common market is the Economic Community of West African States (ECOWAS), comprised of Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.\r\n\r\nAn even more economically integrated arrangement is the economic union<\/strong>. Economic unions eliminate internal barriers, adopt common external barriers, permit free movement of resources (e.g., labor), AND adopt a common set of economic policies. The best-known example of an economic union is the European Union (EU). EU members all use the same currency, follow one monetary policy, and trade with one another without paying tariffs.\r\n\r\nThe following video further explains and compares the different types of trade agreements:\r\n\r\nhttps:\/\/youtu.be\/YDUq0DINhYk\r\n\r\n ","rendered":"

\"Arch<\/a><\/p>\n

So far you have seen how international organizations such as the WTO, IMF, and World Bank support global\u00a0trade, but this is only part of the story. Where global trade really gets a boost is from trade agreements (also called trade blocs). This where the term “global economic integration” gets its legs\u2014 from the process of modifying barriers among and between nations to create a more fully integrated global economy. Trade agreements vary in the amount of free trade they allow among members and with nonmembers; each has\u00a0a unique level of economic integration. We will look at four: regional trade agreement (RTA) (also called a \u201cfree trade area\u201d), customs unions, common markets, and economic unions.<\/p>\n

Regional trade agreements\u00a0<\/strong>are reciprocal trade agreements between two or more partners (nations).\u00a0Almost all countries are part of at least one RTA. Under an RTA, countries\u00a0“huddle together,” forming an international community that facilitates the\u00a0movement of goods and services between them. For example, the North American Free Trade Agreement (NAFTA) enacted between Canada, the U.S., and Mexico facilitates trade among these countries through tariff reductions and elimination. The Association of Southeast Asian Nations (ASEAN), shown below, provides\u00a0for the free exchange of trade, service, labor, and capital across ten independent member nations to provide a balance of power to China and Japan.\u00a0The Central American Free Trade Agreement (CAFTA) (Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua, and El Salvador) eliminated tariffs on more than 80 percent of U.S. exports and opened U.S. trade restrictions for Central American sugar, textiles, and apparel imports, thereby reducing costs on these products for American consumers[1]<\/sup><\/a>.<\/p>\n

\"Map<\/a><\/p>\n

The Association of Southeast Asian Nations (ASEAN) as of 2015.<\/p>\n<\/div>\n

Customs unions<\/strong>\u00a0are arrangements among countries whereby\u00a0the parties agree to allow free trade on products\u00a0within<\/em>\u00a0the customs union, and they agree to a\u00a0common external tariff (<\/em>CET) on imports from the rest of the world.\u00a0It is this CET that distinguishes a customs union from a regional trade agreement. It is important to note that although\u00a0trade<\/em>\u00a0is unrestricted within the union,\u00a0customs unions do not allow free movement of capital and labor among member countries. An example is the customs union of Russia, Belarus, and Kazakhstan, which was formed in 2010. These countries eliminated trade barriers among themselves but have also agreed to some common policies for dealing with nonmember countries.<\/p>\n

Common markets<\/strong> are similar to customs unions in that they eliminate internal barriers between members and adopt common external barriers against nonmembers. This difference is that common markets also allow free movement of resources (e.g., labor) among member countries. An example of a common market is the Economic Community of West African States (ECOWAS), comprised of Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.<\/p>\n

An even more economically integrated arrangement is the economic union<\/strong>. Economic unions eliminate internal barriers, adopt common external barriers, permit free movement of resources (e.g., labor), AND adopt a common set of economic policies. The best-known example of an economic union is the European Union (EU). EU members all use the same currency, follow one monetary policy, and trade with one another without paying tariffs.<\/p>\n

The following video further explains and compares the different types of trade agreements:<\/p>\n