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Bi-lateral and Multi-lateral Trade Agreements
bi-lateral and multi-lateral trade agreements
Bi-lateral and Multi-lateral Trade Agreements
Latin America has many trade agreements. These trade agreements can be as broad as having three or more countries involved. When this is the case the trade agreement is considered a multi-lateral trade agreement. Multi-lateral trade agreements are often very complex because each country has specific stipulations that they would like to add into the agreement. This is why the agreement is often between just two nations. When there are only two nations involved in a particular trade agreement then the trade agreement is considered a bilateral trade agreement.
The reason for these trade agreements is to gain access to less expensive or unavailable goods and resources. In the past few decades these trade agreements have become more popular in South America. This is because Latin America has a very diverse selection of products and as globalization grows the demand for these products has grown. These Latin American trade agreements are very important to Canadians. Their importance can be seen by looking at one particular trade agreement that a Latin American country plays a heavy role in. This trade agreement is the North American Free Trade Agreement (NAFTA).
There are many other important trade agreements in Latin America that affect the nations in Latin America that also have an impact on the world, indirectly. These trade agreements include CARICOM, CAFTA, and MERCOSUR, to name a few. As more trade agreements are created in Latin America the availability of tropical fruits and precious resources in that region will become more readily available to the world, making both bi-lateral and multi-lateral trade agreements very important and relevant to everybody.
Table of Contents:
The GATT and WTO
Common Bi-lateral and Multi-lateral Trade Agreements
1. The GATT and WTO
The General Agreement on Tariffs and Trade (GATT) was created in 1947 from the failure to create the International Trade Organization (ITO). Its purpose was to regulate trade between nearly 150 countries and negotiate multilateral trades to reduce tariffs. The GATT has rules on trade agreements and held meetings to discuss problems of international trade and tried to resolve these issues. The trade agreement lasted until 1994 then it was replaced by the World Trade Organization (WTO) in 1995. The GATT is still active under the WTO framework however the WTO also covers trade in services and aspects of intellectual property.
Link to a video about the WTO:
The WTO almost exclusively deals with multilateral trade agreements. Of all the trade in the world 95% of that is done through the WTO. This makes it crucial for the regulations of all WTO members to be withheld to maintain equality among all members. Decisions made by members of the WTO are made through general agreements and there must be a consensus among all members for the agreement to pass. What this does is give every member of the WTO, no matter the size or population of the nation, the same voice. This makes the process the most democratic however can lead to slow negotiations for agreements to be made.
When there is a dispute between members of the WTO the parties involved have a consultation among each other. If this is unsuccessful then written statements are given to the WTO and a dispute panel is made by the dispute settlement body. Their cases are then presented to the panel where the decision will be made by the panel. If a country is unsuccessful in presenting their case then they may appeal the case. When they appeal the case another group makes the final decision.
Dark Green = WTO founder members (1 January 1995)
Light Green = WTO subsequent members
2. Bi-lateral Trade Agreements and Multi-Lateral Trade Agreements
The North American Free Trade Agreement (NAFTA) was originally established from a trade agreement made in 1988 between Canada and the United States. During 1990 Canada, the United States and Mexico agreed on pursuing a free trade agreement. It was originally signed December 17, 1992 although did not get put into action until January 1, 1994. The agreements purpose was to removes duties and reduces tariffs on many goods between the three countries. There were also expectations of jobs being created from higher demands of these exports. This has had a profound impact on merchandise trade, tripling and reaching 946.1 billion US, as of 2008. The agreement is one of the world’s largest free trade areas. In this area over 440 million people live, which includes approximately 20 percent of the overall Latin American population. This is very significant when studying Latin American because of Mexico’s large population and its proximity to other Latin American countries it has a large amount of influence on other Latin American countries.
There is much debate to whether NAFTA has been positive for all countries. Some American critics argue that their jobs are being taken to Mexico for the cheaper labour. While this would seem to be a positive for Mexico it means that the Mexicans will be forced to keep wages low to be competitive with other countries. This downward pressure on wages in Mexico works against the development of Mexico because it exploits Mexico’s workers cheap labour. In more recent times since the agreement were established these battles for having cheaper labour have increased. As other markets have opened that offer cheaper labour the jobs that went to Mexico are now being moved to that country with cheaper labour. As a result of the downward pressure on wages earlier and now Mexicans losing jobs they are put into a lesser state then when they first signed NAFTA. The critics of NAFTA see this as how globalization has made large multinational corporations the true winners of NAFTA. This has lead to further concerns with their political power over countries and their ability to get away with human rights violations.
The Caribbean Community, also known as CARICOM, is an organization originally established by the Treaty of Chaguaramas and took affect August 1, 1973. The organization is concerned with developing members of the group as well as opening up trade through reduced restrictions. The purpose of this is to make the members of this organization more competitive on the global scale. There are currently 15 full members, 5 associate members, and 7 observers.
Antigua & Barbuda
British Virgin Islands
Turks and Caicos Islands
Saint Kitts & Nevis
Saint Vincent & Grenadines
Trinidad & Tobago*
On July 27, 2005, the American House of Representatives narrowly passed a bill which officially instated CAFTA. CAFTA is the Central American-Dominican Republic-United States of America Free Trade Agreement. The main countries involved in the agreement are The United States, Costa Rica, The Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The CAFTA has allowed many of the trade barriers to fall between all these countries, especially the United States. Prior to the implemetion of CAFTA, the U.S. government policy granted these countries relatively open access to U.S. markets for their goods, while protecting their own markets with tariffs and other barriers. These tariffs and barriers prevented the U.S. from accessing the markets in these countries for U.S. goods, agricultural products, professional services, and investment. Since CAFTA has been instated, nearly 80% of these tarrifs have been eliminated on all manufactured goods from the United States. The agreement also expanded to not only include manufactured goods but nearly every single trade and commercial exchange. With CAFTA in place, the U.S. is given a considerable advangtage over all other nations when it comes to trade in the area because this is the only free trade agreement in place for Central America. All other nations still have the tarrifs and barriers in place.
With the decrease in regulation, this allows the United States to invest in the poorer nations and to allow Neo-liberal economic reforms to take place in Central America. CAFTA boasts that this increases economic and political stability within these nations. They will have greater access to markets and goods and the people will enjoy a greater quality of life in the future. While this may seem beneficial, the reality is that most investors are only interested in exploiting the cheap labour and making a greater profit. Very little thought is given to the well-being of the people or the environment. Extreme amounts of damage to the environment is being done in the poorer countries because environmental regulations discourage foreign investment which in turn damage the countries economic health. There are many people in Central America who oppose CAFTA and are contantly fighting for the human rights of the workers, fair trade, and environmental protection.
Additionally to this, the way of life for most people within these poorer nations is disrupted by the neo-liberal reforms. Through their history as soveriegn nations they have survived by creating a sustainable life for their people by providing local markets to trade and sell their own goods to live on. With the introduction of CAFTA, these local traders are now forced to trade on an international level with little technology and massive amounts of competition. This model is not only unsustainable but also detrimental to the well-being of society and a entire nation. The proceeding video illustrates this.
The U.S. is even facing some problems resulting since CAFTA has been instated. American people are facing the repercusions from having to compete with Central America. A link to view the damage reports resulted from CAFTA:
The Asociacion Latino Anericana de Integrecion (ALADI) in Spanish is the Latin American Integration Association in English. Established in March 1980 and instituted in 1981, It hopes to spur economic cooperation between its eleven participating countries: Argentina, Bolivia, Brazil, Chile, Columbia, Ecuador, Mexico, Paraguay, Peru, Uraguay, and Venezuela. The previous trade agreement known as the Latin America Free Trade Agreement (LAFTA) was developed in the 1960's to create a common market for all the aforementioned countries in the near future but had made little headway. ALADI was created to be a more forgiving agreement and a limited role in encouraging trade between the countries. It is a free trade agreement but also has no definite agenda or deadline was set to establish a common market. It is simply there to reduce the amount of tariffs and other barriers created by the various countries.
Since ALADI is built off of the LAFTA, approximately 20,000 concessions within the association were re-negotiations from its antecedent. They focused mainly on helping the less developed nations gain access to a greater international market. Because no clear general, multilateral trade agreement could be reached for all countries, almost all of the agreements reached were of a bilateral nature. Soon poorer nations had the opportunity to open up less regulated international trade with their neighbouring countries. It was a drastic change from LAFTA, where they focused on expanding protected markets. The new system was much more liberal.
ALADI has a wide range of agreements including MERCOSUR, The Andean Pact, and a host of other bilateral and various sector agreements that are designed to open up markets for relatively less developed countries. 32 of the agreements are a part of the
ecomonic complimentary agreements.
These are the multilateral agreements which cover the regulations on a vast number of products, with lists of exceptions and automatic and linear tariff reduction schedules. All the other agreements are biliateral. Within ALADI, there is a
Regional Tariff Preference
(RTP). This aspect of ALADI gives the opportunity for non-members the potential of having less tariffs for all the nations involved in ALADI depending on the level of development that the non-member nation has. The relatively less developed nations will receive a greater reduction in the amount of tariffs they face if they are dealing with a higher developed nation. There is an opportunity for outside nations to merge into an almost restriction free trade with all the nations within ALADI as long as the reduction rate on tariffs keeps increasing. The RTP This notion was agreed upon by all nations in the ALADI agreement.
Additionally to this, there are central banks in the eleven countries that mediate grants and lines of credit to other countries to cover the costs of goods and services transactions within the association. Every four months the balances are settled with all countries not collecting commissions on transactions. This results in considerable foriegn exchange savings and the simplification of commercial operations. The main goal of ALADI is to help get less developed nations access to international markets with as little inhibitors as possible.
The Treaty of Asuncion was signed on the 23rd of March which formed MERCOSUR. MERCOSUR was created to form a common market between Brazil, Argentina, Paraguay, and Uruguay . It is an extension of ALADI and its integration policies and abides by all concessions put forth by the ALADI agreement. These four countries did integrate so basically MERCOSUR combines the four countries trade policies and adopt a common trade policy involving non-members of MERCOSUR. This means that any trading that one country wants to do with an external nation must be agreed upon by the other three countries. This runs into problems because it is sometimes difficult to agree upon an acceptable trade agreement with other nations not involved in MERCOSUR. The common market involves the free movement of goods, services, and factors of production through the elimination of tariffs and other barriers. It also creates a common tariff on other goods imported from countries not involved in MERCOSUR. In other words, they adopt the same trade policies when dealing with other nations.
Additionally, the four countries co-ordinate similar policies when dealing with various sectors of the state including foreign exchange, agriculture, industry, communications, and monetary matters. This results in adequate competition between the countries various sectors. As an example, if all countries had the same agricultural policies, then the development of the sector would be at the same rate so no country could get ahead, or left behind. If this did happen, it would be detrimental to the integration process because the country that was getting ahead would not want to trade anymore because their product is superior. Conversely, if a country was left behind, then the other countries would not want to trade with that nation because their product is inferior. Part of the MERCOSUR mandate is to assure that all countries do everything in their power to strengthen the integration process and avoid the disruption of the process. Therefore, it is essential to adopt similar sectoral policies.
An issue that MERCOSUR faces is the fact that Argentina and Brazil are much more developed that Paraguay and Uruguay. The result is that Argentina and Brazil have different tariff reduction rates than Paraguay and Uruguay. As mentioned earlier, for the integration process to occur the way it should, all internal and external policies should be similar. If tariff reduction rates are different then there will be more incentive to trade with those particular countries. This is only a slight problem because in theory, soon those poorer countries will have had the advantage of gaining more capital and should be on an equal trading level.
Because MERCOSUR is an extension of ALADI, there is the opportunity for other countries to join MERCOSUR. They will have to undergo the same process and coordinate their internal and external policies with the MERCOSUR countries. All countries involved hope to benefit from the treaty. There is no country that is above the other. The reason for their integration is to enhance international competitiveness and ensure that the countries involved will not get left behind in political, economic, and social development. It has been very successful and is considered to be the most important trading alliance in Latin America.
F) Andean Pact
Another extension of ALADI is the Andean Pact. The countries currently involved are Bolivia, Columbia, Ecuador, and Peru. The idea behind the Andean Pact is very similar to MERCOS
The Andean Pact was first created in 1969 with the Cartagena agreement. Slight changes in its membership have occurred from its original roster. Venezuela joined in 1973 but left in 2006 and Chile left in 1976. Its main goal was to create a common market and spur economic growth. However, in its early years growth was minimal. But with the creation of MERCOSUR, the Andean Pact took notice and made some essential governance changes and is now on the forefront of the Latin American integration movement.
A reformed Andean Pact was signed on May 25th, 1988 with the goal of establishing a free trade area. Similarly to MERCOSUR, the Pact is creating a common market between the participating countries and eliminating tariffs and other barriers inhibiting free trade. The Pact also agrees on a common external tariff imposed on all imports coming into the Andean Pact nations.
The Andean Pact has had its share of problems. There have been disagreements with tariff rates and duties on products imported from other nations. Additionally, there have been tense border disputes between Columbia and Venezuela which could have had something to do with Venezuela's exit from the Pact. Furthermore, a war broke out between Ecuador and Peru resulting in Peru's temporary withdrawl in 1995. Peru then rejoined in 1997. Regardless of these issues, the Andean Pact remains a very important part of Latin American trade.
The idea behind this Pact is the same as MERCOSUR: to increase it's competitiveness with all other nations and insure that the Andean Pact nations do not get left behind politically, economically, or socially. While remaining sovereign nations with separate governments, integrating of the four countries internal and external policies allows them to stand together as one and compete adequately on a global scale with more developed nations.
The CACM is the Central American Common Market. Prior to the establishment of MERCOSUR and the Andean Pact, CACM involving Guatemala, El Salvador, Nicaragua, and Honduras was formed. On December 13th, 1960, the four nations began integrating
their internal and external policies to gain a foothold in the international market and create common duties and tariffs on all imports from external nations. In 1962, Costa Rica joined as well. The reason for this is that if a country creates a lower tariff rate for an external country, then other countries are going to be more likely to trade with that particular nation. This gives that nation an advantage in the international market and can potentially damage that CACM. The idea behind CACM is the same as MERCOSUR and the Andean Pact: to integrate trade policies and develop together equally. They also hoped to create a free trade area between all four nations.
Initially, the CACM did have a lot of success. In the first few years, the five nations developed industry and were on their way to becoming strong and wealthy nations. They did not reach their goal of establishing a free trade area within five years of the signing of the agreement. Governmental problems and the devaluation of curren cy r
esulted in most nations re-instituting trade restrictions among members. In the 1980s, most countries faced civil war and financial debt problems which led to a dram atic decrease in international and inter-regional trade.
In the late 1980s, with the introduction of democratized, reform-oriented governments, the president of Guatemala wanted to re-energize the integration process. Once again, the five countries with Panama began reducing their regional tariff rates and began opening up their countries to the idea of free trade. In 1993, the six nations signed the Protocol of Guatemala which stated their interest and investment in the establishment of a free trade area once again. It would be a flexible agreement with no deadline on when complete free trade would exist. Each country would have seperate tariff reduction rates depending on their level of development.
Since then, CACM has been successful in creating free trade in Central America. Their inter-regional trade has also had a dramatic increase. However, the compete integration of internal and external policies is still underway. The establishment of CAFTA has impeded this development because now Central America has to deal with the powerful United States. Negotiations between the economic giant make integration hard because the U.S. has so much potentailly available capital that could be invested in the poorer Central American countries. Still, it has not stopped CACM from negotiating free trade agreements with Chile, the Dominican Republic, and Mexico. There is still some distance to travel before Central America is as powerful or as relevant as MERCOSUR or the Andean Pact.
Chile and Peru have had personal problems to do with land, which has not helped them in making trade agreements with eachother. Which is unfortunate because the two countries unofficially help eachother; Chileans are attracted to Peru famous wonder of the world and travel there a lot, and Peruvians bring many much needed workers into Chile.
NAFTA has brought good things for us (North Americans) but as for Mexico they've been getting short-handed, it might look like they are better off by staying in this agreement; but the point of these agreements is so that all countries involved can gain and gain equally. Many Mexicans get paid less than a few dollars a day.
Safety, Creation, and Money; We become safe when we make agreements with other countries. We create limitless boundaries for people to move around the world. And money, we stimulate the flow of money through countries, so that in the end we either gain or save.
The Mercosur agreement, consists of Latin American countries, the United States is very subtle to say that they do not like this agreement very much because it feels like an "anti- american" agreement,which is false, the Mercosur agreement has just made it easier for neighboring countries to comunicate, since they have spent most of thier years through civil wars, and disagreements between eachother.
America has made it difficult for free trade agreements to happen when they are not a part of it. They're reason is either that it is communnist lead or that it these bilateral and multilateral agreements will make it harder for them to export. In the end these reason are ridiculous, and Latin American Free trade agreements have made it easier for them commute and work faster to becoming a developed nation.
Some of CAFTA's history has shown that they have very poor labour condition as well that this has affected the developing countries much more than the developed countries.
Free Trade agreements tend to leave the developing countries reaching for more, and the developed countries basking in its riches; because developing countries go into a free trade agreement hoping to lessen thier load, while developed countries have thier back straight and just keep gaining. This would be beneficial if this was the same for developing countries.
Though we often here that Latin Americans are 'taking our jobs' through these agreements, we seem to forget that through cheap labour pressures Latin Americans have been forced to work long days with very small pay. For example NAFTA has pressured Mexican workers so much that even today they are being paid just a few dollars a day.
In countries like Bolivia a whole family might get paid $40.00 a month because pressures like cheap labour.
It is in a countries economic interest to make trade agreements, mulitlateral agreements like the CACM and the Andean Pact have helped create flow through Latin America, and due to this, it has allowed countries involved in them to branch out to countries farther away like China.
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