Trade Agreements Around The World

In the post-World War II environment, countries understood that an important part of world peace was global cooperation – political, economic and social. The aim was to improve the conditions of competition and reduce the economic areas of differences of opinion, since inequalities in these areas could lead to more serious conflicts. Nations have agreed to cooperate in the promotion of free trade and have concluded bilateral and multilateral agreements with the help of important international organizations such as global trade organizations. As a result, many countries have shifted from the multilateral process to bilateral or regional trade agreements. Such an agreement is the North American Free Trade Agreement (NAFTA), which came into force in January 1994. Under NAFTA, the United States, Canada and Mexico agreed to eliminate all tariffs on merchandise trade and reduce restrictions on trade in services and foreign investment for more than a decade. The United States also has bilateral agreements with Israel, Jordan, Singapore and Australia and negotiates bilateral or regional trade agreements with countries in Latin America, Asia and the Pacific. The European Union also has free trade agreements with other countries around the world. The question of whether the WTO fulfils its duty and fulfils its mission is the subject of ongoing debate. Yet the WTO currently has 104 members and 20 observer governments. WTO member countries account for nearly 97% of world trade and 98% of global GDP. As soon as the 20 observational governments become members, it is possible that the WTO will oversee the entire global economy. What began in Geneva in 1947 and which 23 nations focused exclusively on tariff reductions has become a truly global organization dealing with agriculture, labour standards, environmental issues, competition and intellectual property rights.

Let us assume, for example, that Japan sells bicycles for $50, that Mexico sells them for $60, and that they both expect a $20 dollar in the United States. If tariffs on Mexican products are removed, U.S. consumers will transfer their purchases of Japanese bicycles to Mexican bicycles. The result is that Americans will buy from a more expensive source, and the U.S. government does not receive customs revenue. Consumers save $10 per bike, but the government loses $20. Economists have shown that when a country enters such a “trade” customs union, the cost of trade diversion can outweigh the benefits of enhanced trade with other members of the customs union. The result is that the customs union could degrade the country. One of the challenges of the WTO system has been the maintenance and expansion of the liberal global trading system in recent years.

Multilateral negotiations on trade liberalization are progressing very slowly and the need for consensus among the many WTO members limits the scope of trade reform agreements. As Mike Moore, a new WTO Director General, said, the organization is like a car with an accelerator pedal and 140 hand brakes.