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Regional Trade Agreements Explained

Quick Definition: Regional trade agreements are when a group of states within a specific region focus on trade negotiations and reforms. These agreements aim to reduce barriers to trade and increase the movement of goods, services, people and capital within member states.

Also known as:

Regional trade associations

What are regional trade agreements?

Regional trade agreements (RTAs) are virtual agreements between states which aim to increase economic integration and reduce barriers to trade. Almost all states are part of at least one RTA. These states will ‘huddle together’ into an international community on the basis of these agreements, resulting in the increased movement of goods, services, people and capital between them.

What are their characteristics?

  • They do not have to be neighbouring states.
  • RTAs can cover large geographical areas.
  • They are virtual and have no administrative body.
  • They are multi-scalar

Positives of regional trade agreements

  • The reduction in trade barriers can allow countries greater access to foreign markets.
  • Because RTAs are smaller than multilateral trade agreements, the number of successful negotiations is often higher.
  • Trade agreements can improve relations thus improving the national security of the countries involved and reducing the likelihood of war.

Negatives of regional trade agreements

  • RTAs between states of equal wealth and power can be beneficial to those involved, however when agreements are signed between rich and poor economies there can often be a great deal of inequality at the heart of the agreements. The stronger economy can use their greater bargaining power to achieve rights that would be unobtainable through WTO negotiations. For example, if import tariffs were removed for vegetables, the local farmers would be unable to compete with the lower prices.
  • RTAs also limit economic globalisation by localising areas of trade. This makes it more difficult for those outside of the region to trade with those inside i.e. by imposing trade tariffs and restrictions; ultimately limiting the growth prospects of both parties. It has also been shown that larger areas of multilateral trade agreements offer greater potential for mutual gains compared to smaller bilateral and regional agreements.

Key terms

  • State – This refers to the state in the international relations sense: A defined territory demarcated by specific boundaries; a defined population residing in that territory; an integrated set of institutions that is capable of making and enforcing laws over this population (internal sovereignty); the recognition by other states of the sovereignty of that state (external sovereignty). By this definition, the United States of America is a state.
  • Economic Globalisation: This describes the increasing economic interdependence of the global community and the integration of regional markets into the global economy.
  • World Trade Organisation (WTO) – This is a supranational organisation that supervises and encourages international trade and the breaking down of trade barriers between countries. It is a trade forum in which member governments use to resolve trade disputes or create negotiations.
  • Trade barriers – These are factors make trading between countries more difficult.
  • Trade creation – This occurs when there is an increase in the total amount of goods and services traded because of a reduction in trade barriers between countries.
  • Trade diversion – This is when a trading bloc reduces the amount of imports from countries who are not members in the bloc.
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