Cross National Agreement - Essay Example

Trade agreements stimulate and facilitate trade between different countries through the complete or partial elimination of unfair trade tariffs. Another main objective of economic integration is to increase industrial efficiency through “economies of scale” which refer to increased levels of productivity related to increased levels of output of all member states of the economic union therefore leading to lower costs and higher productivity. Some of the different stages of economic integration between countries are (Tutor2u, 2012): a) Trade agreements - are formal negotiations between two or more countries where they negotiate lower import tariffs and work to facilitate the bureaucracy and paper work involved in the export and import of goods and services between member countries. b) Trade Liberalization (Free Trade Agreements) - In principle it eliminates barriers to free trade by eliminating unfair tariffs and entry barriers between member states or nations.

It further establishes standard import tariffs for non-member country imports into the free trade zone. During the last two decades there has been a significant growth in international trade agreements, specifically “Regional Trade Agreements”, most of them have been free trade agreements with a focus in reducing tariffs and other artificial barriers of trade between participants. The North American Free Trade Area (NAFTA) and the European Free Trade Area (EFTA) are both good examples. ASEAN (Association of South East Nations), and Mercosur are two additional examples. c) Custom Union - Some agreements are more encompassing and sophisticated such as the European Union (EU) where not only is trade policy regulated, but it establishes common external tariffs for non-union members.

It also regulates and oversees the regional rules concerning flows of capital, agreements on financial policy, competition, environmental regulations, practices and movement and regulation of labor. d) Common Market-Where a group of countries integrate all its participants into a single integrated market. Free movement of capital, labor and services among members is the trademark of single markets. e) Single Currency(Monetary Union)-The European Union, by adopting an economic model of a Custom Union with a single common currency the Euro, is a perfect example of a highly integrated regional economy. f) Economic Union-(combines Custom Union/Common Market) There are both pros and cons to free trade agreements.

Free trade can help drive healthy competition between industries therefore providing better products and prices to its consumer base. Trade agreements can help provide countries with a competitive advantage where countries can specialize in products and services that they do and produce most efficiently. It has been argued that the increased productivity only applies to the increased aggregate wealth and not how fairly increased income will be distributed among its participants (White, 2012).

It has been proposed that free trade is a catalyst that helps foster peace between nations through functional and economic interdependence as well as providing a basis for healthy for overall economic growth of all nations involved. Free Trade agreements also tend to negate the practice of economic Protectionism, which is widely practiced by many countries to protect their own economies when Free Trade Agreements are not enacted between countries. Simply stated the host country imposes high import tariffs and other unfair trading regulations on foreign competing products or services which by limiting the consumer markets this practice tends to create higher prices and