Question

Regional trade agreements (RTA) were covered in class, where the arguments suggested by the proponents and the opponents of RTA were also discussed. State your personal opinion on RTA focusing on potential benefits and damages for world trade and giving examples.

Answer 1

REGIONAL TRADE AGREEMENTS

I) BENEFITS FOR THE WORLD

*It creates more of employment opportunities and reduce unemployment

*Good for market expansion.

* There will be welfare gains to the consumers with an access to better quality products at lower prices.

* It increases international trade and investment, which leads to economic growth.

*There will be more Rapid spread of Technology.

II) DAMAGES FOR THE WORLD.

* It involves a higher administrative cost.

* Collusion, merger and extreme co-operation of firms may lead to great Monopoly power.

* As a result of removal of barriers, more efficient members (especially the rich countries) will enter to the economy for running the firms or extracting the resources. This results in diseconomies of scale.

* Developed countries of the region becomes the production centres and less developed countries becomes mere consumption centres. This may result in widening the gap between the developed and developing countries of the region.

*Restrictions in trade with non members.