Question

global economic

Scenario 1: This case examines lobbying in the United States on the North American Free Trade Agreement (NAFTA). I argue that economies of scale and production sharing across borders create incentives for firms to seek regional trade liberalization. Statistical analysis demonstrates that sectors with these characteristics were more likely to lobby for free trade in North America; these sectors were also exposed to free trade more rapidly under the tariff-phasing schedule in the NAFTA treaty. However, corporate restructuring to rescale production for the regional market and to increase offshore assembly presented adjustment costs for U.S. workers, which created divisions between labor unions and their employers. I conclude that regional arrangements are an attractive mechanism to liberalize trade for firms in need of larger-than- national markets to take advantage of economies of scale or to develop production-sharing networks. Answer the following questions:

Q1. Identify the extent to which such agreement yield the benefits to the member states that they were originally intended.

Q2. Analyze the advantages of (NAFTA) as regional trade agreement.

Scenario 2: The Middle East and North Africa (MENA) has been slow to integrate, both intra-regionally and internationally. The Greater Arab Free Trade Area (GAFTA) saw tariffs between 17 Arab states rapidly decline from an average 15 percent in 2002 to 6 percent in 2009. But it has failed to bring down trade costs. In fact, it remains cheaper for some Arab states to trade with Europe than between themselves. Bilateral trade costs for industrial products between the Maghreb states and France, Italy and Spain is half that of trading with the GCC, Jordan, Iraq, Lebanon or Syria, according to trade policy and development expert Ben Shepherd. The cost difference also is negligible for trade between Egypt and the rest of MENA versus parts of Europe. The six member states of the Gulf Cooperation Council (GCC), which came into effect in 1981, are well ahead of the rest of MENA in terms of both intra-regional and international trade, however, despite its proximity, costs are still two-fifths higher than between France-Italy-Spain, according to Shepherd. And while intra-GCC trade has risen from $19.8bn to $65.4bn in 2010, it remains a small fraction of the GCC’s $1.3 trillion in total trade. The GCC customs union, which came into force in 2003, eliminates tariffs between the six states and enforces a common 5 percent tariff on imported goods across the region. Citizens also have freedom of movement across borders and the right to employment. Unofficially, the union also has seen the states coordinate in areas such as health, education, security and knowledge But non-tariff barriers have inhibited greater trade between the six states. A GCC railway has been mapped out but is yet to gain much traction, while other early plans for a combined value- added tax (VAT) were put on ice until recently, when the oil price crashed. Answer the following questions:

Q3. Measure the importance of regional trade agreement among GCC countries.

Q4. Explain the UAE type of economy, and how UAE facing competition.

Answer 1

1. Nafta originally gives benefit to the firm under trade liberalization. the sectors with liberal characteristics are benefited from the cross border free trade. so this boosts their production as well as transaction. with all sorts of benefits, it is been found that the are drawbacks associated with this type of agreement. a) US labor is likely to lose their jobs b) US labor unions lose their power due to wage suppression. c)this trade helps the larger firm at the cost of a minor one. d) workers exploited with a cheap wage rate. e) due to the huge demand for agricultural product forestland been exploited. so these are some of the problems associated with free trade practice under NAFTA.

2. There are many advantages associated with NAFTA.

a) Multiplied trade: Due to NAFTA trade between the US and Mexico has been developed with a multiplier effect. After NAFTA US trade 27% of its imported good from the NAFTA partners. The other partners are also highly benefited from NAFTA agreement.

b) Lowered price: Due to trade the production cost got decreased and its price also decreased, which is beneficial for both countries.

c) An increase in economic growth: it leads to an export-based economic growth or import benefited economic growth. All the associate countries got benefited from it.

d) increase in the job: it created a huge no. of employment opportunities for all the participant countries.

e) Increase foreign direct investment. Due to NAFTA, all the partner countries got a hike in FDI due to less complicacy.  

f) it reduce government spending: Due to NAFTA, there is a decline in government spending and a decrease in the deficit.

3. the 6 states of GCC has its own importance in terms of regionally and internationally compare to the MENA group. GCC reports tremendous growth due to collaboration, which leads to other sectoral growth. The GCC has taken off tariffs between the six states and enforces a common 5 percent tariff on imported goods across the region. Due to this decision, the national of these regions can move freely to any of these states.  Unofficially, this state also collaborated in terms of health, education, security, and knowledge. these non-tariff barriers have inhibited greater trade between the six states. A GCC railway has been mapped out but is yet to gain much traction, while other early plans for a combined value-added tax (VAT).

4. The UAE has been expanding its business internationally through trade, investment and development, focusing on diversifying the economy. it emphasizing the competitiveness and technology sectors. Furthermore, the UAE focuses on free zones and economic specialized zones, which form important facets of the UAE economy and its growth strategy. Advantages for investment within free zones include no corporate or personal income taxes (which is the same throughout the UAE), exemptions from customs duties and exemptions from several domestic regulations that apply within the customs territory.  moreover, it has a dominance of ownership in free zones is not limited to 49 percent. Currently, about two-thirds of exports of non-oil related products are from free zones.

The UAE is a member of the Greater Arab Free Trade Area (GAFTA), which entered into force on 1 January 1998. GAFTA eliminated all customs tariffs among GAFTA member states as of 1 January 2005. GAFTA covers trade in goods only; however, members are involved in negotiations to create an agreement in the trade of services.

In terms of free trade, the UAE has faced a unique type of problem. there is a huge decline in tariffs from 15% to 6 % but But it has failed to bring down trade costs, which is higher than the cost to Europe. it calculated the bilateral trade costs for industrial products between UAE and Europian countries is quite less than the GCC countries. according to trade policy and development expert Ben Shepherd, there is a significant cost difference fount between Egypt, the MENA group and Europe.