Question

The economist Jacob Viner was skeptical that bilateral or regional trade agreements are beneficial to world trade. He thought that multilateral trade agreements represent the best way to promote global trade.

A. What is the difference between regional/bilateral trade agreements and multilateral trade agreements? Give an example of a multilateral trade agreement, describing how it came about and when it started to operate.

B. Also, give an example of three regional/bilateral trade agreements, one in Asia, one in Africa, and one in Central America, stating which countries form part of the agreement and when it started to function.

C. Why did Professor Viner think that bilateral/regional trade agreements are not necessarily good for world trade? Please explain and provide any research or evidence supporting his claim.

Answer 1

a) Multilateral trade agreements are between three or more nations at one time. These nations come together after mutually agreeing on trade rules.The main benefit that multilateral agreements provides to its members is that all nations get treated equally. It reduces tariffs and makes it easier to import and export.
Regional trade agreements (RTAs) are defined as trade agreements between two or more partners. They include free trade agreements and customs unions.They don't have a big impact on economic growth than Multilateral agreements.
As multilateral trade agreements are very difficult to negotiate , regional trade agreements (RTAs) cover more than half of international trade and operate alongside global multilateral agreements under the World Trade Organization (WTO) .

b) CAFTA-DR- Central American -Dominican Republic Free Trade Agreement was signed on August 5,2004 by the United States and six countries: Costa Rica,Dominican Republic,Guatemala,Honduras,Nicaragua and El Salvador

ASEAN Initiative- it stands for Association for South East Asia Nations and it was created on August 8,1967. It includes ten nations in Southeast Asia such as Brunei,Cambodia,Indonesia,Laos,Malaysia,Myanmar,Philippines,Singapore,Thailand and Vietnam

EAC -East African Community was founded in 1967 and it includes six countries in the African great lakes region in eastern Africa- Burundi,Kenya,Rwanda,South Sudan,Tanzania and Uganda.

c) The biggest drawbacks of countries entering into bilateral and regional agreements is that under such agreements,the stronger economy gets more benifts than a weak or developing economy.

It leads to trade diversion,where partners divert away products that is priced cheaply in favor of products from the FTA partner even if they are not cheap which leads to inefficiency.

In case the agreement is between a developed economy and a developing economy then the developing economy has less bargaining power as against developed economy.

It is not formed on the basis of equal treatment of countries which is the basis for WTO countries such as MFN which will lead to unequal distribution of wealth and resources.