Question

1. Describe the difference between a unilateral and multilateral trade agreement.

2. Give 2 examples of a multilateral trade approach.

3. How is NAFTA classified ?  

Answer 1

1.Multilateral Trade Agreements

Multilateral trade agreements are commerce treaties between three or more nations. The agreements reduce tariffs and make it easier for businesses to import and export. Since they are among many countries, they are difficult to negotiate. That same broad scope makes them robust once all parties sign.

Bilateral Trade Agreement

An exchange agreement between two nations or trading groups that gives each party favored trade status pertaining to certain goods obtained from the signatories. The agreement sets purchase guarantees, removes tariffs and other trade barriers.

2.Examples

Multilateral approach which is when a country reduces its trade restrictions while other countries do the same (NAFTA, GATT)

The Central American-Dominican Republic Free Trade Agreement was signed on August 5, 2004. CAFTA-DR eliminated tariffs on more than 80% of U.S. exports to six countries.3 These include Costa Rica, the Dominican Republic, Guatemala, Honduras, Nicaragua, and El Salvador.

All global trade agreements are multilateral. The most successful one is the General Agreement on Trade and Tariffs. Twenty-three countries signed GATT in 1947.5 Its goal was to reduce tariffs and other trade barriers.

3.NAFTA is a trade agreement between North America that reduce tariffs, eliminate trade barriers, create a common market, and increase trade/investment. It refers to North American Free Trade Agreement. NAFTA was established on January 1, 1994. Canada , Mexico and United States are involved into NAFTA with the basic purpose of making trade easy among these nations.

Rules of Origin

• The goods must be "wholly produced or obtained" in Canada, Mexico or the United States.
• The goods may contain non-originating inputs but must meet.
• The regional value content requirements or tariff shift rules of origin.
• Rules of Origin qualify for NAFTA's reduced tariff (or even duty-free).

Other features

Wholly Produced or Obtained

These goods may not contain non- North American parts or materials.

Tariff Classification Change

When non-North American goods are brought into a NAFTA country; they can be "transformed" into a North American good so long as each non-North American input undergoes a "tariff classification change"

Regional Value Content

Requirement for some goods NAFTA requires a specified amount of "regional value content" calculated by "transaction value" (price actually paid for a good) or "net cost".

Exception For Goods with Minimal Non-NAFTA Content

If amount of non-North American content of finished goods is "minimal" then the product is eligible for the NAFTA reduced (or eliminated) tariff treatment. "Minimal" is defined as 7% or less of total cost of the product.

Rules related to Duties

Countervailing Duties

There are special rules. Duties imposed on imported goods because of an unfair subsidy those goods received from the exporting country

Antidumping Duties

Duties imposed on 'dumped goods' i.e., goods sold in the foreign market for less than the price charged in the market in which produced

Duties Imposed

Imposed by administrative agencies in the country imposing the duty, appeal is to a "binational" panel under NAFTA without judicial review.

Disputes Between NAFTA Countries

Firstly disputes are to be solved by mutual consultation. If no settlement, then Fair Trade Commission may convene arbitration panel, if violation is found but recommended solutions are not adopted by wrong party the right party may raise tariffs.

Also, Marking and Labeling is not necessarily identical to country of origin rules for tariff.