Trade Agreements
Many countries will form trade agreements between themselves, otherwise known as a trading bloc. There are several different types of agreements countries come to, each having different rules and regulations all members must adhere to.
🤝🏻 Different types of trading agreements
These are the most common types of trading agreements.
All these agreements are similar to the one before, apart from small changes between each, however, these are important details.
European Union
The European Union is an example of a Custom’s Union.
These are the 27 countries that currently members of the EU.
Watch this video for some more information on the European Union ⬇️
The United Kingdom officially withdrew from the European Union at the beginning of 2020, in a move we all know as Brexit.
✅ Trade and Cooperation Agreement (TCA)
- allows for zero tariffs and quotas on all qualifying goods trade between the UK and the EU
- ‘Qualifying goods’ are goods that are inline with the rules of origin defined in the agreement, for which there’s a length list of rules.
- The ‘origin’ of a good is where the last significant processing was undertaken, not where it was shipped from.
- A joint UK-EU council oversees the agreement. Disputes are settled by an independent specialist court, not EU courts.
- If one side thinks the other is changing rules in a way that gives their businesses an unfair advantage, they can take action. this might include putting tariffs on certain products, however, before doing this they need to prove their case to an independent judge.
- The TCA is reviewed every 5 years and can be terminated by either side with 12 months’ notice.
These videos better explains all aspect of the TCA in more detail:
ASEAN
- Indonesia
- Malaysia
- The Philippines
- Singapore
- Thailand
- Brunei
- Cambodia
- Laos
- Myanmar
- Vietnam
It was originally formed to ease regional tensions and counter communism, but since ASEAN’s focus has evolved. It now prioritises economic integration, having established a free trade agreement that has significantly boosted intra-regional trade. With a combined population of over 660 million and a total GDP of around $3 trillion as of 2020, ASEAN represents a significant economic bloc.
The group faces challenges in balancing relationships with global powers like China and the United States, while also addressing internal issues such as trade disputes and political differences among its meber
🆓 Advantages and disadvantages of trading freely
- Competition - Free trade exposes businesses and workers to global market demands. These adjustments are critical to remaining competitive, and competition is what fuels long-term growth.
- Growth - Free trade has been a catalyst for rapid economic growth in many countries. By leveraging their comparative advantages in exports and resources, nations have attracted foreign investment and created higher-paying local jobs. Since USMCA, (United States-Mexico-Canada Agreement), they’ve seen an increase in trade, helping these 3 countries collectively amount nearly 1/3 of global GDP, according to the Brooking Institution.
- Efficiency and innovation - Free trade promotes competition, which shifts industries to be more productive. This environment encourages the development of new skills and technologies, ultimately benefitting the economy through increased efficiency and resilience.
- Lower government spending - When trade agreements reduce or eliminate subsidies to local industries, governments can reallocate those funds to other areas.
- Fairness - Free trade agreements help create a level playing field for all participants by establishing common rules. This system reduces the chances of favouritism, where certain companies or industries might get unfair advantages through political connections.