Trade deals or agreements are made between two or more countries giving each other preferential treatment for trading in each other’s country with easy access to the markets. With the World Trade Organization (WTO) formed to enhance the trading between countries, there have been many trade deals made over the years. As of now, there are more than 350 Trade deals across the world. These trade agreements not only provide a lucrative market for goods but also help boost the economy and improve employment opportunities.
Why is there a need for trade deals?
Let us try to envision a scenario where there are no trade deals. In that state, there could be too much flexibility offered by countries to each other result in a lack of commitment or too much commitment, which could make trading a very rigid process. Trade deals provide that much-needed balance between flexibility and commitment, ensuring smooth trading between countries involved.
The countries may also be tempted to increase their revenue by manipulating the trading terms to their advantage, which can cost the profitability of another country when there is no trade deal signed off. The trade deals also provide the respective governments the required support to stand firm in their liberal trading policy and withstand the pressures of the local private sector and other groups in the country.
The trade agreement curbs the temptation of the countries and businesses to work for their own interests and stop them from influencing the trading terms.
How trade deals benefit nations and consumers?
The trade deals provide the nations with a favorable market condition and also help to increase economic growth and trade. The number of trade deals has gone up in recent years, which clearly indicates that countries worldwide are trying to get and create favorable market conditions.
Some of the terms that nations get with trade deals include
- Elimination of taxes and tariffs or a discount in the tariffs offers an advantage of pricing to the countries involved.
- Eliminates the possibility of overpowering the local markets. Countries agree to not dump cheaper cost or cheaper products in the local markets.
- Eliminates the possibility of subsidies from governments, which can lower the cost of production.
- Standardization of agreements on the environment, labor rules, and regulations.
- Enhanced opportunities for trade and investments contributing to economic growth.
- No possible stealing of products and ideas.
The trade agreements provide new markets for various industries opening up the economy and jobs. It also lowers the cost for the consumers.
There is also a belief among worldwide economists and other specialists in the field that such trade agreements widen the trading platform and increases customer welfare. And it is true to the extent that the trading barriers are lowered between countries with the presence of a trade deal. However, the tenet that the trade deals offer more variety, lower price, and better quality products is not always true. While the trade agreements guarantee quality products, there is no guarantee on the prices or the variety. Also, trade agreements may not be favorable to lesser successful firms that find it challenging to compete against foreign intrusions.
Without the advantage of better pricing, they have no foothold to woo the local consumers and lose out to the big foreign corporations in the end. Governments, therefore, need to address the impact of such bilateral or multilateral agreements between nations in their local market. If addressed well and drafted the right way, trade deals between nations can bring more profit to all the nations involved.
References:
https://exportandtrade.co.nz/article/importance-trade-agreements
https://www.wto.org/english/res_e/booksp_e/anrep_e/wtr09-2b_e.pdf
https://voxeu.org/article/consumer-benefits-trade-agreements#:~:text=A%20central%20tenet%20of%20international,quality%20products%20and%20lower%20prices.
https://www.thebalance.com/what-are-bilateral-trade-agreements-pros-cons-and-list-3305911
https://www.dfat.gov.au/trade/about-ftas/Pages/the-benefits-of-free-trade-agreements
