What are Regional Trade Agreements?  Agreements between member nations on lower barriers or free trade among themselves.  One example of a regional trade agreement is the one that the European Union and NAFTA have. 

This link will show you the different trade agreements that the EU has in force
http://rtais.wto.org/UI/PublicSearchByMemberResult.aspx?MemberCode=918&lang=1&redirect=1

These are some positive impacts of regional trade agreements:

The European Union is a unique economic and political partnership between 27 European countries that cover most of the continent.  This union was created after WWII.  The idea was to bring countries together to trade with one another so that they could achieve economic interdependence and to also avoid conflicts between them.  Some of the stages of economic interdependence are:

1.  free-trade area
2.  customs union
3.  common market
4.  economic union
5.  monetary union

This union has made sure that all members benefit from peace, stability, prosperity and has worked on building higher living standards. By removing border controls people have been able to travel freely all over the continent and are able to live and work abroad without any issues. The EU is working on simplifying regulations to make it easier for members to take complete advantage of the single market.  Larger markets are being created to provide freer trade under the customs unions and this helps to prevent any negative stagnant effects.  "Dynamic gains include economies of scale, greater competition, and a stimulus of investment." (Robert J. Carbaugh, International Economics, 13th edition, pg. 279)  By having a larger market the EU has been able to provide more efficient workers, machinery,and equipment for the market and the ability to use by-products more efficiently.

One good example, of dynamic effects of integration is the refrigerator industry which was covered by Germany, Italy and France and they supported a small number of manufacturers that only produced domestically.  These manufacturing companies produced less than 100,000 a year but after the EU was created  they were able to integrate and adopt the large-scale production methods which lowered the cost of the units and increased the amount of refrigerators produced to 850,000 annually for Italy.  This was possible because they were able to integrate the automated equipment.  Germany and France averaged about 570,000 and 290,000 units per year. 

One Negative impact is the EU promising his farmers a higher level of income and farmers producing high quantities of products like cheese, milk, butter, and meat which have had low consumption.  Surpluses have been purchased by the EU and sold overseas at very reduced prices.  In turn, this has brought opposition from farmers overseas.  By the EU exporting these goods at such a low price to other countries, poor farmers are faced with losses since they can't compete with these prices.

By having these problems with the farmers the EU decided to implement the Maastricht Treaty of 1991 which then they would form a monetary union for all eligible members of the EU which they started in 1999. By creating a monetary union they would implement a single currency which is the euro and the European Central Bank but before they could use the system all members had to converge their economic and monetary policies in order for all members to be at an equal stage. This means that they had to have price stability, low long-term interest rates, stable exchange rates, and sound public finances. Only 16 out of the 27 member states made the euro their official currency.

Another big issue which EU members is when one country's GDP falls it causes turmoil since they don't have a bailout system in place to help this particular member.  They are also afraid that if they implement a bailout system that many members will not have the incentive to work hard to keep their economy at the standard level that is required by all EU members.

Benefits and costs of the nations involved:

Optimum currency areas is when many countries share the same currency which enables to save on prices, less transaction costs, greater confidence for investors, and increased competition.  The option of having the same currency across the borders is that all members can benefit from the same rates everywhere they go instead of having to worry exchange rates. 

The EU's trading agreement can work in developing regions because they make sure that before they become members they work to bring their economy to the same stable position as that of all other members of the EU.  I believe that the EU system is more good than bad as long as they do implement a fund in which they can help when a country is in dire need and that they need to fix the problems with Farmer subsidies because it isn't fair to neighboring countries.


Member states of the EU (year of entry)

 Austria   (1995)
 Belgium   (1952)
 Bulgaria   (2007)
 Cyprus   (2004)
 Czech Republic   (2004)
 Denmark   (1973)
 Estonia   (2004)
 Finland   (1995)
 France   (1952) Germany   (1952)
 Greece   (1981)
 Hungary   (2004)
 Ireland   (1973)
 Italy   (1952)
 Latvia   (2004)
 Lithuania   (2004)
 Luxembourg   (1952)
 Malta   (2004)
 Netherlands   (1952)
 Poland   (2004)
 Portugal   (1986)
 Romania   (2007)
 Slovakia   (2004)
 Slovenia  (2004)
 Spain   (1986)
 Sweden   (1995)
 United Kingdom   (1973)

Candidate countries:
 Croatia
 Former Yugoslav Republic of Macedonia
 Iceland
 Montenegro
 Serbia
 Turkey


References:

http://europa.eu/index_en.htm

(Robert J. Carbaugh, International Economics, 13th edition)

Import Substitution

Import Substitution became popular in the 1950s and 60s this policy came into effect to help bring economic independence to many underdeveloped countries and nations.  This concept helped countries in producing products domestically instead of opting for external goods and services.  Examples, of these basic necessities are food, water, and energy, which if they were to be produced domestically this would save money and more jobs would be available.  When spending is done locally this helps the economy, purchases made outside can have a negative impact on the Countries' GDP.  Also, economists can't predict that the money earned locally will be spent locally.  The country has to have capital saved just for external expenditures, this in turn would help the economy. 

Another, possible negative effect about this policy is that if the economy in said country is stable they might not have the incentive or drive to implement better technology and thus help nation become more prosperous.

A good example is BRICS:  The acronym BRIC was coined in 2001 by Goldman Sachs, for the benefit of their investors, to describe a grouping of large emerging economies.  There is no binding agreement between them and the term is thus merely a form of classification. (tmagazine.ey.com/insights/building-brics-in-africa/)

The BRICS leaders at the summit venue; (from left) Rousseff, Medvedev, Singh, Hu and Zumahttp://en.wikipedia.org/wiki/2012_BRICS_summit

"BRICS is a global alliance of regional powers." (valdaiclub.com/asia/26980.html)  Even though BRICS' economies are so different they have decided to join forces to help each other bring better technology and to help raise the economy.  Since they have big ties with South Africa it was in their best interest to join forces to make sure that the bond wouldn't be broken.  The members give other developing economies the chance to meet with them and discuss issues to better design new plans for helping these nations become more technologically and economically advanced.  As these plans develop and these countries grow, their power and leadership will continue to increase.

Russia has connections with Eupore and South Africa has trading connections with Africa, Asia and South America which this will help with developing these countries further.
 

Some facts about BRIC nations:
These nations host 40% of the world populations
According to the IMF, the combined GDP of the G8 in 2010 was $33.36 trillion; for BRICS, it was $11.33 trillion.

In conclusion,  all these countries forming an alliance will help other developing countries grow and will open many doors for the actual members now to implement having their own currency, banks and their own agreements for trade between all the countries connected.  At this moment they are working on their regional trade agreements and how to better the economy for all the underdeveloped countries.

File:Top five largest economies in 2050.jpg

http://en.wikipedia.org/wiki/File:Top_five_largest_economies_in_2050.jpg

Trade Wars

The Trade War between China and the United States started when President Obama decided to impose a 35 percent tariff on automobile and light-truck tires being imported from China.

The United Steelworkers which are a union that represent the American tire workers, decided that it was time that the United States raised tariffs since the imports from China was affecting the $1.7 billion tire market in the United States.

Tire imports tripled between the years of 2004 and 2008, China's imports into the United States grew over 16.7 percent from 4.7 percent according to trade records. Many American tire companies had to close their plants between the years of 2006 and 2007 since consumers prefered China imported tires.

The Tire Industry Association is opposing the tariff saying that they prefer to move their plants oversees and produce tires at a cheaper cost instead of saving american jobs. "If American workers and manufacturers are going to compete in the global market, they need to have a government that uses trade enforcement tools" (Andrews L. Edmund, September 12, 2009)

The WTO actually recommended a higher tariff than what President Obama was imposing, they recommended a 55% to start with rather than the 35% .

War between China and the U.S. started at the moment President Obama raised tarrifs on China's tire imports. The Agriculture Association decided to ask for an investigation on chicken prices. "They couldn't sell their products and were losing a lot of money," says Ma Xiang, the association's deputy secretary-general. "We investigated this situation and found out the import of American chicken parts made the competition in the domestic market very severe."

Many believe that this started as a retaliation because of the raising of tariffs on China's tire import to the United States.

In the U.S. chicken feet are often grounded to feed the chickens. In China they look at chicken feet (also called phoenix talons) as a "Delicacy" because they prefer their meat on the bone.

"The United States is by far the world's leading supplier of king size chicken feet. Also, about half of the chicken parts sold to China are wings and feet. (nytimes article)

China filed an Antidumping tariff against the U.S. chicken part import ranging from 43.1% to 105.4%.  Definition for antidumping tariff is:  A tariff imposed on imported goods to discourage sales which may be injurious to domestically manufactured goods.  Usually to prohibit sales of goods at less than they would be sold for in the domestic market of the country of origin.  (www.insurecargo.com/help/glossary.asp)

President Obama also said the United States had to take a stronger position on China's currency, which undervalued for about 40% which in turned caused China to pay less on their exports.

The rise in tariffs will cause American chicken feet to be driven out of the Chinese market.

The United States have the biggest Chicken Feet than any other market.

http://www.nytimes.com/2009/09/16/business/global/16chickens.html




http://www.time.com/time/photogallery/0,29307,1947488_2012362,00.html

Huang Dongyan, 36, from Shaoyang, Hunan
For Huang Dongyan, her toughest days as a migrant worker came in 2004. The economy was weak, and she was having trouble finding a job. So she joined up with her brother to open a small restaurant. But the restaurant continually lost money, compounding her troubles. "There were several months that I was full of suffering," she says. This spring Huang, 36, found employment at Shenzhen Guangke's LED factory. Her work site is more than a day's journey from her hometown, so she spends months away from her 15-year-old daughter Zhang Juan and 3-year-old son Zhang Yi. The children are taken care of by family members. Huang longs to return home to be with them. But she also knows that she might not find work there, and if she did the wages would be much lower. So Huang stays in Shenzhen to provide for her family's future. "The money I earn, it's for them," she says.

This shows that even though it seems that China makes a lot of moneyon exports, there are many poor families that have to leave and work in another City or Town just to survive.

These two cases are a good example of the Wars between different countries trying to make sure that their market and goods survive.