Free Trade Area of Americas
FreeTrade Area of Americas
FreeTrade Area of Americas
Regionalintegration is among the most popular approaches that differentcountries are using to facilitate business in their respectiveregions. This may be achieved through the framing of rules thatfacilitate free trade among the member states. The process ofestablishing a trade bloc may be lengthy and complex because itrequires to consent of all member states, where the less developedeconomies may fear the risk of losing business to developed ones(Nakana & Chingono, 2008). Similarly, the establishment of the faced these challenges and some countriesand companies still doubt their survival. The plan to develop theFTAA was initiated in 1994 at the Summit of Americas (Ribeiro, 2008).The proposed trade blocs would comprise of about 34 nations. Thesemember states would come from the North America, South America,Central America, and the Caribbean’s with the exception of Cuba.This paper will analyze FTAA and its effect on the member states andcompanies operating in the member states.
Theidea of creating the FTAA was based on three major reasons. First,nations that supported this idea argued that the free trade areawould help the new trade bloc in eliminating all unnecessary tradebarriers (Altieri, 2003). This would in turn facilitatecompetitiveness of products imported from other member statesrelative to products imported from non-members states as well asdomestic products. This will result in trade diversion, which willbenefit the member states.
Secondly,it is believed that the establishment of the FTAA will boosteconomies of scale coupled with specialization among the memberstates (Altieri, 2003). This is because countries with a higher levelof fixed costs will be forced to produce in large scale in order tocompete with other firms within the trade bloc. In addition,companies that cannot withstand the stiff competition, even with thelarge-scale production will be forced to specialize in the economicsectors that they can perform better.
Third,the formation of the FTAA is expected to increase production in theregion. The integration of different countries will allow each memberstates to enjoy a variety of services and products from the memberstates, which would otherwise be impossible without this regionalintegration (Altieri, 2003).
Reasonsfor FTAA protests
Protestorsof FTAA cited three reasons for that support their opposition to theformation of this trade bloc. The first issue was the fact that thenegotiations to form FTAA were part of the corporate-led type ofglobalization (Medea, 2014). This implies that citizens and groupsthat represent the special interests in member states felt sidelinedin the secret negotiations. This created some fear that the policiesand rules framed in secret negotiations could turn out to beoppressive to other people, including the workforce.
Thesecond reason was the fear of environmental destruction, where theenvironmental conservation groups argued that the agreement couldexacerbate destruction. This is because the increase in trade amongthe member states will result in over-exploitation of resources.Protestors gave an example of Mexico, where foreign investors haveestablished companies that rely on wood as the raw material, whichhas resulted in the destruction of forests in Guerrero State (Medea,2014).
Third,protestors argued that the establishment of the FTAA would result inthe violation of human rights. For example, free trade will result inthe transfer of companies from high-wage to low-wage nations.Governments in the target nations will be forced to apply allavailable approaches (including the suppression of labor unions) tomaintain low labor standards in order to sustain foreign directinvestment (Medea, 2014). This will culminate in the violation of therights of workers in the target nations.
FTAAand living standards for small countries
Itis likely that the FTAA will reduce the living standards of peopleliving in small countries. In most cases, free trade agreementsboosts inequality and poverty of small and developing economies,while favoring developed ones (Medea, 2014). Investors fromdeveloping economies, who have a sufficient capital base, will drivesmall businesses in small countries out of the market. This willincrease unemployment and subject the small countries to the risk ofbeing dominated and controlled by developed countries. It has alreadybeen proven that free trade suppresses small companies and countries.For example, the free trade policies resulted in a significantdecline in the price of agricultural products in North American whengiant farmers dumped their subsidized products into the market(Medea, 2014). This drove small-scale farmers, especially in smallcountries out of business, thus reducing their standard of theliving. Therefore, there are high chances that the FTAA will affectthe living standards of people living in small countries in anegative way. The large countries, on the other hand, will benefitbecause they have an expanded market to distribute their products.
Governmentaid to small companies
Inmost cases, the establishment of free trade areas means moreopportunities for large companies and a threat to small businessesthat are forced to compete with established firms. However, the gongconcern of small businesses can be secured if the respectivegovernments assume the responsibility of supporting them. Forexample, financial grants and cheap credit can help small businessacquire cheap capital (Cale, 2012). This can help small companies inmarketing their products at competitive prices, thus enhancing theirsurvival and growth in the free trade environment.
Thegovernment can also deploy its commercial attachés in member statesto identify business opportunities for local companies in thosecountries. Small businesses may not have sufficient capacity toconduct market research in foreign countries (Cale, 2012). Therefore,commercial attachés can serve as the bridge between local smallbusinesses and the foreign markets, thus helping them take advantageof the business opportunities available in the free trade bloc.
Inaddition, the government can purchase its suppliers from smallbusiness operating in the local market. This can increase theircustomer base and profitability, thus giving them an opportunity togrow in a competitive market (Cale, 2012).
Sub-regionalblocs can serve as effective tools that small countries can use toenhance their negotiating position in the event of a large free tradearea bloc. Under normal circumstances, it would be difficult forsmall countries to make their bargain amidst many and largecountries. In contrast, small member countries are more likely to beheard when making negotiations with a trade bloc comprising of a fewnations. This is based on the idea that the visibility of eachcountry is higher when considered in the context of a small tradebloc as compared to a larger bloc. In such a scenario, it would beexpected that sub-regional trade blocs should serve as the buildingblocs of the larger trading blocs where each sub-regional blocrepresents the interests of its members in the larger bloc (Frankel,Stein & Wei, 2000). However, the success of small countries inincrease their negotiations depends on whether the sub-regional blocis based on viable objectives, such as economic complementary, policycoordination as well as a commitment, and geographical proximity.
Smallnations and free trade agreements
Allfree nations should avoid the free trade agreements because theseagreements subject their domestic economies to the risk ofcollapsing. This is because small countries tend to have a limitedamount of resources that in turn reduce their capacity to competefairly with large nations (Kirkwood, 2014). In addition, free tradeagreements subject the local private sector to equal terms with theforeign private companies. In this case, the private sector of smallcountries, is relatively weak compared to the private sector in largecountries faces the risk of collapsing. This implies that free tradeagreements result in the formulation and implementation of equalregulations for players with unequal capabilities, which serves as adisadvantage for players in small countries. Equal trade agreementslimit the governments’ capacity to protect the local companies byregulating the business between their respective countries and othercountries (Kirkwood, 2014). Companies operating in small countries,which survive at the mercy of governments’ protection, aresubjected to the stiff competition that put their going concern atrisk. Therefore, small countries should avoid entering into freetrade agreements with larger countries in order to protect theirdomestic economies.
Regionaltrade agreements and regional cooperation
Regionalintegration fosters cooperation among the member states. Cooperationamong these states begins during the formulation of rules andregulations that are expected to govern the trading bloc. Forexample, member states seek to establish similar or relatively equaleconomic as well as political institutions that will facilitate tradein their region (Altieri, 2003). This calls for a high level ofcooperation in order to ensure that all economic policies undergocross-country synchronization and are agreeable to all member states.Rules and policies that are established through cooperation of themember states creates an environment that fosters subsequentcooperation since all member states feel themselves as part of thebloc. The level of cooperation can be confirmed by the formation ofcross-border production chains that are intended to leverage thecomparative advantage of each member state.
Regionaltrade agreements are a significant tool that creates a platform fordifferent countries to cooperate and work together with the aim ofachieving stability, peace, and wealth creation. Although the conceptof regional integration is still controversial, its benefits exceedthe negative effects raised by special groups, including theenvironmentalists and human rights groups. For example, free tradeagreements result in the elimination of trade barriers, which in turnfacilitates a smooth flow of services and products across borders.This boosts trade among the member countries, thus boosting theirrespective economies. However, effective trade agreements should takeaccount of the weaknesses and strengths of each member state toensure that parties to the agreement benefits from the establishmentof the trading bloc. For example, a trading bloc established betweensmall and large countries is likely to benefit the large ones at theexpense of the small countries, unless of agreements take account ofthe weaknesses of the smaller member states.
Altieri,L. (2003). NAFTA and the FTAA: Regional alternatives tomultilateralism. BerkeleyJournal of International Law,21 (3), 1-32.
Cale,E. (2012). Fiveways government can help your small business.Washington, DC: Wave Accounting Incorporation.
Frankel,J., Stein, E. & Wei, S. (2000). Trading blocs and the Americas:The natural, the unnatural, and the super-natural. Journalof Development Economics,47, 61-95.
Kirkwood,P. (2014). Free trade agreements and trading blocs. Journalof American Academy of Business,6 (1), 1-11.
Medea,B. (2014). Topten reasons to oppose the free trade area of the Americas.San Francisco: Global Exchange.
Nakana,S. & Chingono, M. (2008). The challenges of regional integrationin South Africa. AfricanJournal of Political Science and International Relations,3 (10), 396-408.
Ribeiro,G. (2008). Brazil and the free trade area of the Americas. BusinessIntelligence Journal,1 (1), 7-34.