Chapter 5: International Agreements, Organizations, and Policies
5.3 International Trade Agreements
Pg. 157-168
Countries and companies have negotiated trade agreements because they are thinking
beyond their borders and seeking out international opportunities. Some of these
agreements lead to the establishment of a number of trading blocs or regions in which
countries agree to support mutual economic growth by opening their markets to crossborder trade and business development. Free trade supports the free flow of goods and
services, workers and investments within a region. This means eliminating or reducing
tariffs, duties and other barriers.
Free trade has often been referred to as reciprocity. Trade is reciprocal according to the
terms mutually agreed upon by countries. Even though governments may have agreed
on reciprocity or free trade, not everyone agrees with the concept (An example is on pg
157 paragraph 2)
The opposite of free trade is protectionism, a government’s efforts to protect domestic
industries from foreign competition. For example, for years Japan was very selective
with its imports and sought to block the entry of many foreign products that might
compete with Japanese products. Today, trade with Japan is more open.
Trade between two countries--Canada and the United States, for example is referred to
as bilateral trade. Trade among more than two nations is referred to as multilateral
trade. Canada trades with many nations and for that reason has many bilateral and
multilateral trade relations. Countries have increasingly entered into trade alliances and
in some cases have created trading blocs based on common regional interests. The
agreements and trade alliances discussed in this section make up three dominant
trading regions or blocs whose member countries together account for over 90 percent
of global trade:

North American Free Trade Agreement (NAFTA)

European Union (EU)

Asia-Pacific Economic Cooperation (APEC)
North American Free Trade Agreement (NAFTA)
On January 1, 1994 the North American Free Trade Agreement created a free-trade
zone consisting of Canada, Mexico, and the United States. The objective of NAFTA is to
increase trade, reduce prices and costs through increased production, and meet the
challenges of global competition. Trade among NAFTA countries makes up about onethird of all international trade.
NAFTA covers trade in goods and services as well as investment, and it has provisions
for the protection of intellectual property, fair competition, and dispute resolution. The
agreement eliminates duties, barriers, and restrictions on almost all products and
services traded.
For custom officials to determine whether import tariff charges are applicable a
certificate of origin is required with shipments. Products produced outside of NAFTA
may incur a duty.
For a product to qualify as a NAFTA product, it must have been at least 50% produced
at a manufacturing plant in the region and be composed of materials or components
from the region. If a company’s products qualify for NAFTA treatment, then those
products will benefit from lower tariff rates.
Free Trade Area of the Americas (FTAA):
Discussions initiated at the 1994 Summit of the Americas in Miami are being pursued
with an aim to integrate the economies of the western hemisphere into a single free
trade zone, an extension of NAFTA to be known as the Free Trade area of the
Americas. The hope is to reach an agreement by 2005. Finalizing such a treaty will
require significant debate and negotiations (as with all treaties and agreements) around
issues dealing with the environment, human rights, culture, and labour.
Between 1900 and 2000, Canada, the United States, and our 32 Latin American and
Caribbean partners saw out combined GDP output will grow from $7.1 trillion to $11.4
trillion dollars. The affluent or wealthy nations reaped most of the benefits, however,
while the number of people living in poverty grew.
The European Union (EU):
The European Union (EU) is a political and economic alliance in Europe consisting of 15
countries (with 10 candidate countries), formerly known as the European Community.
These nations eliminated trade barriers among the members. The EU represents a new
Europe. One of its most significant economic changes occurred in 1998 when the
majority of the EU countries became an economic and monetary union sharing a
common currency known as the euro.
The European Union has many advantages for the countries that belong. One is size;
its member countries now have access to nearly 380 million consumers. Another
advantage is that its manufacturers have uniform standards for technical products in an
attempt to ensure greater quality and productivity.
Now the world’s largest single market, the EU has surpassed the United States in both
gross domestic product and population, and ranks as Canada’s second most important
trading and investment partner (after the United States).
Economics and technology are bringing down the “fences” (tariffs, protectionism,
currency exchange, and government regulations) that use to “surround” countries. For
the success of free trade arrangements in a trading bloc such as the EU, citizens of
different countries will have to learn to work well with people who may be very different
from their own cultural or ethnic group.
The integrated European Union represents one of the world’s largest markets. It has a
currency that can compete with the U.S. dollar and the Japanese yen. People and
products can move more freely within the region. This flexibility should help EU
companies and countries to strengthen their position in the global markets.
Asia-Pacific Economic Cooperation (APEC)
APEC is a forum for ministers and government officials of countries bordering the
Pacific Ocean to discuss regional policy. APEC was formed in 1989. It is not a trade
agreement or pact, and has no formal institutional structure. Its long-term purpose is to
foster greater economic cooperation in the Pacific Rim in the hope that such
cooperation will spill over into the entire international community.
The Pacific Rim includes the circle of earthquake zones and volcanoes that surrounds
the Pacific Ocean that is sometimes called a “ring of fire”. Recently it has become to be
known as a vast, powerful, and interconnected economic and cultural community that
borders on the Pacific Ocean. It includes East Asia, Australia, New Zealand, Papua
New Guinea, and North and South America.
Today APEC has more than 20 participating countries. Because of the inclusion of
China, APEC countries represent nearly half of the world’s marketplace, on the basis of
their population and output. Many APEC countries attract business because they are
able to offer “low cost” labour, but the region now offers increasing numbers of highly
skilled workers.
APEC countries are very different from each other in terms of size, political system,
language, culture, and history. The only thing that connects them is their border on the
Pacific Ocean.
In 1997, several Asian countries in this group had an economic crisis, causing their
currencies to devalue overnight. APEC countries still continue to grow and influence
the rest of the world.
Several APEC nations have taken the bilateral free trade route. Singapore, Australia,
and New Zealand have announced free trade agreements that they hope will eventually
become APEC wide. Another Asian regional trade agreement is the Association of
South East Asian Nations (ASEAN). This includes Brunei, Indonesia, Malaysia, the
Philippines, Singapore, Thailand, and Vietnam. It has a total GDP of 1.8 trillion USD.
Efforts are being made to narrow the economic gap between members, especially with
regards to the level of digital and information technology.
Canada and the Pacific Rim
Some economists believe Ottawa should move toward an even greater free trade
agreement with Japan to reduce Canada’s dependence on the United States. The
Asian Development Bank has forecasted that by 2025, Asia’s share of world GDP will
climb to 57% from its 2002 level of 37%.
A recent survey says that Canada is missing out on opportunities to trade and invest in
Asia because it is too focused on the USA. Since Canadian and a\American economies
follow similar business cycles, any downturn in American economy would affect Canada
Free Trade or Duty-Free Zones
In 2001 Canadian customs and tax rules encouraged free-trade zones. Foreign
companies are allowed to bring goods into Canada and then ship them to the US and
elsewhere without paying duty or tax. It is hoped that foreign companies will now be
more likely to use Canada s the gateway to the American market.