TRADE AGREEMENTS

Introduction

• Trade agreement is any contractual trade arrangement between states concerning their relationships

• Trade agreement is a type of economic integration

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• Successful trade agreements are very complicated

• Some common features of trade agreements are:

Reciprocity A most-favoured-nation (MFN) clause National treatment of nontariff barriers

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Importance of trade agreements

1. Reduce trade barriers– For most countries international trade is

regulated by unilateral barriers of several types:

Tariffs Nontariff barriers

– Two or more nations can go for economic integration by partial or full abolition of these barriers

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Trade agreements are one way to reduce these barriers, thereby opening all parties to the benefits of increased trade

In most modern economies the possible coalitions of interested groups are numerous, and the variety of possible unilateral barriers is great

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2. Increase the combined economic productivity

– It increase the combined economic

productivity of the countries by economic cooperation

– International trade, allows each country to specialize in the goods it can produce cheaply and efficiently relative to other countries

– Specialization enables all countries to achieve higher real incomes

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3. Trade agreements bring many benefits for economies around the world

-New markets-Jobs-Competitiveness-Foreign investment

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• New markets Trade liberalization opens new markets

between trade partners

Free trade zones allow exports to grow

• Jobs Trade Agreements can create jobs and

help to grow the economy

Most of jobs depend on exports

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• Foreign investment Free trade agreements spawn foreign

investment, creating economic growth

As markets open for each of the trade partners so does investment opportunities

• Competitiveness Free trade agreements increase industry

competitiveness and the expansion of exports

Competition from abroad forces domestic producers to keep prices down

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Classification of trade agreements

1. Bilateral Trade Agreement

2. Multilateral Trade Agreement

3. Plurilateral Trade Agreement

4. Unilateral Trade Agreement

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Bilateral Trade Agreement

• Bilateral (BTA) signed between two countries

• BTA give preference to certain countries in commercial relationships, facilitating trade and investment between the home country and the foreign country by:

Reducing or eliminating tariffs, import quotas export restraints and other trade barriers

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Multilateral Trade Agreements

• A trade agreement signed between more than two countries

• They are usually intended to lower trade barriers between participating countries

• Once negotiated, they are very powerful

• MTA are considered the most effective way of liberalizing trade in an interdependent global economy

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Plurilateral Trade Agreement • A Plurilateral Trade Agreement (PTA) is a

special type of MTA

• The primary difference between a PTA and other MTA is that the availability of reservations is more limited under a PTA

• Due to the limited nature of a PTA, the full co-operation of the parties to the agreement is required

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Unilateral Trade Agreements

• Trade incentives an importing country offers in order to encourage the exporting country to engage in international economic activities that will improve the exporting country’s economy

• Intensives offered to developing countries

• The incentives typically include - Reduced duty rates

• The most common program is the General System of Preferences 14

Bilateral Trade Agreements

• Related to Sri Lanka China -Sri Lanka Rubber Rice Agreement Indo-Lanka Free Trade Agreement (ISFTA) Bangladesh mulls FTA with Sri Lanka Pakistan-Sri Lanka FTA (PSFTA)

• Other Canada and USA Trade Agreement

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China -Sri Lanka Rubber Rice Agreement

Important Features

Sri Lanka received a fair price for its rubber exported to China and paying the right price for the rice imported from them

During low price it helps to country to selling rubber production at a decent price

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Indo-Lanka Free Trade Agreement (ISFTA)

Important Features

Complete or phased elimination of tariffs

Does not remove all tariffs on all goods at once

Negative Lists to protect national interests of both countries

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The Rules of Origin criteria to ensure a minimum local content

Adequate safety clauses to protect domestic and national interests of both countries

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Pakistan-Sri Lanka Free Trade Agreement (PSFTA)

Important Features

Establishment of a Free Trade Area through complete or phased elimination of tariffs

Does not remove all tariffs on all goods at once

Negative Lists to protect national interests of both countries

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Canada and USA Trade Agreement

Important Features

Canada - wheat, cattle, processed potatoes, and sugar exports to the United States,

USA exports of corn to Canada

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Multilateral Trade Agreements

• Related to Sri Lanka South Asian Free Trade Area (SAFTA Asia– Pacific Trade Agreement (APTA) -

Formerly the Bangkok Agreement

• Other North American Free Trade Agreement

(NAFTA)

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South Asian Free Trade Area (SAFTA)

Important Features The agreement outlines a 10 year

schedule for trade liberalization

Reducing and eliminating customs duties on cross-border trade

SAFTA was focus appeared to implement measures to improve intra South Asian economic links

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Asia– Pacific Trade Agreement (APTA)

Important features• Formerly the Bangkok Agreement

• APTA, is a window into the massive Chinese and Korean markets as it is the only trade agreement of Sri Lanka with these two countries

• This covers around 50 % of Sri Lanka’s total exports into China

• Exchanging the sports training skills23

North American Free Trade Agreement (NAFTA)

Important Features

NAFTA, have substantially reduced trade barriers for agricultural commodities, manufactured goods, and services in North America

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Merits of trade agreements

1. Removal of disputes

2. Expanded Markets for Exports

3. Specialization of Labour and Capital

4. Foreign employment and economic growth

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5. Increased production efficiently & effectively

6. Consumer satisfaction

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Demerits of trade agreements

1. Removing a trade barrier on a particular good hurts the shareholders and employees of the domestic industry who produces that good

2. Some of the groups that are hurt by foreign competition wield enough political power to obtain protection against imports

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3. Increased domestic economic instability from international trade cycles, as economies become dependent on global markets

4. With the removal of trade barriers, structural unemployment may occur in the short term

5. Pollution and other environmental problems

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Conclusion

• Trade agreement is a type of economic integration

• Trade agreements can be classified based on number of states and based on articles in the agreement

• Sri Lanka has also joined to many trade agreements with many countries

• There are both merits and demerits of trade agreements 29

Suggestions• Should be beneficial to each side

• Specific trade difficulties should to be resolved

• Illegal trading activities should be banned

• Should be concerned to protect the domestic economy

• Should be used to develop relationship between each side 30

References• www.itfglobal.org/itf-americas/types-

agreements.cfm

• http://www.gktoday.in/different-types-of-trade-agreements/

• http://www.britannica.com/topic/583535/bibliography

• http://www.econlib.org/library/Smith/smWN.html 31

Group members

• Illeperuma R.D• Watawala W.K.S.W• Jayalath S.A.D• Herath P.S.K

UWU/PLT/11/0046UWU/PLT/11/0015UWU/PLT/11/0006UWU/PLT/11/0034

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Thank you

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