Discuss the influence of international organisations and contemporary trading blocs and agreements in promoting globalisation. | Throughout the recent decades, international organisations, trading blocs and agreements such as the European Union (EU), Asia-Pacific Economic Corporation (APEC), North American free trade Agreement (NAFTA) and Association of South-East Asian Nations (ASEAN) have influenced the promotion of globalisation throughout economies. The positive and negative outcomes of the influence of international organisations, contemporary trading blocs and agreements in promoting globalisation are outlined.
Trading bloc occurs when a number of countries join together in a formal preferential trading agreement to the exclusion of other countries, such as the EU and NAFTA. As global trade has grown and as more economies form trading blocs – countries in recent years have moved to form agreements and trading alliances to ensure that they are in the best position to gain from growing trade opportunities and also to avoid being excluded from the emerging trading blocs. The promotion of the advantages of joining emerging trading blocs would place countries excluded from trading blocs and agreements at a disadvantage.
Trade agreements can be bilateral (involving two countries – like Closer Economic Relations Trade Agreement, CERTA between Australia and New Zealand) or multilateral/regional (occurring on a regional basis – like NAFTA), or global (world trade Organisation).
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Trade Agreements promote free trade exclusively amongst members or can be open to all nations. Free trade agreements are formal agreements between countries designed to break down barriers to trade between those nations.
While these agreements are generally described as free trade agreements, in context it is more accurate to call them preferential trade agreements because in effect, they give more favourable access to goods and services from one nation or a group of nations part of the trade agreement compared to another. A negative effect of a preferential trade agreement is that they can make it harder for nations outside the preferential trade agreement to trade with the countries who are part of the agreement.
In this respect, they may not create better conditions for global free trade at all. In contrast, global free trade agreements conducted through the World Trade Organisation (WTO) are designed to break down all global trade restrictions and free up world trade. Advantages and disadvantages through the growing influence of trading blocs and trade agreements in the global economy have increased through the free trade between countries part of trading blocs/agreements and the increased barrier between countries part of a trading bloc/agreement and ones not part of it.
The outlined disadvantages of trade agreements are arguable as although two-thirds of European trade occurs within the EU (being a more closed trading bloc due to its protectionist policies), ASEAN economies primarily trade with countries outside their region, reflecting the fact that they are smaller economies and their economic growth strategies have centred around exports to industrialised economies.
These regional and bilateral trade agreements which have often led to the formation of trading blocs can hinder the progress they were created for towards global free trade as agreements have proved to slice the world up into separate trade areas. This is arguable as trade agreements have also been referred by economists to be “stepping stones” towards global free trade as it initially convinces economies part of agreements to reduce their protectionist barriers against a smaller group of economies (part of the agreement) but eventually encouraging them to remove those barriers for the whole world.
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In recent years, economies part of NAFTA and ASEAN agreements have substantially increased the level of trade amongst themselves, compared to trade outside their trade agreement. This figure points towards the potential risk that regional trade blocs could result in global trade fragmenting into self-contained regions and hindering the spread of global free trade as trade agreements were intended for. Although in the early 1990’s, countries in Australia’s region established the Asia-Pacific Economic Cooperation Forum (APEC) in response to the formation of trading blocs/trade agreements in other areas of the world.
As the APEC forum includes 21 member economies with approximately 41% of the world’s population, 54% of world GDP and 44% of world trade – APEC has gained a significant share of global trading influence. APEC Forum economies agreed to not become a secluded trading bloc but to reduce barriers to non-member economies – driving towards their target of achieving global free trade by 2020, Bogor Declaration (1994).
Although in recent years, APEC’s focus has declined on their target of achieving free trade to ddress more recent issues such as financial crises, climate change and terrorism – APEC has made progress to the liberalisation of free trade, with its encouraged openness to globalisation although not succeeded in its original goal to create a regional area of free trade. APEC has given a positive outlook on the promotion of globalisation and free trade between nations although not reaching its driving goal of free trade. On top of the multilateral agreements, bilateral agreements have contributed to the elimination of trade barriers between economies.
CERTA is an example of a bilateral agreement which has managed to abolish the trade barrier between Australia and New Zealand becoming one of the world’s most comprehensive free trade agreements. The influence on bilateral trade agreements although has not contributed greatly to the overall scale, has influenced trade barriers between two economies part of the agreement giving an advantage to trade between the two economies, concluding with positive outcomes in the promotion of globalisation and the positive goal of global free trade.
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Through the increased influence of international organisations, contemporary trading blocs and agreements in promoting globalisation, positive effects felt by the global economy include; the increased production and the lowering of international barriers between economies allow methods of production to flow between economies with more speed with the improvement with resource allocation within an economy, benefits to customers (increased standard of living within an economy) as customers have more choice with the decrease in barriers, foreign exchange gains, decreasing unemployment (as more people becoming employed with more work to make the decreasing trade barrier) and increased economic growth between countries part of the trading bloc/agreement/organisation.
Although free trade has its benefits, negative effects come with the increased free trade between economies; increased pollution as free trade comes with increased demand from other economies leading the increased pollution as production within an economy increases, increased domestic economic instability as economies become reliant on international markets with the opening of free trade, companies finding harder to compete with the increased competition from international markets – some markets selling goods and services at incredibly low prices through their lower labour/production costs and new industries being pressured by the increased established competition in the competitive environment. All in all, though there are disadvantages in the increasing influence of international organisations, trading blocs and agreements in promoting globalisation, the advantages in affect through these factors are much more positive in the long run for an economy.
