Types of Trade
Regional Trade Agreements are agreements in which members accord preferential treatment to one another according to trade barriers. These agreements vary in terms of the level of understanding and co-ordination among the nations that participate. Owing to this, these agreements occur in different categories (Stephenson, Findlay & Yi, 2002).
The Preferential Trading Agreement refers to a trade agreement that lowers trade barriers among its members. This category acts upon a limited portion of actual trade flows and is non- reciprocal. Furthermore, PTAs help in gaining connection to a larger export market. This leads to economic development. An example of a PTA is the PATCRA formed in 1977.
Another agreement is the Free Trade Area (FTA). It acts upon a reciprocal arrangement. This means that trade barriers or tariffs are abolished.
Lastly, the Custom Union involves all participating nations adopting a common external trade policy. The Common External Tariff Regime forms a good example of a Custom Union.
Economies of scale refer to the benefits obtained by a firm due to a relative expansion. Preferably, it means that when more commodities get produced at a larger scale while costs remain low, then the economies of scale is achieved. A company that benefited the economies of scale is the Renault- Nissan Alliance. It involved a partnership between Renault, in Paris, France and Nissan in Yokohama, Japan. This partnership led to an increased production of automobiles since it involved a cross- shareholding deal. Thus, the company ended up benefiting from the economies of scale.
The European Union acts as an optimal currency area since its members trade largely with each other. Therefore, intra- European trade surpasses international trade. Secondly, the European Union evades the application of the no- bail out clause in the Stability and Growth Pact, thus, not allowing fiscal transfers (Jeffrey, 1997).
NAFTA stands For North American Free Trade Agreement. It refers to the institutionalization of a formally congested economic independence in the region. Canada displays a nation that benefited this organization. Being crucially dependent on the American Market, Canada joined the NAFTA, collaborating with Mexico and the US. Out of this alliance, Canada got insulated from protectionist pressures in America.
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