Regional Trade Agreements in the USA

Trade agreements are one of the main means to develop the economy and to provide more opportunities for the citizens of the country. USTR (the United States Trade Representative) has the main responsibility for administering trade agreements of the USA. The main responsibilities of this organization include the monitoring of the accomplishment of the agreements by the other countries, creating a more favorable work atmosphere for Americans and improving their level of life with the help of these agreements and negotiations and adoption of new agreements which improve the economical situation of the USA.

The USA is a member of the World Trade Organisation (WTO) consisting of 154 members. These WTO members are involved in the Doha Development Round of world trade negotiations which help to fight the world economic crisis and promote economic growth and development with the help of trade. The USA has free trade agreements (FTA) with 18 countries. Most of these FTAs are signed between two countries except the Dominican Republic-Central America – the United States Free Trade Agreement and the North American Free Trade Agreement which consist of several countries.

According to the Heckscher-Ohlin-Samuelson (HOS) theory, the world economy has a model including two countries, two products, and two factors. Trade-in goods are the only point of contact between two countries. As for the Stolper-Samuelson theorem, there is the model of two goods and two factors. If broader labor factors are taken into account, the HOS model is more appropriate considering the world economy.

The subject of our research is the United States of America, namely its regional trade agreements (RTA) and their influence on trade flows, relative prices, and the allocation of resources. Let us have a closer look at the regional trade agreement between the USA and Korea, which was signed on March 16, 2012. The main points of this agreement are the liberalization of trade between these two countries, the reduction and elimination of tariffs, and non-tariff barriers between the two countries. According to this agreement, each party should guarantee duty-free admission of the following goods: “(a) professional equipment, including equipment for the press or television, software, and broadcasting and cinematographic equipment, necessary for carrying out the business activity, trade, or profession of a person who qualifies for temporary entry according to the laws of the importing Party;

(b) goods intended for display or demonstration; (c) commercial samples and advertising films and recordings; and (d) goods admitted for sports purposes”. As for importation and exportation restrictions, each party should follow certain responsibilities and rights: export and import price requirements and import licensing conditioned on the fulfillment of a performance requirement. Both Parties should not adopt tax or duty on the export of goods to the territory of the other party. As the result, this agreement provides free trade between these two countries on the one hand and makes the market more competitive on the other hand.

There is a wide range of such trade agreements which makes the USA a trade partner to many countries as far as the main competitor in quality of the goods and their price. Such agreement trades based on the liberation of the trade include the agreement between the USA and the Dominican Republic, North America Free Trade Agreement (NAFTA), the USA – Australia, the USA – Bahrain, the USA – Chile, the USA – Israel, the USA – Jordan, the USA – Morocco, the USA – Oman, the USA – Peru, the USA – Singapore, the USA – Colombia and the USA – Panama. All these agreements have a certain influence on the American economy as far as they make a trade flow broader and the choice is enlarged with the goods from different countries and such agreements help to adopt relative prices on the goods. Nevertheless, such agreements have some disadvantages for those countries that export resources and import manufactured goods. It is unprofitable to export resources and import goods which are made from these resources but which are more expensive. As the result, many countries exhaust the wealth of their lands exporting their resources and do not have a lot of income from this. It should be noted, that it is the USA, the country which usually imports resources and export manufactured goods. This factor makes its economy stronger than in other countries. If two main factors according to the HOS model, labor and land are taken into account, the USA is the country where the labor factor exceeds the land factor. The USA provides manufactured goods of high quality based on the strong labor factor. The resources or primary materials which are necessary for the production of many goods are usually imported from other countries.

The most important agreement for the development of free trade bonds between different countries is the North American Free Trade Agreement which entered into force on January 1, 1994. This agreement built the largest free trade zone in the world which currently connects 450 million workers producing $17 trillion income. The main export goods are machinery, vehicles, electrical machinery, mineral fuel, oil, and plastic. The USA is one of the main exports of agricultural goods such as red meats, coarse grains, fresh/chilled/frozen, fresh fruit, fresh vegetables, and snack foods. The main import goods are mineral fuel and oil. Vehicles, precious stones, machinery, and electrical machinery are also imported in the USA. As we can see, the USA mostly imports natural resources which are necessary for the production of expensive manufactured goods which is very profitable for the American economy. The USA imports those goods which need the land for their productions and exports those goods and services that production depends on the labor force.

The main contribution to the trade liberalization of the Stolper-Samuelson theorem is considered to be equal wages and equal returns to both countries. According to this theorem, a rise in the prices of goods and services lead to the rise of wages. Nevertheless, this model sometimes does not work as far as the notion of unskilled labor forces is not taken into account. As for the USA trade agreements, they contribute in some way to trade liberalization. Nevertheless, it should be noted that the economic situation, the level of life, and wages of different countries are not equal. Rich countries become richer using natural resources exported by the other countries which are cheaper than ready-made goods provided by well-developed countries like in the case with the USA. It is a bright example of the HOS model where countries export those products which are abundantly used on their territories and import those goods and services which are scarce on their territories.

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