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TRADE AGREEMENT
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Class: French 4
International Relations/20162
President University
Jalan Ki Hajar Dewantara RT. 2 / RW. 4, Jababeka Education Park, Mekarmukti, Cikarang
Utara, Bekasi, Jawa Barat 17550
Telepon: (021) 89109762 Fax: 021 8910 9762
Email: http://www.president.ac.idWeb: http://president.ac.id
The failure of Doha allowed China to gain a global trade foothold. It has signed
bilateral trade agreements with dozens of countries in Africa, Asia, and Latin America. In
return for loans and technical or business support, Chinese companies receive rights to
develop the country's oil and other commodities.
The term free trade apparently originated at the end of the sixteenth century in
parliamentary debates over foreign trade monopolies. In England, royal grants giving
select merchants the exclusive privilege to engage in trade with a particular region of the
world dates back to the thirteenth century the term free trade initially carried a different
meaning than what we now attach to it. A free trade was commercial activity in which
entry was unrestricted, where the liberty of the merchant to participate in trade was
unhindered by exclusionary guild regulations or government grants of monopoly rights
and privileges.1
In his seminal survey of the theory of customs union, Lipsey (1960) stated: If one
wishes to predict the welfare effects of a customs union it is necessary to predict the
relative strengths of the forces causing the trade creation and trade diversion. For the
impatient reader, we find that trade-creating and trade-diverting economic characteristics
matter considerably in explaining the probability of an FTA. Pairs of countries with FTAs
tend to have the particular economic characteristics that the theory suggests should
enhance the two countries net trade creation and welfare (through possibly reducing
nonmembers net welfare). 2
1
https://nccur.lib.nccu.edu.tw/bitstream/140.119/33942/7/93303807.pdf
2
http://www3.nd.edu/~jbergstr/Working_Papers/Economic_Determinants_of_FTAs.pdf
III. Research question
3.1 What are the influencing factors of Free Trade Agreement (FTA)?
IV. Discussion
Free trade is an activity of buying and selling of products between countries without
any hassle or bureaucratic rules governing the free trade within a State. Thus, a country,
company or even individual can sell products that are created abroad. Vice versa, the State
lainpun can sell its products in the country so that the consumer can get the goods - goods of
international quality with ease and at a relatively affordable price. In the absence of
regulatory barriers in conducting free trade is certainly spur a country to develop the country
in selling produce superior products that characterizes the country. According to the experts
to conduct free trade would be mutually beneficial for the country.
There are strong evidences that pairs of countries governments tend to form FTAs:
(i) the closer two countries are geographically (more trade creation); (ii) the more remote a
pair of natural trading partners is from the rest of the world (ROW) (less trade diversion); (iii)
the larger and more similar in economic size are two trading partners (more trade creation);
(iv) the greater the difference of capital-labor ratios between two trading partners (more trade
creation); and (v) the smaller the difference of the members capital-labor ratios with respect
to the ROWs capital-labor ratio (less trade diversion).
The character of the Asia Pacific has changed dramatically in relation to the use of the
FTA as an instrument of trade policy. China and Japan for example are negotiating separate
free trade agreements with the Association of Southeast Asian Nations (ASEAN). Chile, New
Zealand, Mexico and Singapore have pursued vigorous FTA programs since1999. There are
also a growing number of agreements between countries with differentcultures, ethnicities
and histories such as the European Free Trade Association (EFTA) and Korea (2006);
Thailand and New Zealand (2005); Japan and Mexico (2005); Thailand and Australia (2005);
Korea and Chile (2004); United States and Singapore (2004); Singapore and Australia
(2003), New Zealand and Singapore (2001) and United States and South Korea (2007). As of
the middle of 2007, there is the possibility of a Chile-Singapore-New Zealand pact, an
Australia-China pact, an Australia-Japan pact and a possible Japan-US FTA. These new
agreements confirm the growing relevance of the FTA as an instrument of trade policy and its
continued application in the near future. While ASEAN has had their own FTA since the
early 1990s, it was only since the late 1990s that Southeast Asian countries began seriously
wooing non-ASEAN countries as possible partners in free trade agreements.3
V. Conclusion
The influencing factors of FTA are (i) the distance between the countries; (ii) the
accessibility of the countries for the goods flow (iii) the similarity of economic size; (iv) the
difference of capital-labor ratios between two countries; and (v) the difference of the
members capital-labor ratios with worlds capital-labor ratio.
3
http://dirp3.pids.gov.ph/ris/pjd/pidspjd09-2fta.pdf