Introduction
In the last few decades, there has been a gradual increase in the creation of trading blocs with many agreements sealed and more discussions underway. Basically, a trade bloc is a free trade region or zone between two or many countries bound by trade agreements, one or more tariff and tax. While some trade blocs have led into talks which have enabled economic cooperation and development within its members, others have failed to create the economic cooperation and have either crumbled or continued to maintain the weak connection within their memberships. This paper aims at evaluating the prospects and progress within APEC and NAFTA. To help in this evaluation, the paper would discuss the policy and market reasons for integration in these two regional trade blocs, the stages of horizontal and vertical integration of each of the two groups, the presence of trade creation or trade diversion and who benefits or harmed by the agreement.
The Policy and Market Reasons for Integration
Founded in 1989, the market reason for APEC was the formation of a trade bloc which would agree on a common commitment to cooperate and pursue an economic prosperity within Asian-Pacific bloc (Delgado, Garcia & Michel, 2018). In their first time meeting held in the United States, the leaders of this economic trade bloc emphasized on their commitment to their shared vision of achieving a stable, secure and prosperous region for their people. At the center of this vision was the leaders' commitment to propel economic growth through integration as well as free and open trade and investment. In 1994, the APEC leaders met in Bogor Indonesia and put in place the Bogor goals as part of their commitment to achieving a free, open and investment by 2010 for the developed economies and 2020 for the developing economies (Delgado, Garcia & Michel, 2018). In 2002, APEC updated the Osaka Action Agenda to help achieve the Bogor goals. In 1996, APEC resolved to use Individual Action Plans as a way of tracking down the progress of achieving the Bogor Goals. With the lowered tariffs within is economies, APEC continues to operate as an open region. The lowered tariffs are also applicable to the outside of its economies.
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NAFTA which was proposed in 1990 and launched in 1994 seeks to encourage free trade between Canada, Mexico, and the United States. The policies of NAFTA are key to ensuring that there is the origin of content. The member countries of NAFTA establish their own rules that they want to apply to the non-member countries. For example, one rule of NAFTA is ensuring that a foreign exporter does not ship to the NAFTA country with lower tariffs for countries which are not members. Also, NAFTA requires that at least 50% of the net cost should either be incurred or come in the NAFTA region (Komar, Uniiat & Lutsiv, 2016). There are also tougher requirements for cars and footwear. For instance, the rule of origin of content requires that Asian manufacturers with cheap prices do not negotiate lower tariffs with any of the NAFTA countries or dump their cheap products in any of the countries.
Vertical and Horizontal integration of each Group
In economic terms, vertical integration is whereby an entity tries to take control of the activities which are either upstream or downstream in the stage involved. Horizontal integration, on the other hand, is whereby the entities undertake similar functions either to consolidate or penetrate into new markets. The NAFTA agreement appears to have accelerated the process of regional integration within North America. The intra-industry trade continues to exist in most sectors and between two-dimensional relations which is the United States- Canada and United States- Mexico. The automobile industry has had the highest growth rate in the trade and these accounts for 90% of all intraregional trade and 66%of the total trade (Deblock, 2016). The stages for integration for NAFTA include exploration, production, transportation and marketing, and sales. APEC, on the other hand, explores new markets, strikes deals with them; go into production, transportation, and sales.
The Presence of Trade Creation or Trade Diversion
APEC has put in place several strategies to achieve trade creation. They include technological cooperation, investment liberation, and facilitation (Pangestu & Armstrong, 2018). Trade facilitation is meant to assist the developing countries in the region while economic and technological cooperation helps in assisting in developing infrastructure and the competitiveness of the developing countries within the bloc. NAFTA, on the other hand, does not offer specific assistance to the developing country Mexico (Komar, Uniiat & Lutsiv, 2016). Even so, there are environmental agreements and labor standards which are applied to all the member countries. NAFTA focuses on intellectual property and is designed as a closed and complete system with its coverage and panel meant to settle disputes.
In integration system in APEC is market driven (Pangestu & Armstrong, 2018). This appears to be the major difference between APEC and NAFTA since integration in NAFTA is system driven. The agreements for the APEC countries have created great opportunities for free trade with one another. Because of tariff reduction, there here have been the cheaper prices in commodities for consumers in the trade bloc. This has created employment opportunities and made members be economically empowered. There has also been trading diversion both for APEC and NAFTA in which member countries trade with non-member countries. This has led to increased trade between members and non-members with less efficiency.
Who Benefits and who is harmed by the Agreement
The beneficiaries of NAFTA are the U.S. and Canada since they have benefitted from the agricultural products from Mexico which go for cheaper prices. Mexico has also benefited since it has had its domestic market expanded. NAFTA has however faced controversies, particularly in the U.S. It has not given the desired results like it was initially thought (Deblock, 2016). Mexico has been the greatest beneficiary of its trade which has increased significantly. The U.S. has had problems with several complaints that it has sent most of its jobs to Mexico. For APEC, several member countries have benefitted the expansion of their markets. Trade diversion has also negatively affected other countries.
References
Deblock, C. (2016). NAFTA and United States Regional Trade Policy. In European Union and New Regionalism (pp. 197-210). Routledge.
Delgado, J. E. R., Garcia, J. G., & Michel, A. L. (2018). Relocation of Investment and Trade Diversification in APEC: Trends and Challenges for Mexico. Advances in Management and Applied Economics , 8 (2), 61-69.
Komar, N., Uniiat, A., & Lutsiv, R. (2016). Efficiency of the North American Free Trade Zone.
Pangestu, M., & Armstrong, S. (2018). Asian economic integration: The state of play. Asian Economic Integration in an Era of Global Uncertainty , 15.
