The Importance of FTA in Global Governance in Trade (Research Paper Sample)

Why Automobile Industry has been excluded in China-South Korea FTA
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The Importance of FTA in Global Governance in Trade
Introduction
International trade is a key global enterprise that propagates the advancement of mankind. Trade has been in existence since the beginning of the species in whatever form. Man always desired what he did not have and created trade as a mechanism to achieve such needs without the encumbrances of having to battle over such things. The progression of civilization has not negated the need for goods and services but has increased their complexity. People must, therefore, trade on a previously unprecedented scale. Exchanging goods and services on a global scale. International trade forms part of the answer to the conundrum of wants and needs.
The World Bank estimates that in 2014 $19.06 trillion dollars’ worth of merchandise was exported globally. In the same year, $19.01 trillion worth of merchandise was exported globallyCITATION The15 \l 1033 (The World Bank 2015). The World Trade Organisation that there is a lack of balance in international trade. In 2013, 10 of the top traders globally accounted for 52% of the total trade globally. The rest of the world shared the remaining 48%. Developing countries accounted for 43% of the global tradeCITATION Wor14 \l 1033 ( World Trade Organisation 2014). Trade with developing countries was characterised by an unfavourable balance of payments. This features net imports rather than exports. The resultant effect on their economies was substantial. Their currencies are weaker and more susceptible to market shocks, their credit ratings are weaker, slow economic growth and greater likelihood to defect on loans provided by international lenders such as the World Bank and the IMF.
International trade faces many challenges due to the complexities involved in it. The large number of players, language, tariffs, non-tariff measures, different currencies, shipping, global value and service chains, political instability and social unrest. All these represent substantial challenges that face nations as they engage each other through trade. It is essential to note that there has been concerted effort among nation through bilateral and international talks to foster discourse on the issues above. These talks have quite naturally faced challenges; however, there is progress. The United Nations as a global body with international membership has six languages. These languages are acceptable to the international community for use in trade i.e. Arabic, Chinese, English, French, Russian and SpanishCITATION The151 \l 1033 (The United Nations 2015). The United States dollar is utilised as the de facto trade currency. In recent years, there are talks of replacing the dollar with a more acceptable currency such as the International Monetary Fund's Special Drawing Rights (SDRs). The use of the SDR would potentially stabilise the global economy and would be pegged to all currencies not just the US dollar or the Chinese YuanCITATION Ben11 \l 1033 (Ben Rooney - CNN Money 2011). Technology is being harnessed to support better management of global value chains. The emergence of global supply chain systems has necessitated the need to actively utilise technology to manage these systems. The Tenth WTO Ministerial Conference to be held in Nairobi in December 2015 provides an opportunity for global players to iron out issues affecting International Trade with a comprehensive agreement that should have International backingCITATION Wor15 \l 1033 (World Trade Organisation 2015).
Tariff and non-tariff barriers provide the most significant challenge to International Trade. These challenges are especially significant in that they cannot be simply disintegrated by the use of technology. There is a need for discourse on a wide range of topics before comprehensive agreements can be achieved. Tariffs in this instance refer to taxes that are imposed on certain commodities. Non- tariff barriers are impediments to trade put up to restrict trade and take other forms, i.e., not taxes. The Non- tariff barriers include; quotas, embargoes and sanctions. The abolishment of tariffs and non-tariff barriers represents a critical movement towards economic integration. Their abolishment is encouraged through the creation of a Free Trade Area through the signing and ratification of a Free Trade Area agreement instrument. The creation of such an instrument represents years of work between 2 or more nations. It is the second step towards full economic integration and requires the nations involved to reduce or eliminate barriers to trade. The nations involved are continuously appraised by an independent body to determine their adherence to the FTA agreement. The independent agency will then advise all members accordingly on how to improve especially in areas of mutual concern. While the reduction of tariffs will result in a loss of revenue to the concerned authority, the gains of trade should theoretically match and exceed the losses from reduced tariffsCITATION Wor151 \l 1033 (World Trade Organisation 2015).
Free trade agreements are essential in a number of ways. Key among this is shaping the framework within which business is conducted in the international trade arena. FTAs allow nations to clearly spell out the rights, obligations and expectations of all parties that are party to the agreement. The FTA becomes an important tool for productivity as it; reduces the potential for conflict and where conflict emanates, the FTA contains clear guidelines on the proper and acceptable conflict resolution mechanisms. Businesses understand that with conflict of any kind, the business environment is affected and little business can be conducted. The FTA provides an important catalyst to trade in catalysing peaceful and efficient ways to resolve conflict CITATION Dep15 \l 1033 (Department of Foreign Affairs and Trade 2015).
The Free Trade Agreement is a key step towards economic integration. FTAs support global governance that is geared towards greater integration of multiple nations especially towards common problems by providing an economic solution. Pundits on global governance have noted that its key drivers are very sensitive to any incursions into their income generating activities. Free trade agreements protect the interest of the global community indirectly. The FTA mechanism often requires that nations provide measures to enforce enforcement of the FTA agreement. Global governance institutions such as the World Trade Institutions lack enforcement mechanism. The FTA provides an opportunity for the WTO to advance its trade agenda without the need to lobby individual nations.
Global governance experts note that there is a crisis of purpose in global governance institutions. These institutions while adept at creating strategy and policy on a global stage are not equipped to implement these policies. Often these policies represent a pseudo academic endeavour with the global strategy being difficult to implement and in some scenarios does not reflect the situation on the ground in most regions e.g. Asia-Pacific region CITATION Bey10 \l 1033 (Beyer 2010).
The Contribution of the FTA to International and Regional Security
The FTA is an important in the arsenal of global governance. The FTA enables nations to create, maintain and periodically reinforce strategic political, economic and security ties. Neena Shenai of the American Enterprise Institute notes that FTAs protect the interests of nations beyond the obvious economic facets CITATION Nee09 \l 1033 (Shenai 2009). Nations that FTAs actively promote greater integration of their people socially and culturally. Global governance is dependent on the willingness of the world population continuously to invest in a global citizenry. The FTA approach works in international trade as there is a defined mechanism to hold all parties to account. The FTA continuously monitors each nation to ensure it is compliant as per its obligations. The paper therefore looks into the importance of FTAs in global governance in trade. It will utilise the Sino- Korea FTA as the subject of choice in the assessment.
China and South Korea FTA
A key example of a Free Trade Agreement is the new FTA between China and South Korea. The FTA is as a result of talks that began in May 2012 and ended in July 2014. The FTA was signed by the respective delegations of the bilateral players and after ratification would come into force. The South Korea’s national assembly ratified the agreement on December 1st, 2015. The agreement will now become operational as soon as the necessary protocols to guide its adoption are in place. China was at the beginning of the talk in 2012 South Korea’s biggest trading partnerCITATION The14 \l 1033 (The Korea Herald 2014). The Free Trade Agreement will have far-reaching consequences for both nations. Under the agreement, South Korea will remove tariffs on 79% of its products. These products number an estimated 9,690 items. The deal will be operationalized over a period of 10 years after the agreement is ratified by both nations and comes into force. China, on the other hand, will eliminate tariffs on 71% of its commodities. The total number of affected items are 5,846 of all Chinese exports to South Korea. The FTA is expected to boost trade and increase the bilateral trade to over $300 billion per annum. The agreement will also raise the standard of living for South Koreans as it will raise the per capita income to $30,000 per yearCITATION Yon14 \l 1033 (Yonhap News 2014). The agreement is also expected to raise the South Korean economy up by 0.95 percentage points. The agreement will also infuse over 50,000 new jobs into the South Korean economyCITATION Xio15 \l 1033 (Xiong Maoling Xu Ke 2015).
The agreement, however, faced significant problems as the two sid...