Trade Agreements And Global Supply Chains

Perhaps the most well-known trade agreement is the North American Free Trade Agreement (NAFTA). This free trade agreement between Canada, Mexico and the United States came into force in 1994 and remains, more than 20 years later, the largest free trade agreement in the world. The agreement, which fits within the three conditions laid down by the U.S. president, created a trilateral rules-based trade bloc throughout North America that helped develop trade relations between the United States and other NAFTA members. In addition, the three countries were able to become more competitive in the global market. Free trade agreements (FAs) are generally subject to restrictions on the use of inputs for the free trade of finished products. I focus on rules of origin (RoO), which limit spending on intermediate services in third countries. In a three-country free trade game, I inseminated in the international trade of inputs and restrictions on the ro point. In the case of symmetrical countries, I show that global free trade is less likely, that global free trade is a result of stable balance if countries are more involved in global supply chains, compared to their input stocks in foreign final production. Freedom of movement is the main problem that prevents countries from liberalizing trade. Countries are better able not to be members of free trade agreements between the other two countries in relation to global free trade. Rules of origin can solve this problem by limiting the benefits that countries enjoy from other countries` free trade agreements.

In the case of asymmetric countries, there is an additional incentive for the small country not to join: such a country gives up more than it earns by joining a free trade agreement for a sufficiently high level of asymmetry in the sizes of countries. I show that, in the case of the RoO, global free trade is a stable balance of Nash under a greater area of asymmetric country parameters than in the absence of RoO. It turns out, therefore, that the RoO is essential to achieving global free trade. The pandemic is likely to accelerate the spread of Industry 4.0. The idea that everything would be done by robots has never been realistic, because there are many activities where it is not cost-effective to use an expensive robot. Clothing is still mainly done by people in developing countries, as well as many beautiful tasks in the electronics and automotive value chains. But the pandemic needs to change the costing, at least to some extent. Imagine an activity where it is a little cheaper to hire labour in developing countries than to use a robot in an advanced economy.

Businesses are now aware of the potential disruptions caused by pandemics and/or trade blockages. If this risk is taken into account, the robot could be the cost-effective choice. Industry 4.0 does not suddenly eliminate production opportunities in developing countries, but it must limit them more than it has done so far. Since the virus is controlled worldwide, especially where there is a reliable and widely used vaccine, life should return to “normal”. But it will probably be a new normal. The details will be difficult to predict, but there are likely to be lasting changes in the demand structure. People in advanced economies can continue to work more from home, reducing the demand for cars and gasoline. We may have fewer requests for offices and retail. These changes would tend to put pressure on commodity prices and trade volumes. Three sectors with large value chains, involving developing countries, are automobiles, electronics and clothing.2 I would expect greater demand for electronics and fewer cars and clothing in a post-pandemic world. But the general point is that there could be significant changes in these sectors that influence development opportunities.

As far as services are concerned, international tourism may not be able to fully recover to its previous level; This was an important export