7. What major international agreements affect international trade?
The United States has entered into two types of treaty with multiple countries regarding the trade and shipment of goods. These treaties allow individuals from the US and the host country to sell and ship goods to the other country without special tariffs or duties. The two types of treaty are as follows:
• Treaty of Friendship, Commerce, & Navigation (FCN) – These are commerce agreements that the US maintains with over two-dozen countries. Many of these agreements have been replaced by other specific agreements.
• Bilateral Investment Treaty (BIT) – These agreements provide provisions for foreign countries (or its citizens) owning businesses within another country. The US is currently involved in over 40 BIT agreements with foreign nations.
Numerous direct agreements between countries affect the international sale of goods. The most commonly recognized international agreement is the North American Free Trade Agreement (NAFTA). NAFTA is an agreement between the US, Mexico, and Canada to increase trade and foreign investment across the countries. NAFTA allows for trade and shipping among these countries without tariff or duties. It also provides a system of dispute resolution for disagreements among trading parties. The US is a party to similar free-trade agreements with the Dominican Republic, Colombia, South Korea, and Panama, Israel, Jordan, Australia, Chile, Singapore, Bahrain, Morocco, Oman, and Peru.
• Discussion: Why do you think the US Government has so many international trade agreements with other countries? How do you think these agreements affect both countries? What are the arguments for and against these types of agreement? Hint: Think in terms of economic productivity and the role that each country plays in these types of relationships.
• Practice Question: ABC Corp is considering importing goods made in several Asian, European, and South American Countries. ABC will decide on the importation countries based upon the costs associated with importing. What types of treaties or agreements may aid ABC in its objectives?