Globalization is creating a new economic system, where walls are being demolished, interdependence is increasing & new rules and regulations must rise in order to make its growth sustainable.

With the upcoming sign of the new free trade zone agreement between 15 Asian countries, that will become the biggest ever free trade zone in the world, Brexit is happening in Europe and countries like the United States of America & India step out of commercial agreements, raise a lot of questions about the topic and how these economic blocks work: Is it really a good idea? Does the benefits of a free trade area overcome the negative effects of it? What factors influence the decision of a country to decide whether or not to be a part of such partnerships?

We will have a look at the short term of the effects post free trade block with the UK and its Brexit, which might help us uncover some new facts that will in turn give a convincing answer to these questions. 

RCEP

The Regional Comprehensive Economic Partnership is proposed to be a signed agreement that will form a new economic free-trade block, similar to the European Union and in which the tariffs on good will be progressively reduced, with the participation of the 10 State Members from the Association of Southeast Asian Nations (ASEAN), and 5 Asia-Pacific States, with whom the ASEAN countries have current trading agreements.

ASEAN ASIA-PACIFIC STATES holding agreements with ASEAN countries
Brunei Australia
Cambodia China
Indonesia India
Laos Japan
Malaysia New Zealand
Myanmar South Korea
Philippines
Singapore
Thailand
Vietnam

As can be seen in the previous list, India is included as one of the countries holding major trading partnerships with the ASEAN countries, but because of its Government concerns regarding the new deal hurting its domestic producers and lacking of enough coverage of the services sectors, it won’t be a part of the RCEP (as for now), effects of which are yet to be seen and one of the many reasons the signing of the agreement is being delayed. If India ends up accepting the terms and joins the block, the RCEP would represent 47% of the world’s population and about one third of world’s PIB.

One of the major criticized things of this agreement is that, in contrast with other such agreements like the Comprehensive and Progressive Agreement for Tans-Pacific Partnership (CPTPP), the RCEP has not strong commitment with the environment and workers’ rights. 

 BREXIT

The European Union is an economic and political union involving 28 European countries, which allows them free trade and movement of people, and from which the United Kingdom will gradually stop being a part from this year as a result a referendum held on June 23rd 2016, where voters (72% of the voting population), decided 52-48 that UK should leave the European Union, from which they have been part since 1973, and which make them become the first member State to withdraw. 

The British Exit (Brexit) will imply that a new trade deal of goods and services must be discussed and agreed between UK and the European Union, plus a series of consequences regarding law enforcement, data sharing, security and migration. 

FREE TRADE AREAS

As we all are part of the same world, it is only natural that we are interconnected and needed to develop a system for integration and exchange, not only of goods but also of ideas and even between people. This ancient force called Globalization, which nowadays is evolving very fast mostly thanks to the technology enabling us to be more exposed to other cultures and fast exchange of data, is forcing the Governments to look into better ways to achieve higher economic growth and integration with other countries. 

This resulted in the appearance of trade blocs that would help development and growth by generating agreements between a set of countries while eliminating unfair barriers to global commerce and setting up the rules and regulations for a better integration: Free Trade Areas. 

While these blocks or areas come with many benefits, as previously mentioned, they also come along with unavoidable negative effects like: bad/unfair working conditions because of local laws and low wages; job loss because of outsourcing; reduced Intellectual Property Rights protections; environment damage as result of fastest harvesting methods and quickly depleted natural resources; trade revenues reduction because of high competition levels; among others. 

For the Trade blocs to be successful in a short period of time, all countries involved must always keep pros and cons in mind in order to look for the right means that would give back the best and optimal results in the long run. These blocs must not make the mistake of applying full protectionism or full free trade; rather a mix that will guarantee with the safeguards of the rights, a fair trade that can be sustainable, making it easier for developing countries to catch-up. This will ensure that all countries involved in the blocks can get the best out of the agreement, and a stable-fair economy can be created that will benefit everyone involved. 

ABOUT THE AUTHOR

Lino Choreño is a Mexican IT Engineer & businessman holding a Master in International Business Development from Milano-Bicocca, and an International MBA from Alliance University. He has been exposed to an international background from a very young age, which has given him a wider view of the world and motivated him to travel, meet people from all over the world & explore new cultures. Currently, he is working for Mexico’s Secretary of Foreign Affairs in the quest to make better and stronger ties to contribute to the growth not only of his country but of the whole world.