3.1 T HE T REND OF FTA IN THE W ORLD E CONOMY
3.1.1 I NTERNATIONAL TRADE TRENDS
Directions affect the structure of international trade:
50Heakal,R., (2015), " “A sovereign credit rating provides [general credit worthiness] as it signifies a country’s overall ability to provide a secure investment environment,Investopedia.
51 51Amadeo, K., (2017), International Trade: Pros, Cons, Effect on Economy, The New Balance Press
Economist Adam Smith founds the first trend where the fragmentation of the business globally leads to the specialization of countries in the provision of certain products. It depends on their conditions that constitute an absolute productivity advantage. Smith considered that international trade depends primarily on absolute expenditures, i.e. Exports from all goods are produced by the lowest absolute expenses, while the most expensive imports from the products are produced by the highest .52
The second direction is that the economist Ricardo founded it because he felt that the direction of absolute expenditures can only be applied in internal trade, and cannot be used in the interpretation of the structure of international trade. Ricardo was keen to establish a rule known as relative expenditures, and indicates international trade depends on the relative costs of products with exports accounting for all relatively superior volumes, while imports account for all the costs produced before the highest relative expenditure is provided.53
Economist Michael Porter founded the third direction by formulating a competitive feature base that was interested in developing Ricardo's relative advantage base, in order to be used to express a country's excellence in producing a particular product based on productive elements. Modern resources, such as human resources, capital, technology, etc., and accordingly determines the international trade of agriculture based on the nature of the state's specialization in the production and export of products based on acquired characteristics, while classifying the imports of natural resources that the state cannot. Its production is among the elements of competitive advantage.
The fourth trend is the one that relied on competitive ness, which indicates the potential of countries to provide for the needs of international markets while maintaining the development of citizen’s livelihoods.54
52British Arab Academy of Higher Education, (2009), International Trade.
53- Same reference as before.
54- Same reference as before.
International trade features:
There are ranges of features that distinguish international trade. The most important are:
1- Contributing to supporting economic growth and job creation.
2- Supporting local facilities and providing them with sufficient expertise to provide products to international markets abroad.
3- Have a competitive advantage in the field of international trade.
4- Attention to foreign competition based on imports in reducing the prices of products on consumers.
5- Providing a variety of services to individuals.
● International trade impacts:
The application of international trade has several negative effects, including:
1- Reducing job opportunities in the domestic industry sector due to governments reducing customs duties and the inability of local industries to compete globally.
2- Relying on external means of work, because of the interest of companies in moving their industrial and technological offices to countries with low living standards.
3- Loss of countries that rely on traditional economic regulations in their domestic agricultural sector.
● International Trade Relations:
International Trade Relations are divided into two types:
1- Local trade relations: trade processes that apply within one country, and between individuals with legal or natural personalities, and all provisions apply to these trade relations, local and commercial law.
2- Global trade relations: the processes of advanced and complex trade compared to local trade. It is interested in international openness to the trade sector, and this leads to the resort to new markets in various countries and away from the country where the project was founded. It is considered the type of trade relations are
antithetical to the economic closure of itself, encourage integration, and development and support of international trade movements55.
As an example of free trade agreements and their impact on the global economy, Professor Kim Deho, director of the Institute for Global Economic Research, says:
“A free trade agreement can be signed between two countries, and multilateral free trade agreements can also be concluded with the participation of many countries.
Such as the "Comprehensive Regional Economic Participation Agreement", the largest multilateral trade agreement in Asia. Its membership includes densely populated countries such as China, India and Japan. The Convention contains a huge economic bloc that represents nearly half of the world's population and one third of the world's GDP. The Comprehensive Regional Economic Participation Agreement (CMA) is a huge free trade agreement covering 10 ASEAN member states, ASEAN, and 6 other countries: South Korea, China, Japan, Australia, New Zealand and India. The combined population of these countries is 3.6 billion, or 48% of the world's total population. According to the International Monetary Fund, the total economic output of 16 countries was $25 trillion in 2017, one third of global GDP. In addition, the countries participating in the agreement achieve higher growth rates than developed economies such as the United States and European countries, and many of those participating countries have a larger young population, which is why they are called the "new growth engine for international trade". Efforts to form this huge market began in 2012, and the first round of negotiations on the China-led trade agreement began in 2013. After years of discussions, 15 countries, with the exception of India, agreed to the terms of the trade agreement."56
With regard to South Korea's role in the Asian Trade Agreement as an example, Director Kim De Ho said: “The agreement is expected to help Korea expand economic exchanges by significantly increasing export and import destinations”.
55- World Trade Organization (WTO) <http:rtais.wto.org/UO/PublicAllRTAList.aspx 56- World Trade Organization (WTO) <http:rtais.wto.org/UO/PublicAllRTAList.aspx
On the trade front, Korea is heavily dependent on China and the United States for export. Thus, any economic dispute between the world's two largest economies would have a major impact on Korea. However, if the agreement is activated, Korea will be able to diversify its export markets to India, Indonesia, Vietnam, the Philippines, New Zealand and Australia, along with China and the United States.
Of course, Korea may sell its goods in those countries without concluding an agreement, but it will have to conduct trade negotiations with individual countries.
Using the Economic Participation Agreement, Korea will be able to export and import products to and from the other 15 countries more easily and effectively."57
According to the Korea Economic Research Institute, the signing of the
"Comprehensive Regional Economic Participation Agreement" will add an annual average of 1.1% to Korea's GDP, or about $1.1 billion in interest to consumers, which will improve Korea's current account balance by 28.7% billion dollars in the medium to long term. Korean manufacturers of electrical and electronic products as well as automobiles will benefit from reduced trade barriers. Thus increasing their exports to 15 countries. The agreement is also expected to boost investment in the service industry. However, this agreement may have a negative impact on some Korean industries. 58
According to the Korea Institute of Rural Economics, South Korea exported
$3.15 billion worth of agricultural products to the convention's member states in 2015, while imports of agricultural products from those countries amounted to
$6.68 billion. This means that the convention will increase the negative impact on Korean farmers. Another problem is India's rejection of the agreement reached last week on the implementation of the agreement, as India remained passive toward the
57Whalley J., (2014), Korea and the Trans-Pacific Partnership: A Numerical Simulation Assessment of the Effects Involved, The World Economy.
58YONHAP, News, (2019),Comprehensive Regional Economic Participation Agreement, KBS world press.
agreement for fear that large quantities of low-priced Chinese products might flow to it.59