Unit III: Theories &

Institutions: Trade &

Investments

PROF. MUSKAN PAHWA

Adam Smith
Father of Modern Economics

International Trade Theory:

Theory of Absolute Advantage
Introduction to Trade Theory

 Trade theory explores the

principles and patterns of
international commerce,
examining how nations specialize
in production and exchange goods
and services.
 The Concept of Absolute
Advantage
 Absolute advantage (by Adam Smith in 1776) occurs when a country can produce a good or service more
efficiently than another country, using fewer resources.
The theory advocates specialization and free trade to maximize efficiency and output globally.

Scenario 1 Scenario 2

Country A can produce 10 units of wheat Country A has an absolute advantage in

with 10 workers, while Country B needs 20 wheat production, as it can produce
workers to produce the same amount. more with fewer resources.

 The Theory of Absolute Advantage says that a country has an advantage if it can produce a good more
efficiently than another country. By 'efficiently,' we mean using fewer resources, like labor or capital, to
produce the same amount of a product. The basic idea is that countries should focus on producing goods they
are best at and trade for other goods.
 Key Assumptions of Absolute
Advantage
 Assumptions of the Model:
• Only Two Countries and Two Goods: The model assumes that two countries produce two goods.
• Immobility of Resources Across Borders: Resources (like labor and capital) are assumed to be mobile within
each country but cannot move between countries.
• No Transportation Costs or Trade Barriers: The model assumes no additional costs for transporting goods,
and there are no tariffs or restrictions on trade.
• Full Employment: Each country is using all its available resources efficiently.
• Constant Returns to Scale: Doubling input will result in doubling output, keeping productivity proportional.

 Purpose of These Assumptions:

• These assumptions help isolate the benefits of specialization and trade based on absolute efficiency, simplifying
real-world complexities to focus on key insights from the theory.
 Benefits of Absolute Advantage

• Increased Efficiency:
Countries focus on producing goods where they are most efficient, reducing wasted resources.
Example: If a country is efficient at producing wheat, it can produce more wheat with fewer resources.
• Higher Global Production:
By specializing, countries increase total global production because resources are used in the most efficient way
possible.
Example: Instead of both countries producing both wheat and cars inefficiently, one produces wheat and the other
produces cars, leading to greater overall output.
• Lower Prices for Consumers:
Specialization allows for mass production, reducing the cost per unit and resulting in lower prices for consumers in
both countries.
• Strengthened International Relations:
Countries that trade are interdependent, which can improve diplomatic and political relations by fostering
cooperation.
 Limitations of Absolute
Advantage

• Simplified Model:
The two-country, two-good model doesn’t capture the complexity of real-world international trade, where many
goods and countries are involved.
• Ignores Comparative Advantage:
The theory doesn’t explain why countries trade when one of them is less efficient in producing all goods.
• Consideration of External Factors:
Factors like transportation costs, trade barriers, and exchange rates are not considered, but they play an
important role in real-world trade.
• Full Employment Assumption is Unrealistic:
In practice, not all countries have full employment or use resources as efficiently as assumed in the theory.
 Example

 Scenario: Let's consider two countries, Brazil and Japan, and two products, coffee and cars.
 Country Productivity:
 Brazil: Brazil is highly efficient at producing coffee due to its favorable climate, vast coffee plantations, and
specialized labor force. With these advantages, Brazil can produce 100 units of coffee per worker per day.
 Japan: Japan, on the other hand, is a global leader in automobile manufacturing due to its advanced technology,
skilled labor, and efficient production processes. Japan can produce 20 cars per worker per day.

However, Japan is less efficient at producing coffee, only managing to produce 30 units of coffee per worker per day.
Meanwhile, Brazil is less efficient at producing cars, only managing to produce 5 cars per worker per day.

 Conclusion:
 Brazil has an absolute advantage in producing coffee, as it can produce significantly more coffee (100 units per
day) than Japan (30 units per day) using the same resources.
 Japan has an absolute advantage in producing cars, as it can produce significantly more cars (20 cars per day) than
Brazil (5 cars per day) using the same resources.
 Example…
What Happens When Brazil and Japan Trade?

 Specialization Based on Absolute Advantage:

 Brazil should focus on producing coffee, as it has a clear advantage in coffee production.
 Japan should focus on producing cars, as it has a clear advantage in car production.
 Trade Example:
 If Brazil specializes in coffee, it can produce 100 units of coffee per worker per day. Meanwhile, Japan, specializing
in cars, can produce 20 cars per worker per day.
 Let’s assume Japan needs 50 units of coffee, and Brazil needs 10 cars.
 Brazil can trade 50 units of coffee with Japan in exchange for 10 cars. Both countries now benefit because:
 Brazil gets more cars than it could produce on its own (Brazil would have only produced 5 cars per worker).
 Japan gets more coffee than it could produce on its own (Japan would have only produced 30 units of coffee
per worker).
 Outcome:
Both countries end up with more of the goods they want by specializing and trading based on their absolute advantage.
David Ricardo
International Trade Theory:
Theory of Comparative
Advantage
 The Concept of Comparative Advantage

 Comparative advantage refers to the ability of a

country, individual, or firm to produce a good or
service at a lower opportunity cost than
another entity. It means a country can produce a
good more efficiently than another country,
even if they are not the most efficient overall.
 Key Concept: Opportunity Cost

Opportunity cost is the value of the next best alternative that must be given up to produce something.

How It Applies to Comparative Advantage: A country with a lower opportunity cost in producing a particular good
has a comparative advantage in that good. Even if a country is worse at producing everything, it should specialize in
what it sacrifices less of to produce.
Example:
If Country A sacrifices 0.5 units of cloth to make 1 unit of wine, and Country B sacrifices 1 unit of cloth for the same
wine, Country A has a comparative advantage in wine because its opportunity cost is lower.
 Comparative Advantage Example
(USA and Mexico)

 Scenario:
USA: Can produce either 20 computers or 5 tons of corn per day.
Mexico: Can produce either 10 computers or 10 tons of corn per day.
 Opportunity Costs:
USA: The opportunity cost of producing 1 computer is 0.25 tons of corn (5/20).
Mexico: The opportunity cost of producing 1 computer is 1 ton of corn (10/10).
 Conclusion:
The USA has a comparative advantage in producing computers because its opportunity cost is lower (0.25 vs. 1).
Mexico has a comparative advantage in producing corn because its opportunity cost is lower for corn production.
 Trade Benefits:
USA specializes in computers, and Mexico specializes in corn. By trading, both countries benefit by getting more
of both goods than if they produced everything themselves.
Assumptions of Comparative
Advantage

Perfect Competition Constant Returns to Scale

No single firm or country can Increasing production does not

influence the market price. change the cost per unit.

No Transportation Costs Homogeneous Products

Trade does not incur any costs for All goods are identical, regardless
moving goods. of the country of origin.
 Benefits of Comparative
Advantage

Mutual gains from trade Better allocation of resources Higher Global Output

Both countries involved in Countries can allocate their Specialization based on

trade can enjoy more goods resources to industries where they comparative advantage leads
and services than if they tried are most competitive, ensuring to more efficient production
to be self-sufficient. better use of resources. globally, increasing total
output.
Limitations of Comparative
Advantage
Assumes Perfect
Ignores
Resource Mobility:
Transportation Costs:
The theory assumes
Comparative advantage
resources can be easily
assumes no
reallocated between
transportation costs,
industries, but in reality,
which is unrealistic in
this is not always
real-world trade.
possible.

Externalities:
Trade Barriers and Environmental or social
Protectionism: costs associated with
Tariffs, quotas, and other certain industries (e.g.,
trade barriers can pollution or labor
prevent the free flow of exploitation) may not
goods, limiting the align with the principles
benefits of comparative of comparative
advantage. advantage.
 Government Influence on Trade

 It refers to the various actions and policies a government implements to regulate or control its country's
international trade. These interventions can include tariffs (taxes on imports), quotas (limits on the amount of goods
imported), subsidies (financial support to domestic industries), and other regulations aimed at either promoting or
restricting trade with other countries. Governments may do this to protect local industries, create jobs, improve the
country's economic position, ensure national security, or promote ethical practices abroad.
 In essence, it is the way governments shape and direct the flow of goods and services across borders to achieve
specific economic, political, or social goals.
 …Government Influence on Trade

 Governments control trade to protect their economy or society.

 They have economic and noneconomic reasons for this.

 Economic reasons include protecting jobs or helping industries grow.

 Noneconomic reasons include national security and promoting their values abroad.

 Why Do Governments Control Trade?

• Fighting Unemployment:
Limiting imports can protect local jobs.
• Risks of Retaliation:
If one country blocks imports, the other country might do the same.
 Problems with Limiting Imports

• Job Loss in Other Sectors:

Fewer imports mean fewer jobs in areas like shipping or customs.
• Higher Costs for Other Industries:
If imports like steel are limited, products made from steel (like cars) become more expensive.
• Hurts Exports:
If countries can't sell to each other, their income drops, which can hurt jobs at home.
 Uncertainties and Risks
• Unintended Consequences: Protecting one industry may hurt another.
• Trade-offs: The benefits of blocking imports may lead to higher prices for consumers or job losses in other areas.
• Retaliation: Trade restrictions can lead to other countries imposing their own restrictions, which can hurt the
economy in the long term.
 Noneconomic Reasons for Trade Control

 Maintaining Important Industries:

Some industries are vital for security, like defense, so they are protected.
 Encouraging Good Behavior Abroad:
Trade can be used to push for better labor or environmental standards in other countries.
 Spreading Influence:
Countries use trade to gain influence in other regions.
 Protecting National Culture:
Limiting foreign cultural imports helps protect a country's identity.
 Other Economic Reasons for Trade Control

 Protecting New (Infant) Industries:

Young industries need time to grow, so governments may protect them from foreign competition.
 Encouraging Industrial Growth:
Limiting imports can help industries inside the country grow.
 Improving Competitiveness:
Some countries want to strengthen their industries by controlling foreign trade.
 Major Instruments of Trade
Control: Tariff and Non-Tariff
Barriers
 Trade control refers to government policies used to regulate international trade. There are two main types: tariff
barriers and non-tariff barriers.
 Tariff Barriers
 Import Tariff
A tax on goods coming into a country.
It makes foreign goods more expensive, helping domestic industries by making their products more attractive to
local consumers.
 Specific Duty
A fixed fee on each unit of a product imported.
Example: $5 tax on every pair of shoes imported, no matter the price of the shoes.
It raises the price of imported items by a set amount, benefiting domestic producers.
 …Major Instruments of Trade
Control: Tariff and Non-Tariff
Barriers
 Ad Valorem Duty
A percentage-based tax on the value of the imported goods.
Example: A 10% tax on the total cost of imported cars.
The higher the value of the product, the higher the tax.
 Compound Duty
A combination of a specific duty and an ad valorem duty.
Example: $2 tax per shirt (specific) plus 5% of the shirt’s value (ad valorem).
It increases the cost of imports in multiple ways, making them less competitive.
 Effective Tariff
Higher tariffs on processed goods compared to raw materials.
It encourages countries to export raw materials instead of processed goods, which can hurt developing countries trying
to sell finished products.
 …Major Instruments of Trade
Control: Tariff and Non-Tariff

Barriers
Non-Tariff Barriers (Restrictions Without Using Taxes)
Non-tariff barriers restrict trade in ways other than taxes. These are used to limit imports, protect domestic
industries, or influence the type of trade. Here are some common examples:
 Subsidies
Financial support given by the government to local producers.
Lowers the production costs of domestic goods, making them cheaper and more competitive compared to imports.
 Quotas
A limit on the quantity of a specific product that can be imported or exported.
Limits the supply of foreign goods, which often raises prices and protects local producers from too much
competition.
 Voluntary Export Restraints (VERs)
A country agrees to limit the quantity of goods it exports to another country.
Reduces foreign competition in the importing country, protecting local industries.
 …Major Instruments of Trade
Control: Tariff and Non-Tariff
Barriers
 Customs Valuation
Customs officials alter the value of imported goods, usually increasing their declared value.
Higher valuation leads to higher duties, making imports more expensive.
 Standards and Labels
Regulations on product quality, safety, or labeling that foreign products must meet.
Example: A country may require imported electronics to meet certain safety standards.
Increases the cost for foreign companies to comply, reducing their ability to compete with local producers.
 Administrative Delays
Delays or slowdowns in customs processing of imported goods.
Increases the time and cost of importing products, making it harder for foreign businesses to compete.
 Cross National Borders and
Agreements
 Cross National Borders and
Agreements refers to the
policies, processes, and legal
frameworks that facilitate and
regulate the movement of goods,
services, capital, people, and
information across country
borders. These activities occur
within the context of bilateral or
multilateral agreements between
nations, aimed at promoting
international trade, cooperation,
and governance.
 World Trade Organization
 The World Trade Organization (WTO) is an international organization that oversees and regulates global trade
between nations. It was officially established on January 1, 1995, replacing the General Agreement on Tariffs
and Trade (GATT), which was created in 1947 after World War II to promote international trade by reducing
tariffs and other trade barriers. The WTO’s primary objective is to ensure that trade flows as smoothly, predictably,
and freely as
possible.
• Headquarters: Geneva, Switzerland.
• Membership: As of 2024, it has 164 member countries,
with many more in the process of accession. It is a truly
global organization covering about 98% of world trade.
• Director-General: The current Director-General is
Dr. Ngozi Okonjo-Iweala (since March 2021).
 The WTO plays a crucial role in promoting international trade by creating a framework for trade agreements,
resolving trade disputes, and reducing barriers to trade (such as tariffs, quotas, and subsidies) between countries.
 Purpose of the WTO

The WTO’s main purpose is to help producers of goods and services, exporters, and importers conduct their business
while adhering to fair rules and standards. The organization aims to:
 Facilitate free trade by removing barriers such as tariffs, quotas, and subsidies.
 Settle trade disputes between member countries through a binding dispute resolution system.
 Establish and enforce international trade agreements that promote a transparent and fair trading environment.
 Core Principles of the WTO
 Non-Discrimination:
- Countries cannot discriminate between their trading partners, meaning they must offer the same trade terms to all members (this is
known as the Most-Favored-Nation (MFN) principle).
- Countries must treat foreign and domestic goods equally once they enter their markets (National Treatment principle).
 Free Trade:
- The WTO encourages countries to reduce trade barriers like tariffs, import quotas, and subsidies that distort global trade. Lower
barriers lead to more competitive markets and better choices for consumers.
 Predictability:
- Trade agreements negotiated under the WTO are binding, which provides security and predictability for businesses and investors.
Once a country agrees to reduce tariffs or open markets, it cannot arbitrarily reverse these commitments.
 Encouraging Fair Competition:
- The WTO promotes fair competition by discouraging unfair trade practices, such as dumping (selling goods at unfairly low prices)
or providing excessive subsidies to domestic industries.
 Development and Economic Reform:
- Special provisions in WTO agreements give developing countries more flexibility and time to adjust to global trade rules. This
principle allows developing and least-developed countries to integrate gradually into the global trading system.
 Functions of World Trade
Organization
 Administering WTO Trade Agreements:
The WTO oversees and manages the implementation, administration, and operation of the various multilateral
trade agreements. These agreements govern trade in goods, services, and intellectual property, ensuring that
member countries adhere to the rules established in these agreements.
 Forum for Trade Negotiations:
The WTO provides a platform for member countries to negotiate new trade agreements or update existing ones.
These negotiations aim to reduce trade barriers (tariffs, quotas, subsidies) and liberalize global trade.
 Dispute Settlement:
This system ensures that disputes are resolved peacefully, based on agreed trade rules, and helps avoid trade wars
between nations.
 Trade Policy Monitoring:
The WTO conducts regular reviews of the trade policies of its members through the Trade Policy Review
Mechanism (TPRM). This helps monitor and assess members' trade practices to ensure transparency and
compliance with WTO agreements.
 …Functions of World Trade
Organization
 Technical Assistance and Capacity Building:
The WTO provides technical assistance and training to developing countries to help them improve their trade
capacity and fully participate in the global trading system.
 Cooperation with Other International Organizations:
The WTO works closely with other global organizations like the International Monetary Fund (IMF), World
Bank, and United Nations to ensure that trade policies are consistent with global economic development
objectives. This collaboration helps in addressing issues like global economic governance, development aid, and
trade financing, ensuring a coherent approach to international economic policy.
 Promoting Free Trade and Fair Competition:
The WTO promotes fair competition by regulating practices such as dumping (selling goods below cost) and
excessive subsidies that distort global trade. It ensures that trade liberalization happens in a way that benefits all
members and encourages fair business practices.
 …Functions of World Trade
Organization
 Facilitating Economic Development:
The WTO helps in economic development, particularly for least-developed countries (LDCs), by providing
them with greater flexibility in implementing trade agreements and special market access opportunities.
Developing nations are given special rights, such as longer timeframes to implement agreements and trade
measures, to help them integrate into the global economy.
 Promoting Trade Facilitation:
Through agreements like the Trade Facilitation Agreement (TFA), the WTO works to streamline and simplify
customs procedures and reduce red tape, making it easier for goods to move across borders. This reduces the cost
of trade and makes international business more efficient.
 United Nations Conference on Trade and
Development (UNCTAD)
The United Nations Conference on Trade and Development (UNCTAD) is a permanent intergovernmental body
established in 1964. It is part of the United Nations (UN) system and
aims to promote the development-friendly integration of developing
countries into the world economy. UNCTAD focuses on issues related
to trade, investment, finance, and technology, particularly in developing
nations.

• Headquarters: Geneva, Switzerland.

• Membership: As of 2024, it has 195 member countries.
• Secretary-General: Rebeca Grynspan (since September 2021).
 Key Objectives of UNCTAD

 Promote Trade and Development: UNCTAD seeks to maximize the trade, investment, and development
opportunities for developing countries.
 Support Sustainable Development: It promotes policies that lead to inclusive and sustainable growth, poverty
reduction, and integration into the global economy.
 Assist in Global Trade Negotiations: UNCTAD provides a platform for dialogue and negotiations on economic
and trade issues, especially for developing nations.
 Functions of UNCTAD
 Research and Analysis:
UNCTAD conducts comprehensive research on global economic trends, trade policies, and development issues. This research
informs member states about best practices and helps them formulate effective economic policies.

 Technical Assistance and Capacity Building:

It provides technical assistance to developing countries to enhance their trade and investment capacities. This includes
training programs, workshops, and advisory services to improve regulatory frameworks and promote effective trade practices.

 Support for Trade Negotiations:

UNCTAD assists developing countries in international trade negotiations, helping them understand trade rules and navigate
complex agreements. This support is crucial for enabling these countries to represent their interests effectively in forums like
the WTO.

 Investment Promotion:
The organization promotes foreign direct investment (FDI) in developing nations by providing guidance on investment
policies and strategies. It also conducts investment policy reviews to help countries create favorable conditions for investors.
 …Functions of UNCTAD

 Debt Management:
UNCTAD offers support in managing external debt, providing technical assistance to countries on sustainable
borrowing practices and debt management strategies.

 Focus on Least Developed Countries (LDCs):

UNCTAD pays special attention to LDCs, helping them overcome barriers to trade and investment. It provides tailored
support and strategies to facilitate their integration into the global economy.

 Sustainable Development Advocacy:

The organization promotes sustainable trade practices and aligns its work with the Sustainable Development Goals
(SDGs), advocating for policies that balance economic growth with environmental protection.

 Digital Economy Support:

UNCTAD addresses the challenges and opportunities presented by the digital economy, assisting developing countries
in leveraging digital technologies and e-commerce for economic growth.
 Regional Economic Integration

 Regional economic integration refers to agreements between

countries within a geographic region to reduce or eliminate trade
barriers and coordinate economic policies to foster increased
economic cooperation and trade among them. The idea behind
such integration is to enhance trade and investment opportunities,
improve market efficiency, and ultimately contribute to the
economic growth of the member countries. Regional economic
integration can take different forms, each representing a varying
degree of cooperation and economic union.
 Levels of Economic Integration

 Preferential Trade Agreement (PTA):

In a PTA, member countries agree to lower tariffs on certain goods traded among themselves, providing preferential
treatment compared to non-member countries. However, this is not as comprehensive as other forms of integration.
Key Features: Lower tariffs on selected products, minimal trade liberalization.
 Free Trade Area (FTA):
In an FTA, countries remove tariffs, quotas, and other trade barriers on goods and services traded among them.
However, each country maintains its own independent trade policies with non-member countries.
Key Features: Elimination of internal trade barriers; independent external trade policies.
 Customs Union:
A customs union goes further than a free trade area by adopting a common external tariff. This means that member
countries harmonize their trade policies with non-member countries and impose the same duties on imports.
Key Features: Free trade among members, common external tariff on non-member countries.
 …Levels of Economic Integration
 Common Market:
A common market allows the free movement of goods, services, capital, and labor between member countries, in
addition to having a customs union. This requires significant harmonization of national regulations, labor laws, and
financial standards.
Key Features: Free movement of goods, services, labor, and capital; common external tariff; harmonization of
regulations.
 Economic Union:
An economic union involves closer integration by harmonizing monetary and fiscal policies among member countries. In
some cases, it may include the adoption of a common currency. This level requires a much higher degree of cooperation
in setting national policies.
Key Features: Free movement of goods, services, labor, and capital; common external tariff; coordinated economic
policies, often a common currency.
 Political Union:
The most advanced stage of integration, a political union involves the complete unification of member states into a single
political entity. There is typically a centralized government with authority over both economic and political matters, and
the individual sovereignty of member countries is greatly reduced.
Major Regional
Trading Groups
 European Union

The European Union (EU) is a unique political and economic union of 27 European countries. It evolved from the
European Economic Community (EEC) established in 1957, initially aiming to foster economic cooperation and avoid
conflict in post-war Europe. Over time, the EU has expanded both in size and scope, becoming a comprehensive
regional trading bloc and supranational institution.
 Key Features of European Union

 Single Market: The EU established a single internal market allowing free movement of goods, services, capital, and
labor across member states.
 Customs Union: EU members apply a common external tariff to goods imported from non-EU countries, meaning no
tariffs exist between member states, and they negotiate trade agreements as a bloc.
 Economic Integration: The EU goes beyond just free trade; it includes policies on competition, environment,
consumer protection, and more. There is significant political cooperation in areas like security, migration, and foreign
policy.
 Eurozone: 20 of the 27 EU countries use the euro (€) as their official currency, forming the Eurozone. These countries
share a common monetary policy overseen by the European Central Bank (ECB).
 Common Agricultural Policy (CAP): Aims to ensure a stable food supply by supporting farmers and regulating
agricultural markets within the EU.
 Schengen Area: A subset of EU countries that have abolished passport controls at their mutual borders, allowing for
unrestricted travel among them.
 Achievements and Challenges

 The EU has significantly contributed to the economic integration and political stability of Europe, becoming the
world’s largest trading bloc.
 It has promoted labor mobility, consumer protections, and environmental standards.
 Challenges include managing diverse economies within the bloc, Brexit (the UK’s exit from the EU in 2020), and
navigating political differences among member states on issues like migration, fiscal policy, and defense.
 European Union Member Countries

• Austria • France • Malta

• Belgium • Germany • Netherlands
• Bulgaria • Greece • Poland
• Croatia • Hungary • Portugal
• Cyprus • Ireland • Romania
• Czech Republic • Italy • Slovakia
• Denmark • Latvia • Slovenia
• Estonia • Lithuania • Spain
• Finland • Luxembourg • Sweden
 North American Free Trade Agreement (NAFTA) /
United States-Mexico-Canada Agreement (USMCA)
NAFTA, implemented in 1994, was a landmark trade agreement that aimed to promote trade and economic
cooperation between the United States, Canada, and Mexico by eliminating barriers to trade and investment.
In 2020, NAFTA was replaced by the United States-Mexico-Canada Agreement (USMCA), which introduced new
provisions while maintaining the core goal of facilitating trade between the three countries.
 Key Features of USMCA

 Tariff Elimination: NAFTA gradually eliminated tariffs on the majority of goods traded between the three
countries. By 2008, all tariffs were eliminated.
 Investor Protections: The agreement provided mechanisms for resolving disputes between investors and
governments, aimed at protecting businesses from unfair treatment.
 Intellectual Property Rights: Strengthened protections for intellectual property across the region, including
patents, trademarks, and copyrights.
 Labor and Environmental Standards: NAFTA included side agreements on labor and the environment, which
encouraged cooperation on labor rights and environmental protection, although these provisions were criticized for
being weakly enforced.
 Rules of Origin: Goods traded under NAFTA had to meet specific "rules of origin" requirements to qualify for
tariff-free status, ensuring that products were largely made within North America.
 Key Changes with USMCA

 Automobile Industry: The USMCA introduced new rules for automotive production, requiring that 75% of a
vehicle's components be manufactured in North America (up from 62.5% in NAFTA) to qualify for tariff-free trade.
Also, 40-45% of auto parts must be made by workers earning at least $16 per hour.
 Labor Rights: Strengthened labor standards, especially in Mexico, which is required to improve workers' rights,
including the right to collective bargaining.
 Digital Trade: USMCA includes provisions for digital trade, prohibiting duties on digital products like software
and music, and improving intellectual property protections for digital content.
 Dispute Resolution: Maintains NAFTA’s dispute resolution mechanisms, but with modifications, allowing
countries to better enforce labor and environmental standards.
 Agriculture: USMCA opened Canadian dairy markets slightly more to US producers, while also providing
Canadian farmers better access to US markets for certain products.
 Achievements and Challenges

 NAFTA greatly increased trade and investment between the US, Canada, and Mexico.
 Critics argue that it led to job losses in certain sectors, particularly in US manufacturing, as some companies moved
production to Mexico where labor costs were lower.
 Association of Southeast Asian Nations
(ASEAN)
ASEAN is a political and economic organization founded in 1967, comprising 10 Southeast Asian nations. Its primary
goals are to promote economic growth, social progress, cultural development, and regional stability.

 Association of Southeast Asian Nations (ASEAN) is made up of 10 member countries:

1. Brunei Darussalam 6. Myanmar (Burma)
2. Cambodia
7. Philippines
3. Indonesia
8. Singapore
4. Laos (Lao People's Democratic Republic)
9. Thailand
5. Malaysia
10. Vietnam
 Key Features Of ASEAN

 Free Trade Area: ASEAN has established the ASEAN Free Trade Area (AFTA), which reduces tariffs and trade barriers
among member states. It aims to create a single market and production base.
 Economic Integration: Although not as integrated as the EU, ASEAN has taken steps towards deeper economic
integration, including efforts to harmonize standards and regulations across sectors like finance, agriculture, and services.
 ASEAN Economic Community (AEC): Launched in 2015, the AEC aims to create a highly integrated regional
economy. This includes free flow of goods, services, capital, and skilled labor, although full integration has yet to be
achieved.
 ASEAN Plus Agreements: ASEAN has free trade agreements with several countries and regions, including China,
Japan, South Korea, India, Australia, and New Zealand.
 Political and Security Cooperation: Beyond economics, ASEAN promotes regional stability through diplomatic
initiatives and security cooperation, often addressing disputes in the South China Sea and other regional issues.
 Cultural and Educational Cooperation: ASEAN also fosters cultural exchange and cooperation in education,
promoting a sense of shared identity among Southeast Asian nations.
 Challenges Of ASEAN

 Economic Disparities: ASEAN consists of diverse economies, from highly developed Singapore to less developed
countries like Cambodia, Laos, and Myanmar, making full economic integration challenging.
 Political Differences: ASEAN's principle of non-interference in internal affairs has led to criticism, especially in
cases of human rights violations or political crises in member states.
 Balancing Powers: ASEAN must navigate complex relations with global powers like China and the United States,
particularly on issues of trade and security, without losing its neutrality.
 Thank You
&
Have a great day!