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Formation of Central American Free Trade Agreement (CAFTA): The Business Logic


Code : ITF0022

Year :

Industry :General Business

Region : :USA Central America

Teaching Note:Not Available

Structured Assignment :Not Available

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Conception of Euro International trade is the exchange of goods and services across international borders and represents a significant share ofGDPinmost of the countries.4 International trade has been prevalent throughout the history (Eg: Silk Route5 and Amber Road6 ). “A Trade Bloc is a large free trade zone or near-free trade zone formed by one or more tax, tariff and trade agreements.”7 One of the first trade blocs was theGerman Customs Union (Zollverein), established in 1834 between the 38 states ofGermanConfederation.8 After the collapse of major trade groups, several regional blocs came into existence to promote preferential trade betweenmember states. Several blocswere formedwith tacit political goals e.g, The European Union.9 Various trade blocs are formed based on the degrees of international economic integration like free trade areas, customs unions, commonmarkets and economic unions...

Regional Trade Agreements Regional TradeAgreements (RTAs) are a fundamental part of the global trade alongsidemultilateral trade agreements under theWorld TradeOrganization (WTO).RTAs have both positive and negative effects and are formed under various pretexts. For a group of neighbouring countries sharing similar concerns and cultures, itmay bemore viable to agree on mutualmarket access for a particular area rather than entering into an agreement for awider scope underWTO. TheDoha Declaration (where the blueprint formultilateral trade liberalisation negotiationswere drawn up under theWTOin late 2001) identifies regional trade agreements as important promoters of liberalisation and expansion of trade. But RTAs hinder countries outside the region to tradewith itsmember nations, thereby impeding further opening up ofmarkets...

CAFTA: The Business Logic CentralAmerican countries,whichwere plagued by civilwars, human right violations, dictatorial regimes and communist revolts during the 1980’s, have over the years, undertaken widespread reforms. The elected leaders have upheld democratic values by initiating economic reforms, reducing corruption levels and empowering law and order to combat crime.Still, the region is still considered to be a set up of fragile democracies and economies. It is opined that throughCAFTA, USA would support freedom, democracy and economic reforms in its neighbouring countries. At an Organisation of AmericanStates speech,GeorgeW.Bush, the President of theUS, said, “CAFTAis a signal ofUScommitment to democracy and prosperity of our neighbours...

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CAFTA: As it is Perceived It is opined that the implementation of CAFTAwould give the vital thrust to the decade and half old reforms in Central America and it is believed to be potentially more effective than removal of trade barriers and trade preferences by the member countries unilaterally.CAFTAis believed to ensure long termmarket access to the largest trading partner, the US and strengthen the reforms, thereby boosting credibility in the region and bringing in substantial investments.Analysts are of the opinion that CAFTA should not be expected to generate high levels of trade and growth immediately after its implementation...

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