Table of content: Abstract..2 ASEAN definition and history2 The potential effect of ASEAN on international trade...............................

3 NAFTA history and definition.4 NAFTA positive and negative effect on international trade...5 EU history and definition.6 EU positive and negative effects on international trade7 How NAFTA, ASEAN affect a firms investment decision making8 Conclusion..8 References..9

Abstract: Its quiet clear that the globalization and also agreements such as NAFTA, ASEAN, and EU has made a very big change in the world economy. Nowadays we can see these organizations and agreements are becoming more and more important in the world economy. In order to have a better answer for the first part of the assignment question which is the implication of EU, ASEAN, and NAFTA on the international business, its better to have a brief look at the definition and history of any of them and then explain the effect of each one of them on the international trade. ASEAN definition and history: Association Of South East Asia Nations is one of the most important organizations in Asia which supports a trade bloc agreement which is emphasizes on supporting local manufacturing in all ASEAN countries. This agreement was first signed in on January 28th 1992 in Singapore. At the time there were six members in ASEAN group including Indonesia, Malaysia, Thailand, Singapore, Brunei and Philippine. Vietnam joined the group in 1995 and Laos and Myanmar in 1997 and Cambodia in 1999. All the new members need to sign AFTA agreement in order to be a member of ASEAN but they have given a longer time in order to be able to reduce their tariff regulations and obligation of AFTA. We can say that the main goals of ASEAN are as follow: To increase and develop ASEAN competitive advantage as a production base in the global market by eliminating and reducing tariff costs among the members of ASEAN and trying to encourage foreign investors to come and invest directly in ASEAN. Unlike EU , ASEAN doesnt have the same external tariff for all its members and each one of the members can have their own tariff scheme based on the countrys national policies but it cant be exceeded more than 0to 5% between the members of this organization.

The potential effects of ASEAN on international trade: As I mentioned before one of the most important goals of ASEAN is to increase competitiveness among its members by reducing the costs of international trade within its members. Therefore it may lead to increasing the flow of both members and goods among the members of this association. In order to achieve this, the members agreed to simplify visa process and trying to have honest economic development, low import duties and finally developing a single market. All of these tries has led to so many positive advantages in this area such as growing number of regional travellers both for business and leisure and also a better integration of international companies in this part of the world. Also we can see that removing of the tariff has led to the decrease of product price in all area of ASEAN countries. Also ASEAN has encouraged a high level of market competition .Another important benefit of ASEAN has been on availability of so much more customers for the products since all the products can be available in ASEAN countries without any tariff boundary or any other problem. On the other hand we can say that this agreement have brought a regional market for the members that have so many advantages for them such as : population of more than 580 million, $1.5 trillion gross domestic product, convenient transport systems, huge international trade worth $1.7 trillion a year, and foreign investment of $60 billion. Another big and important advantage of ASEAN on the international trade is customer satisfaction due to the lower price of the products because of the reduction of tariff and having cheaper raw material for producers. But there are so many internal and external challenges for ASEAN as well. One of the most important obstacles for ASEAN is unresolved regional arguments which have remained among the members of this association. Many people believe that these arguments are mainly because of the unwillingness of the members to talk about their internal problems in the meeting. ASEAN comprehensive approach on decision making was another big and inefficient method that they applied while reforming the structure. This approach emphasizes on the prevention of any members to vote if they are not agree with the content of a section. And also political instability and social disruption inside some of the country members has add to the challenges of ASEAN for
3

developing free trade in this part of the world. Regarding the external challenges many experts believe that there are 3 main external challenges for ASEAN which are globalization, regional imbalances, and a lack of engagement mechanisms. Regarding globalization many people believe that the development of ASEAN countries has some problems with the globalization. For example rapid regional growth had led to very strong competition among its members. Another argument is that many of the ASEAN members has already join the international financial institutions in order to avoid what has happened to east Asia countries during the financial crisis in 1990s. And also another argument is that ASEAN countries are worried because they think that western values can wear away their own value. Regarding the second problem we can talk about the insecurity of ASEAN countries due to enlargement of their neighbors. In recent years a lot of their neighbors have become bigger and invested on their military which makes ASEAN countries quiet nervous and also the attention of American, Chinese, Australians and Japanese on the southeast countries of Asia made them worried about being marginalized with these countries. The third challenge may go back to ability of ASEAN to perform regionally and internationally. Many participants may say that ASEAN is an observer rather than being an actor in the important moments that will disvalue the importance of this organization in the world. They also acknowledge that its engagement capabilities are limited. ASEAN-initiated forums and summits are ineffective mechanisms for decision-making because they usually do not include global powers. History and definition of NAFTA: NAFTA refers to North American free trade agreement which was signed in North America within some countries in order to cut tariff just like ASEAN and increase the amount of trade among the members of the association and improving their economies. The members of this agreement were America, Canada and Mexico. This agreement came in to force in 1994. It has led to free trade between USA and Canada in terms of combining their GDP and making the trade bloc the largest in the world. This agreement has got two supplements. One goes back to the agreement on the environmental
4

cooperation in North America and another one is labor cooperation agreement in North America. NAFTAs positive and negative effect on international trade: Like any other trade agreement NAFTA has also got some positive and negative effects on the international trade of the countries which were involved in it. First we are going to look at its negative effects on the country members and then we are going to look at its positive effects. Negative effects: First of all we can say that NAFTA let the American manufacturers to outsource their factories to Mexico for cheaper labors and raw material. Also many of the Mexican farmers were remained out of the business due to the American subsidies for farm products. Even the NAFTA provisions for Mexican labor and environmental protection were not strong enough to prevent those workers from being exploited. Another important disadvantage of NAFTA was the loss of job opportunities in USA. Statistics shows that between 1994 and 2010 about 682900 jobs have been displaced to Mexico from USA (many of them have occurred after 2007 financial crisis in America) and 80% of them were in manufacturing area. Therefore a lot of people have lost their jobs in America and even if they have a job, they dont have their previous position and salary. Some of them had also migrated to other countries to find a job. Another disadvantage of NAFTA for Mexico was taking advantage of maquiladora workers. NAFTA expanded this program in Mexico to have American companies with Mexican workers in order to cheaper assemble of products and export them to Mexico. But the labors who are working in these companies have no labor rights and health protections. Also the job hours can be extended to 12 hours and nobody has the right to complain. Positive effects of NAFTA on international trade of the member countries: NAFTA has created the world largest free trade. It permits 4590 million people in America and Canada and Mexico to have free trade with a very lower cost. As a result, it is responsible for $1.6 trillion in goods and services annually. Some of the advantages
5

of NAFTA are as follow: First of all by eliminating tariff the amount of inflation would be decreased by reducing the costs of import. Also NAFTA provides international agreements for supervising the rights of investors. This will reduce the cost of trade and encourages investment and growth especially for small businesses. Also it provides the situation for companies in country members to bid the governmental contracts. Another important advantage of NAFTA is supporting intellectual property among the country members. Other important advantages of NAFTA are increasing trade in all goods and services, raising US farm export, creating trade excess in services and so many other things. What is important to point here is that some of the benefits of NAFTA for some countries can be regarded as disadvantage for some other countries. A god example is expanding the US farm products while Mexican losses in this regard. History and definition of EU: EU is an association in Europe with more than 27 members which aims to create a unified and barrier free market in order to increase product and service trade within the continent. They also promoted a common currency with a unified authority over that currency. This association has formed in 1993 and it was based on the European Economy Community. The EU is formed of three areas, or pillars, which are the European Community, Common Foreign and Security Policy, and Police and Judicial Co-operation in Criminal Matters. Principles of EU have had a strong root in the European Coal and Steel Community which is formed in 1950s. They have tried to create a single market for all the members which are involved in it through a standard system of laws. Their aim is to provide free trade and movement of people and goods and services and capital for all country members. Positive and negative effects of the EU on the international trade of the country members: Just like other associations EU also has its own advantages and disadvantages for the country members. Here we are going to take a look at its advantages for international trade of the members and also its disadvantages as well.

Positive effects of EU on international trade: By the end of 21th century Europe found itself in a very particular position: increasing unity and nagging particularism. Like all the above mentioned situations being a

member of EU means accessibility to the free trade zone. Being a member of EU means having access to the market of all other countries that are also a member of EU; this is a great advantage because it increases the size of possible market for each firm. On the other hand, EU membership brings with it some limitations on sovereignty. EU members cannot enact laws that violate various provisions of the basic EU laws. For example, they cannot close their borders to people from other countries in the EU. Also being a member of EU means being a member of huge economy collection which can handle 400 million people with the largest combined economy in the world. Another positive point of EU is providing support for minority languages within Europe such as Irish, Scot in this way people with these languages are also able to have trade and communication with the other countries in this continent. Negative effects of EU: We can say that apart from positive effects of EU on the trade it has got some negative effects too. One of the most important one of them is that though EU has full authority to impose laws and legislation on its members which is a good point for integration but it doesnt have power to increase its own taxes and this had led to a difference and inconsistency between Europe political and economic power compare to a normal country. Also we can say that EUs resources are limited compared with the resources under control of country members therefore many people believe that EU is a negative integration not a positive one. We can say that annual EU spending amounts to about 1% of the EUs annual gross national product, whereas member state spending typically lies between 35% and 50% of annual national product. Another negative effect of EU is that before the head of country can make any decisions to do with the welfare or basically anything to do with the country the idea would have to be put in front of the European Union and they would decide whether to let you go forward or not.

How may they affect a firms investment decision making? We can say that each one of these agreements have a positive effect on a firms investment decision making. since the firms may see that they are investing in another country that the amount of tariff is in the lowest amount and they can freely travel to different countries with a very cheaper price and no boundaries, automatically the amount of import and export among the country members of the agreements will increase and this would attract the foreign firm to invest in those countries. Also sometimes the labor costs are very cheaper in the neighborhood so bigger and powerful countries would like to transfer their jobs to the cheaper countries like what has happened to USA when they signed the NAFTA agreement with Mexico. They have transferred a lot of manufacturing industries to Mexico and actually invested so much more there because of the cheaper labors there. Though it has had even some negative effects for the USA people but it has encouraged so many big manufacturing companies to invest in other countries. One of the most important goal of ASEAN for example is to attract the other countries attention in this part of the world for investment and by providing good facilities and cheaper labor cost nowadays we can see that a lot of international companies have invested so much more in this area such as so many automobile factories have branches in Thailand and they produce different parts of the car or assemble them there with a cheaper price and same quality. This has affected both countries economy. For the sending country the cheaper prices has a lot of benefits for the company which may help them to improve the economic situation and for the host company it has created a lot of job opportunities to learn new technologies and having better salary and being able to communicate with other people and learn about other cultures. Conclusion In general we can say that all of these associations such as ASEAN, NAFTA, EU are all useful for international trade of the countries that are involved in it. Though in some areas we can also see some disadvantages for some countries but the benefits are
8

always overweighs the negative points. The most common benefit of most of them is having access to a very bigger market and having so much more customers and also the ability of travelling to other neighbor countries without any barrier and increasing technology transfer and knowledge diffusion among the involved countries. This is a great opportunity for weaker countries to learn and adopt themselves with the new economic standards and trade and attracting foreign investors to come and invest in their country though as it mentioned above it may create some problems for some countries like what has happened to Mexico in farming products after NAFTA agreement. The advantages and disadvantages of these kinds of agreements for different countries depend on their economic and political power in the world. Its clear that the countries with more power will have more benefit and the countries with less power will have less benefit but in general we can say that the minority of weaker countries has got so many disadvantages from these kinds of agreements and the benefits of them have been more for most of them.

References:

-Hyttinen, A. (2011). The Role of ASEAN Regional Economic Integration in Finnish Companies'
Operations in Southeast Asia.

-Caratelli, I. (2009). The Political Impact of the EUs International Trade.

-Romalis, J. (2004). NAFTAs and CUSFTAs Impact on International Trade.

-NAFTA and its Impact on the United States (2004). -Hottenrot, V. (1998). Assessing NAFTA - Part II: The Impact of NAFTA on Jobs, Wages, and Income Inequality