Simply put, a regional trade agreement, or RTA, makes it easier for countries, such as the United States, Canada and Mexico in the North American Free Trade Agreement, to engage in trade. The countries in an RTA may or may not be in close proximity to one another; for example, the United States has regional trading partners located as far away as the Middle East, notes economist Donna Welles. RTAs exist in direct contrast to the more cumbersome World Trade Organization-administered agreements that may limit access to markets and tie countries down in negotiations. RTAs create a range of benefits for participating countries, which include, but are not limited to, lowered or eliminated import and export tariffs, political and social reform, and infrastructure investment.
Tariffs are taxes. Participants in an RTA can agree to greatly reduce or even cancel tariffs on imports and exports, the purpose of which is to increase the flow of goods. For example, low or no tariffs due to an RTA can make it possible for one country to harvest and export a specific food product to its participating partner in time for a festive season. A country not part of that particular RTA could face extensive negotiations and cost-prohibitive tariffs, preventing it from exporting a similar product in time. In some cases, the ease in flow of goods and tariff reductions may benefit retail consumers engaged in cross-border e-commerce, according to the International Centre for Trade and Sustainable Development.
RTAs encourage investments aimed at bolstering trade opportunities. This is especially true when the participating countries are of unequal economic status. For example, a Washington Times article by Guy Taylor investigated increased opportunities in Mexico due to NAFTA. Taylor points out that increased investment in automobile manufacturing in the country created employment for more locally educated engineers.
The price of goods is based on the cost of production. For some countries, entering into RTAs creates access to cheaper components and raw materials; the countries exporting the goods experience increased GDP due to increased sales. For the countries buying the goods, more opportunities to innovate and manufacture at reasonable prices raise GDP, which positively impacts employment, income and overall quality of life.
Free-flowing trade can only happen in climates of peace and prosperity. Adverse conditions, such as war and widespread corruption, can cause countries to be excluded from RTAs. Typically, countries with less than perfect records in this regard enter RTAs knowing they will be required to collaborate in a range of law enforcement initiatives including anti-terrorism, border control, the war on drugs and the fight against human trafficking.