FACULTY OF PUBLIC ADIMINISTRATION AND POLICY STUDIES

PAD381

QUESTION 5:The importance of creating a multilateral trading agreement

towards regional economic development.

PREPARED BY:

NAME NO ID

Angel Felyna Ak Richard Semui 2019427612

Michelle Urai Ak Nyandau 2019444416

Jesscy Ubong Lerang 2019291768

Angelina Elvyna Anak Marcus 2019270342

Afiqah Binti Adam Hussaini 2019288658

PREPARED FOR:

Miss Khaulah Binti Abu Bakar

 TABLE OF CONTENT

1.0 INTRODUCTION........................................................................................... 1 - 2

2.0 IMPORTANCE OF MULTILATERAL TRADE AGREEMENT TOWARD

REGIONAL ECONOMY DEVELOPMENT............................................................. 2

2.1 HAVING MOST FAVOURED NATION...................................... 2 - 5

2.2 STANDARDIZE COMMERCE REGULATION FOR ALL THE

TRADE PARTNERS................................................................... 5 - 8

2.3 EXPORTED GOODS ARE CHEAPER.....................................8 - 11

2.4 INCREASE IN REVENUE....................................................... 11 - 12

3.0 CONCLUSION...................................................................................................13

4.0 REFERENCES.................................................................................................. 14
1.0 INTRODUCTION TO MULTILATERAL TRADE AGREEMENT.

An arrangement including at least two country through the trading of

items and services to bolster their economies is called multilateral trade

agreement.Beside that, among the multilateral trade agreement country they

building business ties, monetary venture and exchange assistance.The

individuals from the state will be treated fairly in accordance with the

agreement's norms.Furthermore,it is hard to negotiate in multilateral trade

agreement because it consist many nation involve,meanwhile compare to

bilateral trade agreement,it more easy to deal with since it involve between

two nations.As a result, it easier to import and export product or item while

also lowering tariffs, whereas multilateral trade agreement have more

influence to economy development than bilateral trade agreement.Multilateral

trade agreement can also be developed on a regional level.Despite of that,

numerous countries around the world participate in multilateral trade

agreements for the development of their economies, and each member

country signs each multilateral trade agreement.For instance, NAFTA, or the

North American Free Trade Agreement, was the largest when it was signed

on January 1, 1994. NAFTA increased trade between the Mexico,United

states and Canada from 1993 to 2018.Next, is the AFTA, which was

established by ASEAN countries.AFTA is an abbreviation for ASEAN Free

Trade Agreement .Its help local manufacture as an economic deal bloc

between the ASEAN nations.So by,enhancing ASEAN intensity as a

worldwide industry infrastructure was the significant goal behind AFTA,not just

that it additionally to build ASEAN direct investment in foreign country and

then, by eliminating the tariffs,and the shared effective preferential tariff, as

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well as non-tariff barriers among ASEAN countries are the crucial measure to

attain the goals.

Improving a region's social well-being, economic, and political through

the development of its economy is a process of regional economic

development.As a result, multilateral trade agreements are significant for each

country since they influence economic development.

2.0 IMPORTANCE OF MULTILATERAL TRADE AGREEMENT

2.1 Having status of most favoured nation

The first importance of multilateral trading agreement towards the

regional economic development partners is to have the status of Most

Favored Nation, which is also known as MFN. MFN is specifically defined as a

condition in which one nation could not discriminate against the other when

trading amongst itself. MFN is also referred as status, which may be defined

as an economic position in which countries can benefit from the best trade

terms offered by their trading partners. As we know, MFN is under the

agreement of World Trade Organization, which also known as WTO. WTO is

a global international organization that was shaped as the result of those

discussions, and everything the global organization decides will be the results

of those agreements. The Uruguay Round discussions, which lasted from

1986 to 1994, along with previous General Agreement on Tariffs and

Trade parley, account for the majority of the WTO's current activities. WTO is

presently hosting fresh discussions as part of the Doha Development Agenda,

which was begun in 2001. In this, MFN have its own subsection. A

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government is obligated under the MFN subsection is used to transfer any

benefits, rights, or concessions granted to one nation under a trade deal to all

other WTO member states. Despite the facts that its name indicates

preference toward another country, it refers to the equitable treatment of all

nations. In detail, MFN approach is associated with non-discriminatory trade

policy in international commerce since it provides equal trading between all

WTO member countries instead of privileged trading advantages. For

instance, if a nation cuts duties by 5% for one country, the MFN provision

requires that other WTO members decrease their duties by 5% for that

country. Indeed, there are more explanation in detail about MFN Subsection.

For example, except for those countries whose MFN status has been

suspended by special law, the United States offers MFN status to all nations.

Since World War II, the Trade Agreements Extension Act of 1951 has

authorized the great number of adjournments. Nations that their MFN status

was suspended under the 1951 act can and have been reinstated on a

temporarily or permanently basis by procedures described in the 1974 Trade

Act, special legislation, or presidential order. The United States takes special

attention to WTO-designated developing countries. This MFN status is very

important, as it can help in providing the finest trading conditions a country

can obtain from a trading partner, with many developing nations benefiting the

most from this status. Within this also, MFN countries may have the least

duties, the smallest number of trade obstacles, and the most significant import

quotas. For examples, Canada and Korea have a free trade deal, and many

Canadian items supplied into Korea are duty-free. While Korea imposes equal

taxes on goods from all of its trading partners, Canada pays no tariffs at all

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since the free trade agreement overrides the most favored nation concept. As

an outcome, Canadian goods are more competitive in Korea. Hence, by

having a MFN Status, countries with MFN status have the access to a bigger

market. State enterprises have the chance to enhance their products as a

result of supplying this large market. In this instance, their company will

expand to meet increased demand, allowing them to benefit from economies

of scale. As a consequence, their exports increased, and the economy of their

country developed steadily.

Under the principles of WTO, MFN might be able to make certain

exceptions. Nations might, as an example, a free trade deal should be

established, in which it can be applies exclusively towards the products sold

within the group, goods from the exterior are not allowed, or they can concede

developing countries preferential access to their commerce. As a result, other

exceptions, such as a country, might erect barriers against items from

countries that are thought to be unjustly traded. In addition, governments are

permitted to discriminate in services under certain conditions. However, the

agreements only allow for these exclusions if certain circumstances are met.

MFN, in principle, suggests that when a nation decreases a trade restriction or

opens a market, it must do so for the same commodities or facilities from all of

its trading allies whether prosperous or impoverished, powerful or weak.

There are 180 countries were granted with the MFN Status. Countries

such as China has been granted with the MFN Status. For example, The

US gave China permanent MFN status in 2001, same as the year that China

entered the WTO. In January of 2020, the US and China signed a "Phase

One" trading deal citing a number of structural adjustments to China's trade

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policy. As part of the agreement, China pledged to acquire an additional $200

billion in American goods above 2017 levels in four sectors which

are manufactured goods, services, farming products, and energy. In response,

the US promised to lower tariffs from 15 percent of the overall to 7.5 percent.

MFN gave a lot of benefits to every country that have its status. MFN played

the best roles towards the developing countries.

2.2 Standardize commerce regulation for all the trade partners

Secondly, the creation of regional economic development partners of a

multilateral trade agreement aims to standard trade regulations for all trade

partners. Standardization is the framework of an accord that must be adhered

to by relevant parties in an industry or organization to ensure that all

processes related to goods or service performance are carried out within the

framework of the standards established. The way to draw up guidelines was

based on the consent of all stakeholders in the industry to develop a product

or service. The trade exchanges in which securities transacted determine the

uniformity of the trade business. This gives investors more liquidity. The

trading method for all investors is also the same. The major purpose is to

assure the consistency of particular company standards. The amount of a

future deal depends on the sort of property being traded in the future trade

market. Future contracts for a wide range of assets, including commodities,

currencies, and credit indices, are offered.

ASEAN Economic Community aims for economic integration as the

region's ultimate goal. He sees ASEAN as a home market and production

basis, a region fiercely competitive, just, and fully integrate into the world

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economy. The free flow of commodities, services, and investments and the

free flow of capital and skills characterize this process. ASEAN will become

stronger and more intriguing as a rules-based organization as the sole place

of investment with the unification of trade and investment law. The initiatives

of the ASEAN Economic Community (AEC) may be traced back to 1992 when

the ASEAN leaders mandated the building of a free trade ASEAN area

(AFTA). Approving regional convergence in Southeast Asia by implementing

in 2015 an ASEAN economic community or AEC. In this situation,

technological impediments to trade have been reduced and removed in every

country. Any law, regulation, or approach which makes it more difficult to

export goods to another country is known as a technical barrier to commerce

(TBT). TBTs are often harder to overcome than tariffs for exporters (import

fees). Technical barriers to commerce include procedures for testing and

certification. These restrictions are typically enforced to the extent that the

flow of such products from one country to the other is restricted or totally

banned.

To do standardization, several implementation measures, such as

product specification, describe their future, including architectural shape and

performance marking and packaging types, have been implemented which

are frequently on the web or are implemented by regional governments in

order to help customers in the importing country. The regulation also has to

confirm the proportion of what has been recorded as voicing the direction on

standards and compliance with the aims of the directive to encourage

technological harmonization I indicated that 2010 and the adoption of the ADC

by 2020 were what works in the realm of standards and complies to the target

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of faster convergence by chromatin tests. It is crucial that all working groups

and committees be adapted and responded to changed conditions to maintain

free flows of commerce and the integrity of AFTA in the context of scientific

priorities change as its economic structure builds.

Manufacturing companies typically develop framework agreements

that guarantee that the products they manufacture match the same

requirements as other companies in the sector. Products supplied at a single

geographic location or global scale may include standardization. For example,

LED and LCD TV producers comply with particular product standards that

ensure identical features in items offered on the market. Specifications, like

size and display resolution, inputs (HDMI port, USB port, etc.), internet

connectivity, etc. Standards have been revised to reflect the steady

technological improvements. As a result, buyers receive the same goods

irrespective of production or where they purchase due to standardization

amongst production companies.

In addition, one of the standardized instances is the General Accepted

Accounting Principle (GAAP). They keep the monetary report consistent and

make the currency statistics much clearer. The financial statement guidelines

are known as the generally recognized accounting principles or GAAP. Each

publicly-traded company must publish its financial accounts annually.

Investors, banks, and creditors analyses these statements to evaluate the

company's financial health and adequacy for investment or extension of credit.

The financial statements shall provide comparable data in a comparable

manner in order for companies to efficiently compare and evaluate their

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results. Each country has its own range of generally accepted accountability

criteria, followed by all financial statements presented publicly.

In summary, corporations can save money on legal fees for all trading

partners, given that they comply with the same legislation in all nations. The

amount of a future deal depends on the sort of property being traded in the

future trade market. Future contracts for a wide range of assets, including

commodities, currencies, and bond indexes, are offered. The import and

export procedures are standardized and give all nations an economic

advantage.

2.3 Exported goods are more cheaper

The third importance of the multilateral trading agreement towards

regional economic development is exported goods are cheaper. This is

because tariff reductions occur because countries that export their products

no longer have to face the problem of artificial barriers in trade. Each

participant will gain benefit from an increase in their trade. Their companies

that enjoy low tariffs make their exports cheaper. A tariff is a tax imposed on

goods imported from abroad. These tariffs are usually aimed at protecting

domestic industry and production. Furthermore, these tariffs can help the

country to generate national income. However, tariffs are not good for

countries that export the goods. If the tariff imposed on their goods is high

then the price of the goods will be expensive in the country where they export

the goods and this will definitely cause the demand for the goods is low. This

will definitely cause them to gain very little or maybe even a loss. This is one

of the ways used by countries that receive imported goods to protect their

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goods as well as their economy. Therefore, this tariff reduction is done or

realized so that the cost of export goods can be lowered through this

increased competition. This will not only benefit our other countries that import

national goods, but this is also the best opportunity for the domestic industry

to ship their products overseas if they made the multilateral trading agreement.

However, although this proposal was well received by some parties, but there

are also parties who do not agree with this proposal. However, although this

proposal was well received by some parties, but there are also parties who do

not agree with this proposal even though it can actually benefit them.

Moreover , if this tariff reduction happens and exported goods are cheaper, it

must bring a very important development of a country to a country. This is

because there are definitely many additional factors that can have a big

impact on its success. Each country has a source of raw materials or any

particular business item. Not every country will have the same resources

where they also depend on other countries for certain resources. When

countries start exporting their goods to other countries, this is where the

economy will start to grow. Profits from these exports can not only be owned

by a company or organization but also individuals. This is because an

individual or seller can do online sales and sell their goods to people from

overseas. Not only that, when exported goods are cheap, their probability of

selling more goods is high and the country that receives their goods will also

benefit where they can know about products from foreign countries that they

do not have. This in turn can also give knowledge to them where they may

also be able to make it an inspiration for them to produce the same product

with permission from the actual manufacturer. This will also indirectly be able

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to expand the vision and market of the exporting country regionally,

internationally or even globally. So, this can be said as killing two birds with

one stone where they do international trade to earn money while presenting to

the world about their greatness with the work they create. For countries that

import goods, they will be able to reduce the cost they spend to produce a

product. They can only import the goods they want from outside and only pay

to the price set by the exporter. Cheap prices of goods do not necessarily

have low quality. Most quality items are also cheap even though the overall

cost is including the shipping costs. They can also order the items they want

in a huge quantities and this can reduce the cost where delivery is only done

once and discounts may be available because the amount of items purchased

is huge. When a country imports high quality goods for trade activities in their

country, this will also attract people to buy their goods because the goods

they sell are of good quality and have reasonable prices. Doing a study tour to

the factories of other countries is also one of the benefits of these cheap

goods to the importing country because they can learn how to manufacture

the goods and they can also learn to identify the goods that are really good

quality or not.

An example of the good effects of the importance of this multilateral

trading agreement can be seen in our own country, Malaysia. Because this

tariff reduction leads to cheaper prices for export and import goods, then this

is also one of the benefits where the free trade area agreement occurs

between the countries involved. As we know, Malaysia has signed and

implemented a regional FTA together with its partners in ASEAN, in the

ASEAN Free Trade Area (AFTA) and some of the other regional free trade

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area too. This collaboration has helped Malaysia to become more open to

overseas marketing. This also increases long -term market access

opportunities for Malaysian products and services. For example, when the

ASEAN - China Free Trade Agreement (ACFTA) was made. The special

treatment and market access given to Malaysia has brought many benefits to

Malaysia. Moreover, among all the members Malaysia is the one main source

of palm oil for China.

2.4 Increase Revenue

Lastly, the importance of multilateral trading agreement towards the

regional economic development is it able to increase the revenue of a country.

As we know, the multilateral agreement involves two or more countries in

making a deal in the term of exchanging supplies for good and investment

which able to contribute to widening the brand of product from a country to

another country. For example, Malaysia and Indonesia able to exchange

product which is the traditional product in terms of food or materials such as

begs, clothes and more, as this able to attract the attention of the peoples in

the two different countries as they trying to get know about other countries

traditional materials. By exports and imports method, I believe the countries

able to gain more profits and able to contribute it towards the country’s

economy. At the same time, we believe by practicing multilateral trading

agreement, it is not only will affect our country economy but also will

strengthen the relationship between two countries as it able to create

opportunity in getting know each other country more. Not only providing

products to exports and imports, but also able to create a jobs opportunity for

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everyone in a country. Malaysia is very rich with cultural which is same goes

to Indonesia and by exchanging products with each other countries it able to

attract people from Indonesia to create a business or open a shop in Malaysia

as Malaysia has high currency from Indonesia which able to give them extra

profits. This will automatically be an investment from Indonesia as their people

start open a shop in Malaysia it able to contribute to Malaysia economy as

they will be paying taxes and buying more necessities which is food, place to

live. As the two countries able to get know each other more, they will gain the

same profit as Indonesia is very rich with beautiful nature view which one of

their famous places to visit is Bali and Bali are very recommended for

everyone to have a vacation and a honeymoon as it provides a romantic

scene and beautiful place for a family to explore. To make it clear, multilateral

trading agreement able to give advantages or benefits to both parties and it

should be practice by every countries as it able to contribute in the aspect of

economy and also socialization which is strengthen the relationship between

two countries as they dealing in exchanging product which makes them to

communicate with each other frequently.

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3.0 CONCLUSION

In conclusion,it is proven that multilateral trade agreement influence the

regional economic development.It is being carry out globally for the

economy,environment and many more.The method of import and export has

been normalize for profiting all part nations monetarily.Meanwhile,their

complexity benefits the individuals who can profit with globalization, yet other

people who can't do so will oftentimes encounter troubles.In addition to this,

multilateral trade agreements have a significant impact in other words, they

are quite powerful, and their global scope is much larger. As a result, the

signatories acquire a competitive edge.All nations also confer the title of most

favoured nation on one another.Furthermore, because all countries rely on

one another for their own good, this pact promotes harmony among them all

at the same time. For example,GATT (General Agreement on Trade and

Tariffs) is the most successful international trade agreement, having been

signed with 153 countries. To conclude that, they are regarded as the most

effective strategy for empowering a truly global economy which launches

markets to both small and large nations on an equal footing.By having more

countries joined the trade was one of effective way for economic development

as well as enhance the regional peace

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4.0 REFERENCES

5 Pros and 4 Cons to the World’s Largest Trade Agreements. (2021, May 28). The

Balance. https://www.thebalance.com/multilateral-trade-agreements-pros-cons-

and-examples-3305949

ASEAN Economic Community - ASEAN: ONE VISION ONE IDENTITY ONE

COMMUNITY. ASEAN. (n.d.). https://asean.org/asean-economic-community/.

Fernando, J. (2021, June 10). Generally Accepted Accounting Principles (GAAP).

Investopedia. https://www.investopedia.com/terms/g/gaap.asp.

Malaysia External Trade Development Corporation. MATRADE. (n.d.).

https://www.matrade.gov.my/en/about-matrade/24-malaysian-exporters/going-

global/67-introduction-fta.

Regional Economic Integration. (n.d.).

https://saylordotorg.github.io/text_international-business/s09-02-regional-

economic-integration.html.

Technical Barriers to Trade. International Trade Council. (n.d.).

https://tradecouncil.org/technical-barriers-to-trade/.

What are the Benefits of Importing and Exporting Products? A & A. (2016,

December 13). https://www.aacb.com/benefits-of-importing-and-exporting/.

What are the Benefits of Importing and Exporting Products? A & A. (2016,

December 13). https://www.aacb.com/benefits-of-importing-and-exporting/.

What is Multilateral Trade Agreement. (2019, January 5). How to Export Import.

https://howtoexportimport.com/What-is-Multilateral-Trade-Agreement-

1092.aspx

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