Stock Market Guide to International Trade and Global Finance

International Trade Organizations and Free Trade Agreements

Global financial markets are directly impacted by the trade practices of sovereign nations as well as the economic policies and agreements of regional organizations. Based upon geographic and historical factors, nation states are often best served by entering into bilateral and multilateral trading agreements with their neighbors. These “trading blocks” are often grounded in political necessity as well as the realities of today’s global market economies.

From a historical perspective, early forms of trade and bartering occurred between regional states prior to the Industrial Revolution. And while a historical discussion of trade agreements is reserved for a different section, for purpose of examining the affect of trade alliances and economic organizations on today’s stock and financial markets, without question, the first comprehensive trade agreement of the twentieth century was GATT: The General Agreement on Tariff and Trade. GATT was a product of the need to rebuild Europe out of the ruins after World War II but was the precursor of the negotiation and adoption of free trade agreements throughout the world.

Since the formulation of GATT in 1945, economists and politicians subsequently concluded that, despite its shortcomings, GATT led to the first modern-day, regional trade alliance and uniform international “trade” framework. The creation and adoption of GATT and its progeny – economic treaties and “Free Trade Agreements”- have been a remarkable post-GATT phenomenon in developed countries with industrialized economies as well in emerging marketplaces – most notably in Asia and South America.

By no means exhaustive, but certainly beneficial for illustrative purposes, a few examples of the success and benefits of post-GATT trade agreements is evidenced by the adoption in Asia of the Asia-Pacific Economic Cooperation (APEC); in Central America with the Central American Common Market (CACM); in South America with The Treaty of Montevideo; in Europe with the European Community (EC); in Central Europe with the Central European Free Trade Agreement (CEFTA); and in North America with the North American Free Trade Association (NAFTA). In most but all of these examples, the United Nations has, and continues to, facilitate the pooling and sharing of information and literature about these and other Regional Trade Agreements.

Multilateral trade and economic development agreements are a critical component not only for developed economies but also for the prosperity of emerging capital, financial and stock markets. Regionally, signatories to international and regional trade agreements foster economic integration and political harmony, enhance the standard of living through uniform trade practices, and inspire capital investment in local financial markets.

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