In the modern world, politics, like many other spheres of life and the functioning of the state, are predetermined by laws. Based on the fact that they differ in all countries, we can conclude that processes such as trade are significantly more complicated. However, lawyers and politicians are inventing new methods to facilitate the implementation of such processes. In particular, a free trade agreement was developed, relevant between many countries on the same continent and on different ones. Using the example of an agreement concluded between Brazil and Mexico, it is worth considering the advantages and disadvantages of such actions.
First, it is necessary to highlight the tools by which such documents facilitate the economic sphere. The free trade agreement allows sellers and suppliers to ignore customs nuances, taxation, and additional costs for obtaining special permits. Thus, interstate business becomes more profitable since its overall cost is significantly reduced. In a case study, one can consider sugar as a commodity whose turnover was facilitated by the agreement’s implementation (Looney, 2018). Brazil is the producer of the two analyzed countries; the main benefit of this party is the monetization and export of goods. This leads to two advantages at once, firstly, traders get rid of the glut of sugar on the domestic market, and secondly, they increase their capital. This leads to the fact that the sale and delivery of sugar abroad creates a whole flock of income for the entire state. Based on the foregoing, the gains for Brazil cannot be overestimated.
When considering the other side of the treaty, Mexico, it is necessary to pay attention to the unique economic system and production. In this country, sugar is either not produced, or the level is insufficient, so Mexico is in dire need. At the same time, Brazil is a nearby neighbor, which makes it possible to ignore the distance and time spent on the delivery and sale of goods (Looney, 2018). Therefore, the main plus for Mexico is a constant, reliable influx of scarce commodities, which allows for the maintenance of the level of happiness of the population. It is worth highlighting the merit of the free trade agreement because, in the presence of customs and tax obligations to foreign suppliers, the level of imported goods dropped sharply, and the inflow would slow down over time. This is explained by the fact that bureaucratic aspects require both time and human resources for implementation. Finally, sugar is an essential commodity, without which it is impossible to consume many products, sweets, and desserts. Therefore, it is doubly beneficial for Mexico to receive this product precisely within the framework of a free trade agreement.
However, a dispute arose between the states, which was caused by the revision of the agreement by Brazil. The fact is that a sugar boom arose in the global market, and the number of goods produced increased sharply due to the production of India (Looney, 2018). In turn, this led to an oversupply of the commodity and a change in the price of the commodity, making it harder for Brazil to compete (Looney, 2018). In this context, the Mexican side could find a more profitable supplier, so the other side decided to change the terms of the contract and the delivery of the goods. The actions are mainly aimed not at lowering the price but at the more profitable provision of services. Meanwhile, Mexico does not agree with the price because although it is profitable, it exceeds the global standard. This dispute can be resolved through price regulation by Brazil. However, the party should take into account that it has a geographical and contractual advantage, so it should not be lowered to a common standard. In other words, it is worth applying the strategy of imaginary profit, that is, potting for concessions, setting the price as a result beneficial for both countries, and at the same time, higher than the global one.
References
Looney, R. E. (Ed.). (2018). Handbook of international trade agreements. Country, regional and global approaches. Taylor & Francis.