International Trade Agreements

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/president-office.png"> "Madame President?" [[Look around to see whom the young man might be speaking to.|intro-thats-me]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/president-at-desk.png"> He's staring right at you. Ah, yes, now you remember. "Madame President"-- [["Yes?"|intro-president-satellite]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/satellite-world-map.png"> You are the President of Satellite, a small island nation just off the coast of Australia. You were the one elected the very first president when independence was gained from a larger country and Satellite became a sovereign nation. Now it's you who sits in a meeting with your cabinet. [["Let's discuss the economic future of Satellite."|intro-economic-future]]

<h1 class="title">Tricks of the Trade ✈️ 🤝 ⛵</h1> <img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/seal.png"> An interactive choose your own adventure. [[Play Now!|intro-madame-president]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/proposition-to-join.png"> The young man, your closest advisor, slides a bundle of papers your way. "Here is the brief for today's discussion. Let us know when you're ready to get started." {[[Pick up the bundle of papers and look them over.|intro-bundle-papers]] [["I'm ready to get started."|intro-get-started]]}

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/president-at-desk.png"> You look down at the brief and see three sections. It might be a good idea to give it a quick read, just to jog your memory. {[[1. The Economic Structure of Satellite.|papers-economic-structure]] [[2. A Brief Review of Trade Agreements.|papers-trade-agreements]] [[3. A Proposition to Join Asean Free Trade Area.|papers-join-asean]] [["Alright I'm ready to get started."|intro-get-started]]}

The young man nods and clears his throat. "Now that you've reviewed the documents, I assume you're ready to make your decision. The recommendation of your cabinet is to join the ASEAN Free Trade Area and begin trading to develop our economy. If you still need time to decide, feel free to review the documents again." {[["We will join the ASEAN Free Trade Agreement."|economic-impacts]] [[Review the documents again, just to be certain.|intro-bundle-papers]]}

The Economic Structure of Satellite Satellite is a relatively young nation, small in population and fairly remote. Its tropical climate supplies it with an abundance of fruits. Its long and accessible coastline gives it great access to the major fishing grounds of the surrounding oceans. So, tropical fruits and fish are its most plentiful resources. As the population has grown and the demand for employment opportunities has increased, it is now necessary to seek ways to expand into other industries. In order to do that, it will be necessary to procure resources not locally available in Satellite. The most obvious way to achieve this kind of diversification is to trade for resources that will enable Satellite to build factories. These factories will enable the mass processing of Satellite’s raw materials, thus diversifying the economy and making it competitive in the global market. In addition, factories will provide jobs for your growing economy. [[Continue to examine the papers.|intro-bundle-papers]]

When it comes to resources, every nation has both local resources and needs. To fill in the gaps, nations trade with one another. Trade details vary case by case, but you can find some consistency within the confines of a trade agreement. Nations can enter into trade agreements where legal limitations and regulations are spelled out and numerous significant benefits are afforded to member nations. [[Continue reading.|intro-bundle-papers]]

Your economy has grown to a point where you’ve been offered membership in the ASEAN Free Trade Area. This agreement currently has ten member nations, including Vietnam, Singapore, and Indonesia. Joining this agreement will enable you to trade tariff-free with member nations. Tariffs are a kind of tax. When a company within Satellite trades with a company from another nation, a tariff requires them to pay a tax on that resource. Entering a trade agreement eliminates those extra costs, driving down the cost of goods–this is known as “free trade.” [[Continue reading.|intro-bundle-papers]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/certificate-of-membership.png"> "A great decision. I'll let the delegates from member nations know right away. This is bound to have great effects on our ecomony. I'll return when I have further news of developments." [[A wave of nervous excitement washes over you as you realize this could be a pivotal moment for your country.|economic-developments-1]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/fishing-agriculture.png"> As time passes, you notice that the fisheries and agricultural businesses you pass each day on the way to work are growing larger - building new facilities, staying open later, and hiring new people. One day when you arrive at work, the young man approaches you with a smile. "Great news, Madame President. Due to our entrance into the AESAN Trade Area, Singapore and Thailand are now purchasing fish from us at exceedingly high rates. Our businesses are experiencing rapid growth in profits and more jobs are becoming available." "However, this is only the beginning! If we build our own factories, we can process our own raw goods - like textiles and begin refining oil. To build these factories, though, we'll need to purchase oil and machinery from other nations. So, where would you like to begin? Would you like to trade for machinery or oil?" {[["Let's build some factories to increase our oil production."|oil-start]] [["Let’s trade some machinery to create some jobs."|machinery-start]]}

[(set: $oilBranch = 1)] "This is a great place to start. Of the member nations in our trade agreement, Malaysia is probably our best bet. They export, or send off to other countries, millions of tons of petroleum every year - much of it to other ASEAN member nations. This transaction will establish a relationship with them. I'd recommend purchasing enough oil to power five factories. This will enable us to build and operate factories, which will make it possible to trade processed goods and will greatly benefit our economy. I'll put in the order now!" [[Approve the construction of the factories.|oil-factories]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/factory-window-view.png"> "See, as our economy grows, we can diversify production of goods and become more competitive while also sustaining our own people. What we have for natural resources is great, but producing other goods or products will enable us to gain trading partners. In the future, we can also look at developing our renewable energy sources like wind or solar power." [[See the growth Satellite has had so far.|oil-ledger-review]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/graph-increase-oil.png"> "Before we look into more trade, I want to show you how participating in the ASEAN has already paid off! We have been able to get 20% more oil from Malaysia than we could have without the restrictions placed on tariffs." [[Let's discuss more trade opportunities.|oil-more-trade]]

"We've already started to reap the benefits of a relationship with Malaysia. During trade talks, leaders have noticed our economic development taking shape. They are curious about what we are producing. Malaysia imports, or brings in, large quantities of fish and have begun purchasing from us. This will also enable them to focus on producing more petroleum moving forward." [[Let's increase our fish exports to Malaysia.|open-fisheries]]

Now that we have mastered our craft of catching, processing, and distributing fish, we can increase our trade. Australia is a significant partner and importer of fish. Not only do they have a free-trade relationship with ASEAN free trade agreement, but trading with a country like this will also give us more global exposure. Proximity also cuts down on our shipping costs. (if: $machineBranch is 1)[[["Let's see how these decisions play out."|outsourcing-start]]]\ (else:)[[["Now let's trade for machinery."|machinery-start]]]

[(set: $machineBranch = 1)] "This is a great idea. We will need machinery to build factories, create jobs, and produce goods. Fortunately, in an effort to support ASEAN's goal to accelerate economic growth through industrialization, Vietnam has agreed to help our nation get off the ground. A known exporter of machinery, Vietnam has agreed to establish what will surely be a healthy partnership for years to come. This partnership will enable us to process products and grow our GDP. Gross Domestic Product measures all the goods and services produced in a country." [[Draw up a trade deal with Vietnam.|machinery-trade]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/factory-window-view.png"> Not long after your trade deal with Vietnam, you being noticing new sights on your walk to your office. A bustling new industrial district has begun to emerge, with new factories and businesses cropping up everywhere. You also notice more people and faces you've not seen before, as building factories has created new jobs and opportunities for the citizens of Satellite. One day, as you enter your office, the young man is already waiting there for you. He has a huge smile on his face. [["I have some news you will not believe."|banana-trade]]

"As you know, the United States is the world's leading importer of bananas. They have an agreement with ASEAN, and they'd like to buy bananas from us! That's right! This is a huge opportunity to get our foot in the door of American markets. They have a robust trading network, which can grant us access to a variety of products, while enabling us to sell goods to one of the world's largest economies. They've sent over an agreement--all it needs is your signature! What do you think?" [["Yes, that sounds great. I'll sign the agreement now."|banana-farms]]

After signing the trade agreement with the United States, you notice that more banana farms are sprouting up fast everywhere you look. It seems as if businesses in Satellite are thriving. However, you notice an ominous look on the young man's face one morning as you enter your office. [["Why do you look so gloom, young man?"|pesticide-delimma]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/factory-move-1.png"> "Good morning, Madame President. We've run into something of an...issue. You see, the fine print in our trade agreement requires that a good portion of the materials we use to produce bananas have to come from a country that is also part of the ASEAN. Our banana farms are currently buying all our pesticides and fertilizers from Germany. Because Germany is not a member nation, we are still paying tariffs on all our banana sales. Luckily, we have a couple options. We can stick with our current plan, attempting to produce as much as we can to meet the growing demand and hoping that profits will be high enough to offset the cost of tariffs. Or, we could buy our pesticides and fertilizer from India, who is a member of the ASEAN. They won't be able to provide us with as uch of either product or as often, so production will slow down and trade will decrease. This may not please our new trade partners in the United States. However, we would avoid tariffs. Each option will have consequences. {[[Continue trading with Germany and endure the tariffs.|germany-trade]] [["Let's strike a deal with India to avoid tariffs."|india-trade]]}

I think this is a smart decision. I'll let the representatives from Germany know that we'd like to continue purchasing supplies from them. Our production is bound to keep increasing! (if: $oilBranch is 1)[[[Sit back and see how this all plays out.|outsourcing-start]]]\ (else:)[[["Let's start trading for oil."|oil-start]]]

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/factory-move-2.png"> "I think this is a good decision. Obviously, it would be nice if we could keep production high, but at our current rate, this will surely tire out employees eventually and probably require overcropping and other unsustainable farming practices. Buying our fertilizers and pesticides from India would slow production. Our profits may not be as high, but we'll gain the benefits from trading within the ASEAN and diminish the risks that come with ever increasing production. [[I'll let the representatives from India know about our new arrangement.|india-agreement]]

Over the course of the next few months, you notice more and more factories sprouting up all over Satellite, and they are staying open later and later. As you enter your office one day, the young man is already there. You can tell he has something important to tell you. "The United States has proven to be a valuable trade partner. There's only one problem. They are currently exploring other options for buying bananas as several countries are able to provide lower prices. The only real option we have to compete with these countries is to send most of our factories to other countries where we can pay employees lower wages. This will enable us to sell bananas at a lower cost and continue trading with the United States. Many people here in Satellite will lose their jobs, and outsourcing generally tends to ruffle some feathers. If we don't do this, however, we'll need to rethink our entire approach to trade and risk losing the United States as a trade partner. {[[Start sending factories to other countries.|outsourcing-continue]] [[Rethink our approach.|outsourcing-rethink]]}

After the decision to buy farming supplies from India, companies in Satellite are able to avoid tarriffs. This enables them to make a profit without overworking employees and engaging in unstustainable farming practices. You are witnessing first-hand the benefits of trade agreements! (if: $oilBranch is 1)[[["I'm proud of the decisions we have made!"|india-ending]]]\ (else:)[[["Let's start trading for oil."|oil-start]]]

"This is a gutsy decision, but one that will hopefully pay off. I respect your willingness to make the tough decisions. This might cause some dissatisfaction among those employees that might lose their jobs here at home. However, our businesses will make higher profits, and we will continue our valuable trade partnership with the United States. I'll start putting this plan in motion. I will let you know when when I have an update. [["Very well then, young man."|outsourcing-update]]

"Well, this will certainly slow things down. However, the ASEAN is commonly criticized for low employee wages, so the choice to put our employee's well-being before maximizing profits might be a good idea. Not to mention, it's the hard work of these workers that has put us in this position in the first place. [[Perhaps we ought to revisit our offer to buy our supplies from India? This way we can avoid tarriffs and continue to pay our employees a living wage, even if our overall trade numbers decrease."|india-trade]]

In choosing to buy supplies from countries within your trade agreement, you've likely avoided some of the pitfalls of seeking growth at all costs. You may have missed out on some possible benefits of trading larger markets. Would you like to replay the scenario and explore other options? {[["Yeah, let's start from the beginning!"|welcome-1]] [["No thanks, maybe later."|ending-trade-agreement]]}

Just as the young man predicted, businesses in Satellite looks as if it's going through some significant changes as you implement this plan of outsourcing jobs. Streets that were once lined with places of work and bustling with employees start to look abandoned. Much of Satellite's businesses have moved their operations to other nations in order to keep prices down and profits high. Unemployment in Satellite rises. The cafes and restaurants near factories--where workers used to eat--also suffer now that many of the people who ate there frequently no longer come to the area everyday. Many of these businesses start to fold. You notice more discontent among the people of Satellite. Former employees are organizing demonstrations, asking why increasing profit is worth pursuing if it means laying off the employees who were responsible for that business's initial successes. However, just as the young man predicted, businesses in Satellite are maximizing profits. One day, as you enter your office, you see that the young man is waiting for you. [["What is it, young man?"|outsourcing-profits]]

"Madame President, congratulations. The economy of Satellite is truly booming. You've made some tough decisions, but they appear to have been the right ones at every point. I'm proud to be part of your cabinet!" {[["Booming, huh? But what does that really mean? Why are there riots in the streets from laid off workers? Why did the old business district turn into a ghost town?"|outsourcing-booming]] [["I agree. I'm glad our businesses are doing well. We've become a major player in the world economy."|ending-effective-economy]]}

"Booming, as in major world markets are purchasing goods from us, and most our businesses are making massive profits. It is true that expansion has drawbacks, such as the need to outsource labor, but this has enabled trade with large nations like the U.S. and Australia!" {[["But I thought the point of entering a trade agreement was to benefit member nations--smaller countries like Satellite--while helping our own citizens."|outsourcing-citizens]] [["Oh. Ok. Good point. Thanks for your help!"|ending-effective-economy]]}

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/thank-you.png"> Congratulations on running an effective and streamlined economy! You have seen some of the benefits and unintended consequences of international trade, Madame President. The End.

"This is true, in theory. But, at the end of the day, we have to do what is best for our own nation and economy." {[[Shrug your shoulders in confusion, but decide to let it go.|ending-effective-economy]] [["NO! We need to rethink all of this!"|ending-replay]]}

You've reached the end of the scenario. Would you like to replay? {[["Yes!"|welcome-1]] [["No thank you."|ending-trade-agreement]]}

<img src="https://k20center.ou.edu/e-learning/tricks-of-the-trade/assets/thank-you.png"> Congratulations on running an effective and streamlined economy! You have seen a few benefits of international trade while avoiding some of the unintended consequences, Madame President. The end.