regional trading blocs-are they barriers to free trade?

8/8/2019 Regional Trading Blocs-Are They Barriers to Free Trade?

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Presented By:

Sandeep Kumar BaranwalShreya Bhattacharya

Sheena GoyalNikhil Thorat

Shantanu


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Objectives of the Study

To investigate appropriancy of Foreign Trade Policy andPractices of countries of the world

To observe the constructive and destructive implications ofRegional Trading Blocs vis--vis Global Free Trade

To investigate whether Global Free Trade is more importantthan Regional Trading Blocs.


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Methodology

Descriptive Analytical Framework

Extensive use of Secondary Data

Alternative Scenario Analysis


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Limitations of the Study

Descriptive

No Country Wise Analysis

No specific stand


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Regional Trading Blocs are not barriers to Free Trade

Pursuit of Global Free Trade lead to the development of Rival Trading Blocs Regional Trading Blocs are the second best option , given that Global Free Trade is not realizable in real world Formation of Regional Trading Blocs are stepping stones to realization of Global Free Trade Global Free Trade may ensure efficient utilization of World Resources and Technologies

Regional Trading Bloc would collude into Global trading bloc Types of trade barrier that regional trading blocs would offer, though important but not significant to put abarrier to Global Free Trade

Liberalization of conditions that restricts Global Free Trade would not itself ensure the non realization of WorldEconomic System due to presence of complex market failure. There can only be a drive towards Global FreeTrade.

Regional Trading Blocs are barriers to Free Trade

An existence of Regional Trading Bloc provides an impetus for other countries to form a new Regional Trading

Bloc Regional Trading Bloc leads directly to Protectionism WTO rules can easily be defeated by Regional Trading Blocs

General Assumption

Realization of Global Trading Bloc amounts to realization of Global Free Trade and hence World EconomicSystem


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LiteratureReview

Guiding Principles of VariousRegional Trading Blocs

Prerequisite for the stimulation of domestic, regional and foreign direct

investment and the expansion, growth and the development of the economies ofeach member state and the region as a whole Kinshasa Resolution on theEstablishment of a COMESA: Common Market for Eastern and Southern Africa(1998).

To contribute the harmonious development and expansion of world trade andprovide a catalyst to broader international cooperation North American Free

Trade Agreement (1992).

The regional integration did not hamper world trade liberalization, but ratherwas an essential component of it, enabling countries at differing levels ofdevelopment to participate more effectively in world trade. The representativeof Colombia to the WTO working party meeting on Mercosur, 10-11, Oct. 1995.


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LiteratureReviewGuiding Principles of VariousRegional Trading Blocs

A stimulus to the development of the national economies by expanding investment and

production opportunities, trade, and foreign exchange earnings Agreement on the CommonEffective Preferential Tariff Scheme for the ASEAN Free Trade Area (1992).

To create an expanded market for the goods and services produced in their territories and toreduce distortions to trade Treaty on Free Trade Between the Republic of Colombia, the Republicof Venezuela and the United Mexican States (1994).

Pursuing stronger regional trade agreements can help form the building blocks for globalfree trade deals, Alejandro Foxley (a senior associate in the Carnegie InternationalEconomics Program, and at the Corporacin de Estudios para Latinoamrica (CIEPLAN) inSantiago, Chile) writes. Increasing trade will not only help middle-income economiesdevelop but also drive growth around the world as the financial crisis recedes.


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Models and Theories Regional Trading Bloc is not a barrier to Free Trade

Porters Diamond Model of International Trade


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Transaction Cost Theory of

International Trade

Market Imperfection Theory of

International Trade

Eclectic Theory


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Trade Creation Theory

This involves a shift in domestic consumer spendingfrom a higher cost domestic source to a lower costpartner source within the EU, as a result of the

abolition tariffs on intra-union trade. So for exampleUK households may switch their spending on car andhome insurance away from a higher-priced UKsupplier towards a French insurance companyoperating in the UK market.

Similarly, Western European car manufacturers maybe able to find and then benefit from a cheaper sourceof glass or rubber for tyres from other countries withinthe customs union than if they were reliant on

domestic supply sources with trade restrictions inplace. Trade creation should stimulate an increase inintra-EU trade within the customs union and should, intheory, lead to an improvement in the efficientallocation of scarce resources and gains in consumerand producer welfare.


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Impact of Regional Trading Blocs

on

World Trade

FreightDynamics Debt Position

FDI Flows

Infrastructure

Investment


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1980 1985 1990 1997 2003

LAC 16.4 10.6 14.4 21.1 16.0

CAN 3.7 3.2 4.1 12.1 9.0

MERCOSUR 11.6 5.5 8.9 24.9 11.9

CACM 23.1 14.4 14.1 13.3 20.7

CARICOM 8.3 11.3 12.4 16.7 21.3

NAFTA 33.6 43.9 41.4 49.1 55.0

FTAA (34) 33.6 43.9 41.4 49.1 60.1

ASEAN (10) 17.4 18.6 19.0 24.0 22.7*

EU(15) 55.6 59.9 64.9 62.9 62.7


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Regional Trading Blocs are barriersto Free Trade

Article XXIV of theGATT limits on the rights ofRegional Trading Bloc

A Regional Trading Bloc must:

Not on the whole raise protection against excluded countries

Reduce internal tariffs to zero and remove other restrictive regulations

of commerce other than those justified by other GATT articles

Cover substantially all trade.

These conditions ensure thatRegional Trading Bloc do notundermine the access of other countries to its market


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Models and Theories Regional Trading Blocs are barriers to Free Trade

TradeDiversion Theory

An imposition of tariff by a Regional Trading

Bloc on Rest of the World lead to inefficient

utilization of resources and imposes costs on

the society in form of dead weight loss.

Dynamism of Regional Trading Blocs

The presence of Regional Trading Bloc create

incentives for excluded countries to join

existing Regional Trading Bloc, to form newRegional Trading Bloc of their own, or to

change their external trade policy in other

ways


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Models and Theories Regional Trading Blocs are barriers to Free Trade

Disincentives to Developing Countries to open up

their economy to Global Free Trade


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IfUnstable

WorldEconomi

cSystem

Analysis ofcircumstances under

which unstable WorldEconomic System

arises


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http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/

turkishweekly.net

ibgeog2009.wikispaces.com

ibgeography.com

http://www.international.gc.ca/economist-economiste/analysis-analyse/research-recherche/10_pre.aspx

qwickstep.com

http://ec.europa.eu/ireland/about_the_eu/eu_in_the_world/trade/index_en.htm

ec.europa.eu


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regional trading blocs-are they barriers to free trade?

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