trade blocs

Trade Blocs

Trade Blocs

• Regional trade blocs are intergovernmental associations that manage and promote trade activities for specific regions of the world.

Types of trading bloc / Levels of economic integration

• Free Trade Area• Customs union• Common market• Economic union• Economic integration

Free trade area

Free trade among members

Custom union Free trade among members

Common external commercial policy

Common market



Free factor mobility within the market

Economic union




Harmonised economic policies

Economic integration




Harmonised economic policies

Supernational organisational structures

Major Trade Blocs

• EU (European Union )• NAFTA (North American Free Trade Agreement)• South-south cooperation• SAPTA• Indo-lanka free trade agreement

European Union

Objectives:-• Setting up a common market• Continuous & balanced expansion• Closer relations between the member states.

• Founded in 1951 by six neighboring states Germany, France, Italy, Belgium, Netherlands, and Luxembourg

• Initial aim was to create a single market for goods, services, capital, and labour by eliminating barriers to trade and promoting free trade between members

• In terms of dealing with non-members, common tariff barriers were erected against cheap imports, such as those from Japan, whose goods prices were artificially low because of the undervalued yen

• EU policies aim to ensure free movement of people, goods, services, and capital, enact legislation in justice and home affairs, and maintain common policies on trade, agriculture, fisheries, and regional development

ACTIVITIES OF EU

• Elimination of custom duties, quantitative restrictions with regard to export & imports.

• Establishment of a common custom tariff & commercial policy.

• Abolition of all obstacles for movement of persons, services & capital.

• Application of programmes in order to coordinate the economic policies.

Benefits of EU

• European harmony- Europe has managed to heal the divisions which were so painfully exposed in the World War –II. EU was awarded the Nobel Peace Prize in 2012 for helping to promote peace and international co-operation.

• Free trade within the bloc- Free trade and removal of non-tariff barriers have helped reduce costs and prices for consumers.

• Market access and trade creation- Easier access to each other’s markets & high cost domestic producers to be replaced by lower cost, and more efficient imports.

• Flexible Economy- Free movement of labour and capital have helped create a more flexible economy & the immigration of workers helped to fill labour market shortages.

• Protection- Firms inside the bloc are protected from cheaper imports from outside, such as cheap imports from China and Vietnam.

Problems/Challenges of EU• Loss of benefits- The benefits of free trade between countries in

different blocs is lost.• Distortion of trade-Trading blocs are likely to distort world trade,

and reduce the beneficial effects of specialization and the exploitation of comparative advantage.

• Inefficiencies and trade diversion- Inefficient producers within the bloc can be protected from more efficient ones outside the bloc.

• Unemployment- due to prolong recession.• Prolonged Fall in GDP- Economic stagnancy • More bureaucracy less democracy- EU has created extra

layers of bureaucracy whilst taking away decision making process further from local communities.

NAFTA(North American Free Trade Agreement)

• Initially trade between Canada & U.S.• NAFTA went into effect in 1994 after the joining

of Mexico.• U.S.- Canada trade is the largest bilateral trade

in the world.• The U.S. 1st Mexico’s & Canada largest trading

partner.• NAFTA is a powerful trading bloc with a

combined population and GNP greater than 15 member EU.

NAFTA covers the following trade areas

• Market access• Trade rules• Services• Investment• Intellectual property• Dispute settlement

Provisions of NAFTA

• Duty-free market access.• Trade rules- safeguard, subsidies, countervailing

& antidumping duties, health & safety standards.• Rules on trade in services & investment• Protection of intellectual property.• Dispute settlement mechanism.

SSC(South-South cooperation)

• Objectives– To accelerate the pace of development– To increase the economic efficiency– To strengthen the status of the vis-à-vis north

• Functional areas– Finance– Trade– Industry and business– Services – Science and technology– Environment and development

SAPTA(SAARC preferential trade agreement)

• The council of ministers have signed the SAARC preferential trading arrangement agreement on April 11, 1993.

• Basic principles– Overall reciprocity and mutuality of advantages– Step-by-step negotiations and extension of preferential trade

agreement– Inclusion of all types of products– Special and favorable treatment to least developed countries.

Objectives of SAPTA

• To gradually liberalize the trade among members of SAARC.

• To eliminate trade barriers among SAARC countries & reduce or eliminate tariffs.

• To promote and sustain mutual trade & economic cooperation among member countries.

INDO-LANKA free trade agreement

• Agreement signed in Dec 28, 1998, a large number of items eligible for duty free trade

• Objectives– To promote through the expansion of trade– To provide fair conditions of competition for trade

between India and Sri Lanka – To remove the barriers of trade to the harmonious

development and expansion of world trade.

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trade blocs

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