trade blocs final

8/3/2019 Trade Blocs FINAL

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Submitted by: poojayadavMFM SEMM-III


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Atrade bloc is a type ofintergovernmental agreement, oftenpart of a regional intergovernmental organization, whereregional barriers to trade, (tariffs and non-tariff barriers) arereduced or eliminated among the participating states

Trading blocs are relationships between countries, generallyin the same region, to facilitate free trade agreements. Trading

blocs include: North American Free Trade Agreement(NAFTA), Association of Southeast Asian Nations (ASEAN),European Union (EU) etc.
http://en.wikipedia.org/wiki/Trade_pacthttp://en.wikipedia.org/wiki/Intergovernmental_organizationhttp://en.wikipedia.org/wiki/Barriers_to_tradehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Barriers_to_tradehttp://en.wikipedia.org/wiki/Barriers_to_tradehttp://en.wikipedia.org/wiki/Intergovernmental_organizationhttp://en.wikipedia.org/wiki/Trade_pact


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The emergence of regionaltrade blocs, such as theNorth American Free TradeAgreement (NAFTA), theexpanded EU, and other

regional trade agreementslike MERCUSUR in SouthAmerica


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Geographical proximity and often the sharing of commonborders as in the European Union and NAFTA

Common economic and political interests as in the

European Union and the ASEAN

Similar ethnic and cultural backgrounds as in the FreeTrade of the Americas

Similar levels of economic development as in the

European Union

Similar views on the mutual benefits of free trade as inNAFTA

Regional political needs and considerations as in the

ASEAN


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FreeTradeArea

Customs

Union

CommonMarket

EconomicUnion

Political

Union

Elimination of

Trade Barriers

+ Common External

Trade Positions

+ Labor/CapitalMobility

+ Coordinated Economicand Fiscal Policy

+ Coordinated Political

and Social Policy


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Features of Bloc

Type of Bloc Free Trade

Among

Members

Common

External

Tariffs

Free

Movement of

Factors of

Production

Harmonization

of All

Economic

PoliciesFree-trade Area

Customs Union

Common Market

Economic Union

Features of Bloc

Type of Bloc Free Trade

Among

Members

Common

External

Tariffs

Free

Movement of

Factors ofProduction

Harmonization

of All

EconomicPolicies

Free-trade Area

Customs Union

Common Market

Economic Union


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Europe has two trade blocks

European Union

Seen as the emerging power with almost 25members

European Free Trade Association

Has only four members


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Product of two political factors:

Devastation of WWI and WWII and desire for peace

Desire for European nations to hold their own, politically andeconomically, on the world stage

1951 - European Coal and Steel Community.

1957- Treaty of Rome establishes the European Community

1994 - Treaty of Maastricht changes name to the EuropeanUnion


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Objectives:

Remove frontier controlsMutual recognition of product standards

Open public procurement to non nationals

Lift barriers to banking and insurance competition

Remove restrictions on foreign exchange transactionsAbolish cabotage restrictions


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Benefits:Savings from using only one currency

Easy to compare prices, resulting in lower pricesForces efficiency and slashing costs.

Creates liquid pan-Europe capital market.

Increases range of investments for individuals and institutions

As of 2004 Euro strong against the dollar and expected to rise


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Costs:Countries lose monetary policy control.

European Central Bank controls policy for the Euro zone

EU is not an optimal currency area.

Country economies are different

Euro puts the economic cart before the political horse

Strong Euro (2004) makes it harder for Euro zone exporters to

sell their goods


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EU in 2004 is the single largest market with a populationgreater than the US

10 new countries formally accepted into EU in 2002Population of EU will increase to 450 millionCreate European barriers to trade from the outside?

Might effect EU bureaucracy and decision making process


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Regional economic integration is on the rise in theAmericas

NAFTA

MERCOSUR

Plans for FTAA


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Enforced in January, 1994,

Over 10 year period: tariffs reduced (99% of goods traded)

Removal of most barriers on cross border flow of services

Removal of restrictions on FDI except in certain sectorsMexican railway and energy

US airline and radio communications

Canadian culture

Protection of intellectual property rights

Applies national environmental standards

Establishment of commission to police violations


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Enlarged and productiveregional baseLabor-intensiveindustries move toMexicoMexico gets investmentand employmentIncreased Mexicanincome to buyUS/Canada goodsDemand for goodsincreases jobsConsumers get lowerprices

Loss of jobs to Mexico

Mexican firms have tocompete against efficient

US/Canada firmsMexican firms becomemore efficientEnvironmentaldegradationLoss of national

sovereignty

CONSNAFTAPROS


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Bolivia, Colombia, Ecuador,Peru, Venezuela

Nearly failed. Rejuvenatedin 1990 in the GalapagosDeclaration

Changed from FTA to

customs union in 1992Still has many political andeconomic problems


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1988: Argentina, Brazil.1990: Paraguay, Uruguay1995: Agreed to movetoward a full customs

unionTrade quadrupled between1990-1998Has significant tradediversion issues

Revival in 2003 by Brazilspresident to be modeledafter EU with commoncurrency and electedparliament


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Created in 1967

Objective to achieve free trade between member countriesand achieve cooperation in their industrial

Brunei, Indonesia, Laos, Malaysia, the Philippines,Myanmar, Singapore, Thailand and Vietnam

Progress limited by Asian financial crisis of the 90s


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Founded in 1990 to promote open trade and practicaleconomic cooperation

Promote a sense of community

18 members

50% of worlds GNP

40% of global trade

Despite slow progress, if successful, could become theworlds largest free trade area


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Born in 1985

7 members countries : Bangladesh, Bhutan, India,Maldives, Nepal, Pakistan and Sri Lanka.

it has 1.3 billion inhabitantsrepresents 22% of the world population but only 1.9% ofthe world GNP.

SAARC has been a sheer failure.

the total external trade of the region 0.8% of worldexports and 1.3% of world imports

the reason being political dispute between membercountries


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Still some progress has been achieved

SAPTA(South Asian Preferential Trading Agreement) hascome into force in 1995

Consensus on SAFTA(South Asian Free Trade Area) hasbeen reached


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9 trade blocs on the continent

Many countries are members of more than one group

Progress slow due to political turmoil and deep suspicionof free trade

Less developed, less diversified economies needprotection

In 2001 Kenya, Uganda and Tanzania relaunched the EastAfrican Community (EAC) to establish a customs union 24years after it had collapsed


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Blocs are Good:

Forming a free trade area must be good because it is amove towards free trade

Free trade should improve welfare in these countries

Blocs are Bad:

Blocs may encourage people to buy from a high costpartner supplier

Trade regulations are still a problem

Countries create friction with those that are left outsideof the bloc


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The most recent round of negotiations for multilateraltrade in the World Trade Organization continues to dragon due to the increasing number of participants with theirown views and requirements.

The attractiveness of free trade agreements will remainhigh.

Countries interested in increasing trade will circumventthe delays in the WTO by making their own agreements.

The expansion of current trade agreements is also takingplaceas with the expansion of NAFTA into the FreeTrade Agreement for the Americas (FTAA).


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trade blocs final

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