Trade bloc

A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.[1]

Description

Stages of economic integration around the World (each country colored according to the most integrated form that it participates with):
  Economic and Monetary Union (CSME/EC$, EU/€, Switzerland–Liechtenstein/CHF)
  Economic union (CSME, EU, EAEU)
  Customs and Monetary Union (CEMAC/XAF, UEMOA/XOF)
  Common market (EEA–Switzerland, EFTA)
  Customs union (CAN, EAC, EUCU, MERCOSUR, SACU)
  Multilateral Free Trade Area (AFTA, CEFTA, CISFTA, COMESA, GAFTA, GCC, NAFTA, SAFTA, SICA)

Historic economic blocs include the Hanseatic League, a trading alliance in northern Europe in existence between the 13th and 17th centuries and the German Customs Union (Zollverein) initiated in 1834, formed on the basis of the German Confederation and subsequently German Empire from 1871. Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the 1990s after the collapse of Communism. By 1997, more than 50% of all world commerce was conducted within regional trade blocs.[2]

Economist Jeffrey J. Scott of the Peterson Institute for International Economics notes that members of successful trade blocs usually share four common traits: similar levels of per capita GNP, geographic proximity, similar or compatible trading regimes, and political commitment to regional organization.[3]

Advocates of worldwide free trade are generally opposed to trading blocs, which, they argue, encourage regional as opposed to global free trade.[4] Scholars and economists continue to debate whether regional trade blocs are leading to a more fragmented world economy or encouraging the extension of the existing global multilateral trading system.[5][6]

Trade blocs can be stand-alone agreements between several states (such as the North American Free Trade Agreement (NAFTA)) or part of a regional organization (such as the European Union). Depending on the level of economic integration, trade blocs can fall into different categories, such as:[7] preferential trading areas, free trade areas, customs unions, common markets and economic and monetary unions.

Advantages and Disadvantages of trade blocs

Advantages

There are five major advantages of trade bloc agreements: foreign direct investment, economies of scale, competition, trade effects, and market efficiency.

Foreign Direct Investment: An increase in foreign direct investment results from trade blocs and benefits the economies of participating nations. Larger markets are created, resulting in lower costs to manufacture products locally.

Economies of Scale: The larger markets created via trading blocs permit economies of scale. The average cost of production is decreased because mass production is allowed.

Competition: Trade blocs bring manufacturers in numerous countries closer together, resulting in greater competition. Accordingly, the increased competition promotes greater efficiency within firms.

Trade Effects Trade blocs eliminate tariffs, thus driving the cost of imports down. As a result, demand changes and consumers make purchases based on the lowest prices, allowing firms with a competitive advantage in production to thrive.

Market Efficiency: The increased consumption experienced with changes in demand combines with a greater amount of products being manufactured to result in an efficient market.[8]

Disadvantages

The disadvantages, on the other hand, include: regionalism vs. multinationalism, loss of sovereignty, concessions, and interdependence.

Regionalism vs. Multinationalism: Trading blocs bear an inherent bias in favor of their participating countries. For example, NAFTA, a free trade agreement between the United States, Canada and Mexico, has contributed to an increased flow of trade among these three countries. Trade among NAFTA partners has risen to more than 80 percent of Mexican and Canadian trade and more than a third of U.S. trade, according to a 2009 report by the Council on Foreign Relations. However, regional economies by establishing tariffs and quotas that protect intra-regional trade from outside forces, according to the University of California Atlas of Global Inequality. Rather than pursuing a global trading regime within the World Trade Organization, which includes the majority of the world's countries, regional trade bloc countries contribute to regionalism rather than global integration.

Loss of Sovereignty: A trading bloc, particularly when it is coupled with a political union, is likely to lead to at least partial loss of sovereignty for its participants. For example, the European Union, started as a trading bloc in 1957 by the Treaty of Rome, has transformed itself into a far-reaching political organization that deals not only with trade matters, but also with human rights, consumer protection, greenhouse gas emissions and other issues only marginally related to trade.

Concessions: No country wants to let foreign firms gain domestic market share at the expense of local companies without getting something in return. Any country that wants to join a trading bloc must be prepared to make concessions. For example, in trading blocs that involve developed and developing countries, such as bilateral agreements between the U.S. or the EU and relatively poor Asian, Latin American or African countries, the latter may have to allow multinational corporations to enter their home markets, making some local firms uncompetitive.

Interdependence: Because trading blocs increase trade among participating countries, the countries become increasingly dependent on each other. A disruption of trade within a trading bloc as a result of a natural disaster, conflict or revolution may have severe consequences for the economies of all participating countries.[8][9]

Lists of trade blocs

Monetary unions.
Customs unions worldwide.
Regional trade blocs:
  African Union (AU)
  Caribbean Community (CARICOM)
  Arab League (AL)
Mercosur

Statistics of trade blocs

Trade bloc Population Gross domestic product (USD) Members
2006 2007 growth per capita
Common markets, Economic and Monetary unions
EMU 324,879,19510,685,946,928,31012,225,304,229,68614.41%37,630
OECS 593,9053,752,679,5623,998,281,7316.54%6,732
OII 504,47612,264,278,32914,165,953,20015.51%28,081
CCCM 6,418,41739,616,485,62343,967,600,76510.98%6,850
EEA 499,620,52114,924,076,504,59217,186,876,431,70915.16%34,400
Customs and monetary unions
CEMAC 39,278,64551,265,460,68558,519,380,75514.15%1,490
UEMOA 90,299,94550,395,629,49458,453,871,28315.99%647
Customs unions
CAN 96,924,486281,269,141,372334,172,968,64818.81%3,448
EAC 127,107,83849,882,030,44361,345,180,04122.98%483
EUCU 574,602,74515,331,827,900,20217,679,376,474,71915.31%30,768
GCC 36,154,528724,460,151,595802,641,302,47710.79%22,200
MERCOSUR 271,304,9461,517,510,000,0001,886,817,000,00012.44%9,757
SACU 58,000,0001,499,811,549,1871,848,337,158,28123.24%6,885
Preferential trade areas and Free trade areas
AANZFTA-ASEAN+3 2,085,858,84110,216,029,899,76411,323,947,181,80410.84%5,429
ALADI 499,807,6622,823,198,095,1313,292,088,771,48016.61%6,587
AFTZ 553,915,405643,541,709,413739,927,625,27314.98%1,336
APTA 2,714,464,0274,868,614,302,7445,828,692,637,76419.72%2,147
CARIFORUM-EUCU-OCTs 592,083,95015,437,771,092,52217,798,283,524,96115.29%30,060
CACM 37,388,06387,209,524,88997,718,800,79412.05%2,614
CEFTA 27,968,711110,263,802,023135,404,501,03122.80%4,841
CISFTA 272,897,8341,271,909,586,0181,661,429,920,72130.62%6,088
DR-CAFTA-US 356,964,47713,345,469,865,03714,008,686,684,0894.97%39,244
ECOWAS 283,096,250215,999,071,943255,784,634,12818.42%904
EFTA-SACU 68,199,9911,021,509,931,9181,139,385,636,88811.54%16,707
EAEC 207,033,9901,125,634,333,1171,465,256,182,49830.17%7,077
NAFTA 449,227,67215,337,094,304,21816,189,097,801,3185.56%36,038
TPP 25,639,622401,810,366,865468,101,167,29416.50%18,257
SAARC 1,567,187,3731,162,684,650,5441,428,392,756,31222.85%911
SPARTECA 35,079,659918,557,785,0311,102,745,750,17220.05%31,435
Pacific Alliance 218,649,1151,371,197,216,1401,525,825,175,04511.28%6,978
This list is based on the data obtained from  United Nations Statistics Division.

Comparison between regional trade blocs

Activities
Regional bloc Free Trade Area Economic and monetary union Free Travel Political pact Defence pact Other
Customs Union Single Market Currency Union Visa-free Border-less
EU in force in force7 in force2 in force 1 in force in force
(Schengen 1, 7, NPU and CTA 1)		 in force in force
(NATO 1, 7 and CFSP/ESDP 1)		 ESA 1, 7
EFTA in force in force2, 7 in force in force 1, 7 in force 1, 7 ESA 1, 7
CARICOM in force in force in force 1 in force 1 and
proposed common		 in force 1 proposed proposed NWFZ
AU ECOWAS in force 1, 3 in force 1 proposed[10][11] in force 1 and
proposed for 2012 1 and
proposed common		 in force 1 proposed proposed in force NWFZ1
ECCAS in force1 in force1 proposed in force1 in force in force NWFZ1
EAC in force in force proposed for 2015 proposed for 2015 proposed ? proposed for 2015 NWFZ1
SADC in force1 in force1 proposed for 2015 de facto in force 1 and proposed common for 2016 proposed[12] NWFZ1
COMESA in force1 proposed for 2010 ? proposed for 2018 NWFZ1
Common proposed for 2019 proposed for 2019 proposed for 2023 proposed for 2028 proposed for 2028 NWFZ1
Pacific Alliance in force in force NWFZ
USAN MERCOSUR in force in force proposed for 2015[13] in force proposed for 2014[14] NWFZ
CAN in force in force 1 proposed1[15] in force NWFZ
Common proposed for 2014 4 proposed for not after 2019 proposed for 2019 proposed for 2019 in force[16] proposed for 2019 proposed in force NWFZ
EEU in force in force1 in force Proposed[17] in force[18] in force 1
AL GCC in force proposed for 2012[19] proposed proposed 1 in force
Common in force1 proposed for 2015 proposed for 2020 proposed proposed[20]
ASEAN in force 5 proposed for 2015[21] proposed 8[22] in force[23] proposed for 2015[24] proposed for 2020[25] NWFZ
CAIS in force1 proposed ? in force1 in force1 proposed NWFZ
CEFTA in force RCC7
NAFTA in force in force 1, 7
SAARC in force 1, 6
PIF proposed for 20211 NWFZ1

1 not all members participating yet
2 involving goods, services, telecommunications, transport (full liberalisation of railways from 2012), energy (full liberalisation from 2007)
3 telecommunications, transport and energy - proposed
4 sensitive goods to be covered from 2019
5 least developed members to join from 2012
6 least developed members to join from 2017
7 Additionally some non member states also participate (the European Union, EFTA and NATO have overlapping membership and various common initiatives regarding the European integration).
8 Additionally some non member states also participate (ASEAN Plus Three)

See also

References

  1. ↑ Schott 1991, 1.
  2. ↑ Milner 2002, 450.
  3. ↑ Schott 1991, 2.
  4. ↑ O'Loughlin and Anselin 1996, 136.
  5. ↑ Milner 2002, 458.
  6. ↑ Mansfield and Milner 2005, 330.
  7. ↑ Mansfield and Milner 2005, 333.
  8. 1 2
  9. ↑ http://connection.ebscohost.com
  10. ↑ WT/COMTD/N/11
  11. ↑ WT/COMTD/N/21
  12. ↑ "Prensa Latina". Prensa Latina. February 3, 2007.
  13. ↑ WT/REG238/M/1
  14. ↑ "Definidos critérios para o Parlamento do Mercosul". Senado Federal – Notícias. February 3, 2007.
  15. ↑ Twelfth Andean Presidential Council Act of Lima
  16. ↑ "?". CNN. February 3, 2007.
  17. ↑ "Russia, Kazakhstan, Belarus form Eurasian Economic Union". Washington Post. May 29, 2014. Retrieved June 1, 2014.
  18. ↑ http://www.itar-tass.com/eng/level2.html?NewsID=2847543&PageNum=0 Archived September 30, 2007 at the Wayback Machine
  19. ↑ GCC countries postpone customs union move
  20. ↑ Yemen Proposes Replacing Arab League With Arab Union, Agence France-Presse, 11 February 2004
  21. ↑ "Asean Trade Mins Meet To Speed Up Plans For Single Market". Malaysia Dual Lingual Business News. February 3, 2007.
  22. ↑ "Envisioning a single Asian currency". International Herald Tribune. February 3, 2007.
  23. ↑ "ASEAN To Sign Accord On Visa-Free Travel". AHN – All Headline News. February 3, 2007.
  24. ↑ "ASEAN Leaders Sign Five Agreements at the 12th ASEAN Summit, Cebu, the Philippines, 13 January 2007" (Press release). ASEAN Secretariat. 2007-01-13. Retrieved 2007-01-28. On the first day of the 12th ASEAN Summit, five Agreements have been signed by ASEAN leaders – reinforcing their commitment in the continuing integration of ASEAN and enhancing political, economic and social cooperation in the region.
  25. ↑ "ASEAN defense ministers aim for security community". ABS-CBN. February 3, 2007.

Bibliography

  • Mansfield, Edward D. and Helen V. Milner, "The New Wave of Regionalism" in Diehl, Paul F. (2005). The Politics of Global Governance: International Organizations in an Interdependent World. Boulder: Lynne Rienner Publishers. ISBN 1-55587-654-4. 
  • Milner, Helen V., "International Trade" in Carlsnaes, Walter; Thomas Risse; Beth A. Simmons (2002). Handbook of International Relations. London: SAGE Publications. ISBN 0-7619-6304-9. 
  • O'Loughlin, John; Luc Anselin (1996). "Geo-Economic Competition and Trade Bloc Formation: United States, German, and Japanese Exports, 1968-1992". Economic Geography 72 (2): 131–160. doi:10.2307/144263. JSTOR 144263. 
  • Schott, Jeffrey J. (1991). "Trading blocs and the world trading system". World Economy 14 (1): 1–17. doi:10.1111/j.1467-9701.1991.tb00748.x. 
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