REGIONAL TRADE BLOCS

Introduction

In the 1950s and 1960s regional integration gained significant momentum

Integration is also called as regional trading block, which involves the organizing of individual countries into groups that eventually abolish trade restrictions with member countries

To engage in other activities that promote their citizen’s welfare

Integration means the economic integration between countries, bordering sometimes on political integration too.

What is regional trade bloc?

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

Bilateral agreements can occur either between neighbours or between countries that are far removed from one another

Near 50%t of world trade is now conducted within these preferential trade arrangements, the most significant exception to the WTO's principle of non-discrimination

Governments have often entered regional economic agreements primarily motivated by political rather than economic considerations

Level of integration

A hierarchy of regional economic arrangements

A free trade - countries remove tariffs and non-tariff barriers to the free movement of goods and services between them (90% of RTB)

A customs union includes agreement on a common external tariff on all extra-regional imports

A common market includes a CU plus free movement of labour and capital

An economic union - a common market plus a common currency and/or the harmoniza tion of monetary, fiscal, and social policies.

Leading trade blocks for each region

EU (European Union ) NAFTA (North American Free Trade

Agreement) MERCOSUR (Mercado Comun del Cono Sur,

also known as Southern Common Markets (SCCM)

ASEAN (Association of Southeast Asian Nations)

SAARC (south Asian association for regional cooperation)

APEC(Asia Pacific Economic Cooperation)

EU

Founded in 1951

Union of political, economic and executive connections

Population: 499,7 million (2009)

GDP: US$ 15.247 trillion (IMF 2008)

Economic motivations for choosing regionalism over multilateralism

Regionalism enables continued protection of sectors that would not survive in global competition

Regionalism provides opportunities for 'deeper integration‘ which is not feasible with WTO

A regional economic agreement can grant two principal economic benefits:

First, it provides a larger 'home' market for domestic industries

Secondly, regionalism can increase the attractiveness of an economy to potential investors.

A related strategy is for governments to attempt to establish their economies as regional hubs (Singapore)

Private sector interest – economy of scale

Advantages of RTB

Transaction costs will be eliminated Price transparency Uncertainty caused by exchange rate fluctuations

eliminated Single currency in single market makes sense Prevent war Increased trade and reduced costs to firms Protection against an aggressive global market

Disadvantages of RTB

the instability of the system overestimation of trade benefits loss of sovereignty countries which are left out of the block can

obtain lower welfare trade deflection will lead to a loss of tariff

revenue for the economies with higher tariffs. To prevent FTA from trade deflection their members typically adopt rules of origin

NAFTA

Signed: 1994

Goal: promote trade, increase investments, protect intellectual property rights

Population: 445 million (2008)

GDP: US$ 16.2 trillion

MERCOSUR

Signed: 1991

Goal: Integration based on social justice

Population: 273 million (2008)

GDP: US$ 2.774 trillion

ASEAN

Signed: 1967

Goals: economic growth, social progress and development

Population: 584 million

GDP: 1.506 trillion (2008)

Free Trade Areas

Customs Unions

Common Market (European Economic Area)

Common Market (Central American Common Market)

Economic Union (Eurozone of European Union)

Economic Union (West African Economic and Monetary Union)