REGIONAL TRADE BLOCKS

In general terms, regional trade blocks are associations of nations at a governmental level to promote trade within the block and defend its members against global competition.  Defense against global competition is obtained through established tariffs on goods produced by member states, import quotas, government subsidies, onerous bureaucratic import processes, and technical and other non-tariff barriers.Since trade is not an isolated activity, member states within regional blocks also cooperate in economic, political, security, climatic, and other issues affecting the region.

In terms of their size and trade value, there are four major trade blocks and a larger number of blocks of regional importance.

The four major regional trade blocks are, as follows:

1. ASEAN (Association of Southeast Asian Nations)

asean

Established on August 8, 1967, in Bangkok/Thailand.Member States: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.Important Indicators for 2009: Population approximately 591 million; GDP US$1.496 trillion; and Total Trade US$1.536 trillion.

2. EU (European Union) Founded in 1951 by six neighboring states as the European Coal and Steel Community (ECSC). Over time evolved into the European Economic Community, then the European Community and, in 1992, was finally transformed into the European Union.Regional block with the largest number of members states (27). These include Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,

E U

Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, The Netherlands, and the United Kingdom.Population estimated at 501.2 million on 1 January 2010 (Eurostat).GDP (PPP) estimated at US$14.9 trillion

3. MERCOSUR (Mercado Comun del Cono Sul - Southern Cone Common Market) Official site is available only in Spanish and Portuguese.Established on 26 March 1991 with the Treaty of Assunción.Full members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela. Associate members include Bolivia, Chile, Colombia, Ecuador, and Peru. Associate members haveaccess to preferential trade but not to tariff benefits of full members. Mexico, interested in

MERCOSURMERCOSUL

becoming a member of the region, has an observer statusPopulation: More than 273 million people GDP (PPP) of more than US$2.774 trillion 

. 4. NAFTA (North American Free Trade Agreement)

NAFTA

Agreement signed on 1 January 1994.Members: Canada, Mexico, and the United States of America

Population of over 460.9 million GDP (PPP) US$17.0 trillion

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Economist Jeffrey J. Scott of the Peterson Institute for International Economics notes

that members of successful trade blocs usually share four common traits:

1. similar levels of per capita GNP,

2. geographic proximity,

3. similar or compatible trading regimes, and

4. political commitment to regional organization.

Depending on the level of economic integration, trade blocs can fall into different categories, such as:

1. preferential trading areas, 2. .free trade areas, 3. customs unions ,4.  common markets and5. economic and monetary unions .

1. Preferential trading area

A Preferential trade area (also Preferential trade agreement, PTA) is a trading

bloc which gives preferential access to certain products from the participating countries.

This is done by reducing tariffs, but not by abolishing them completely. A PTA can be

established through a trade pact. It is the first stage of economic integration. The line

between a PTA and a Free trade area (FTA) may be blurred, as almost any PTA has a

main goal of becoming a FTA in accordance with the General Agreement on Tariffs and

Trade.

These tariff preferences have created numerous departures from the normal trade

relations principle, namely that World Trade Organization (WTO) members should apply

the same tariff to imports from other WTO members.

List of preferential trade areas

Asia-Pacific Trade Agreement (1976)[2]

Economic Cooperation Organization (ECO) (1992) Generalized System of Preferences Global System of Trade Preferences among Developing Countries (GSTP) (1989) Latin American Integration Association (LAIA/ALADI) (1981)[3]

Melanesian Spearhead Group (MSG) (1994) Protocol on Trade Negotiations (PTN) (1973) South Asian Preferential Trade Arrangement (SAPTA) (1999)

South Pacific Regional Trade and Economic Cooperation Agreement(SPARTECA)

(1981)[4]

2. Free trade area

Free trade area is a type of trade bloc, a designated group of countries that have

agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and

services traded between them. It can be considered the second stage of economic

integration. Countries choose this kind of economic integration form if their economical

structures are complementary. If they are competitive, they are more likely to

choose customs union.

 List of multilateral free trade agreements

ASEAN Free Trade Area  (AFTA)

Central American Integration System  (SICA)

Central European Free Trade Agreement  (CEFTA)[1]

Common Market for Eastern and Southern Africa  (COMESA)

G-3 Free Trade Agreement  (G-3)

Greater Arab Free Trade Area  (GAFTA) - June 1957[2]

Gulf Cooperation Council  (GCC)

North American Free Trade Agreement  (NAFTA)[3]

Southern African Development Community  (SADC)

South Asia Free Trade Agreement  (SAFTA)[4]

Trans-Pacific Strategic Economic Partnership  (TPP)[5

3. Customs union

A customs union is a type of trade bloc which is composed of a free trade area with

a common external tariff. The participant countries set up common external trade policy,

but in some cases they use different import quotas. Common competition policy is also

helpful to avoid competition deficiency.

Purposes for establishing a customs union normally include increasing economic

efficiency and establishing closer political and cultural ties between the member

countries.

It is the third stage of economic integration.

Customs union is established through trade pact.

List of customs unions

AgreementDate (in force)

Recent reference

Andean Community (CAN) 1988-5-25 L/6737

East African Community (EAC) 2005-1-1[1] WT/COMTD/N/14

Customs Union of Belarus, Kazakhstan and Russia

2010-07-1[2]

EU — Andorra 1991-7-1 WT/REG53/M/3

EU — San Marino 2002-4-1

EU — Turkey 1996-1-1 WT/REG22/M/4

Israel — Palestinian Authority 1994[3]

Southern Common Market (MERCOSUR) 1991-11-29 WT/COMTD/1/Add.17

Southern African Customs Union (SACU) 1910[4] WT/REG231/3

Switzerland — Liechtenstein 1924

4. Single market

A single market is a type of trade bloc which is composed of a free trade

area (for goods) with common policies on product regulation, and freedom of

movement of the factors of production (capital and labour) and

of enterprise and services. The goal is that the movement of capital, labour, goods, and

services between the members is as easy as within them.[1] The physical (borders),

technical (standards) and fiscal (taxes) barriers among the member states are removed

to the maximum extent possible. These barriers obstruct the freedom of movement of

the four factors of production. To remove these barriers the member states need

political will and they have to formulate common economic policies.

A common market is a first stage towards a single market, and may be limited initially to

a free trade area with relatively free movement of capital and of services, but not so

advanced in reduction of the rest of the trade barriers.

The European Economic Community was the first example of a both common and

single market, but it was an economic union since it had additionally a customs union.

List of single markets

Canada  - Agreement on Internal Trade (AIT)

European Free Trade Association  (EFTA)

European Economic Area  (EEA)

Switzerland - European Union [2

5. Economic and monetary union

An economic and monetary union is a type of trade bloc which is composed of a economic union(common market and customs union) with a monetary union. It is to be distinguished from a mere monetary union (e.g. the Latin Monetary Union in the 19th century), which does not involve a common market. This is the fifth stage of economic integration. EMU is established through a currency-related trade pact.

List of economic and monetary unions

Economic and Monetary Union of the European Union  (1999/2002) with

the Euro for the Eurozonemembers of the European Union

de-facto Monaco - Eurozone [1]

de-facto the OECS Eastern Caribbean Currency Union with the East Caribbean

dollar in the CSME(2006)[2]

de-facto Switzerland - Liechtenstein [3]

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General debates on trade blocs

The debates surrounding the feasibility of regionalism contain sharp disagreements. Gibb and Michalak note, “the multilateral trading system is in decline and regionalism is on the ascendancy” (Gibb and Michalak 1994: 1). Although scholars such as O’Brien (1992) and Hopkinson (1992) argue that globalization may usher in the “end of geography”, regionalism has emerged as an alternative form of trade that attempts to counter more aggressive policies of free trade, especially as espoused by the WTO.

Some analysts such as Preeg (1989) argue that trade blocs are desirable because they complement globalized trade. Others view regionalism as a threat to free trade because trade blocs advocate and install protectionist policies that shield bloc members from the effects of free trade (Schott 1989). However, Gibb and Michalak remind us that “theoretical analysis based on liberal economic principles is…inconclusive in evaluating the impact of trading blocs on living standards, redistribution of income and welfare” (1994: 32). Furthermore, they note, “no overall consensus is likely to be reached in the foreseeable future…[and] preferential trading arrangements may or may not bring welfare gains for participating counties” (1994: 33).

Regardless of the position taken on regionalism, the fact is very few countries develop and reduce inequality via regional trade alone. This is primarily due to the size of the market: globalization taps into a world market whereas trade blocs emphasize into regional markets, which are larger than the domestic market of a given country, but still smaller than the world market.

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Trade blocs have a range of reasons to “protect” the trade interests of their region:(1) To establish some form of regional control regarding trade that fulfills the interests of nations within that region;(2) To establish tariffs that protect intra-regional trade from “outside” forces;(3) To promote regional security and political concerns or to develop trade in such as way as to enhance the security in the region;(4) To promote South-to-South trade, e.g., between Africa and Asia, and between Latin American countries;(5) To promote economic and technical cooperation among developing countries

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They also use several measures to restrain global competition:

(1) import quotas (limiting the amount of imports into the country so that domestic consumers buy products made by their countries in their region);(2) customs delays (establishing bureaucratic formalities that slow down the ability for the imported product from abroad to enter the domestic market;(3) subsidies (government financial assistances toward sectors of the home economy so that they have an influx of capital);(4) boycotts and technical barriers;(5) bribes and voluntary restraints.

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Bilateral free trade agreements

List of agreements between two states, two blocs or a bloc and a state.

ASEAN  has bilateral agreements with the following countries and blocs:

ASEAN Free trade agreements

ASEAN – Australia – New Zealand Free Trade Area  (AANZFTA) is a free

trade area

ASEAN–China Free Trade Area  (ACFTA), in effect as of 1 January 2010

ASEAN–India Free Trade Area  (AIFTA), in effect as of 1 January 2010

Caribbean Community  (CARICOM) has bilateral agreements with the following

countries and blocs:

Costa Rica

Cuba

Dominican Republic

EFTA  [2] has bilateral agreements with the following countries and blocs:

EFTA Free trade agreements

Albania

Canada

Chile

Colombia

Croatia

Gulf Co-operation Council

Faroe Islands  (autonomous entity of Denmark)

Egypt  [3]

Israel

Jordan

Lebanon

Macedonia

Mexico

Morocco

Palestinian Authority

Serbia

Singapore

Southern African Customs Union  [4]

Tunisia

Singapore

South Korea

Turkey

Ukraine

India  has bilateral agreements with the following countries and blocs:

  India

  Current Bilateral/Multilateral FTA's

  Proposed/Suspended Bilateral/Multilateral FTA's

SAFTA  (Bangladesh, Bhutan, the Maldives, Nepal, Pakistan, Sri Lanka

and Afghanistan)

ASEAN  (ASEAN–India Free Trade Area)[7]

European Union  (final stage)[8]

Sri Lanka [9]

Singapore

Thailand  (separate from FTA agreement with ASEAN)[10]

Malaysia  (separate from FTA agreement with ASEAN)

Japan [11]

European Free Trade Association  (EFTA) (negotiation ongoing)[12]

Canada  (negotiation ongoing)

South Korea  (India-Korea CEPA)

United States free trade agreements :

  The United States

  FTA in force

  FTA signed, awaiting ratification

Middle east  (US - Middle East Free Trade Area initiative)

NAFTA  (Canada and Mexico)

Australia

Chile

Singapore

Peru

Dominican Republic–Central America Free Trade Agreement (DR-CAFTA;

incl. Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the

Dominican Republic) - 5 August 2004.[15]

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India: Bilateral and Regional Trade Agreements

Name of the Agreement

Member countries

Scope

Asia Pacific Trade Agreement (APTA)

Bangladesh, China, India, Republic of Korea and Sri Lanka1

Trade in goods

Bhutan-India Agreement on Trade

India, Bhutan Trade in goods

Commerce and Transit

India-Maldives Trade Agreement

India, Maldives

Trade in goods

Indo-Nepal Treaty of Trade

India, Nepal Trade in goods

AGREEMENT ON South Asian Free Trade Area (safta)

 

The South Asian Association for Regional Cooperation (SAARC) with a population of 1.5 billion is the largest regional grouping in the world. Its economic arm, the Agreement on South Asian Free Trade Area (SAFTA), an attempt at trade and investment liberalisation across the region, was signed in January 2004 and has eight members: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan. Presently intra-regional trade constitutes only five percent of the regions total international trade.

 

India-Sri Lanka Free Trade Agreement

The India- Sri Lanka Free Trade Agreement (ISFTA) was signed in 1998 in New Delhi. It became operational from 2000 and is a trade agreement in goods for the establishment of a free trade area by end of 2008 through elimination of tariffs in a phased manner. The first phase was an immediate tariff concession on the items under the positive list of both countries. The second phase mandated a phased concession on the remaining exchanged items, excluding the items under the negative list of both countries (Items under the negative list are not given any concession).

India-Thailand Free Trade Agreement

The FA for establishing an FTA between India and Thailand was signed in October 2003, in Bangkok. The agreement covers trade in goods, services and investment and provides for the phased elimination of tariffs aiming for a complete FTA by 2010. The agreement became operational from September 2004 with the implementation of the Early Harvest Scheme (EHS). Under the EHS 82 common items of export interest have

been agreed for complete elimination of tariff on a fast track basis and concessions were completed by September 2006.

 India-Singapore Comprehensive Economic Cooperation Agreement

The Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore entered into force from August 2005 and is presently India's most ambitious FTA. CECA comprises a free trade agreement in goods and services, a bilateral agreement on investment protection and promotion, and an improved double taxation avoidance agreement, Mutual Recognition Agreements29(MRA), and cooperation agreements in various sectors - customs, science and technology, education, e-commerce, intellectual property and media.

ASEAN-India Regional Trade and Investment Agreement

 

In October 2003, in Bali, India signed a FA on Comprehensive Economic Cooperation with the member States of the Association of South East Asian Nations (ASEAN), namely Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The agreement aims an ASEAN-India Regional Trade and Investment Area (RTIA) through free trade agreements in goods, services and investment. The FA sets the frame for the negotiations. 

 EU-India Trade and Investment Agreement

In October 2006 the 7th EU-India Summit was held in Helsinki, where both sides agreed on launching negotiations for a Trade and Investment Agreement that aims to deepen and widen trade and investment between India and the 27 members of the EU (Austria, Belgium, Bulgaria, Czech Republic, Cyprus, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom). In trade in goods both sides are interested in elimination of tariffs on substantially all trade, with a minimal coverage of 90% of the bilateral trade in volume and tariff lines.