Trade Blocs

How have trade agreements

affected world trade?
For the global economy to fully benefit from trade,
there has to be a liberal (free) trade system. Each
country can produce what it has a comparative
advantage at producing and trade its products with
other countries.
But there has been a history of PROTECTIONISM in
the global economy.
Restrictions, import quotas, duties, trade embargos,
tariffs, non tariff barriers, subsidises.
All of these limit the flows of traded goods and
services, this has the affect of reducing the volume of
trade and therefore any benefits that trade can bring.

If a country attempt to protect its economy often other

countries will impose protectionist policies on that
country’s goods and services thereby negating the
benefits of protectionism.
The WTO (World Trade Organisation) has the stated
aim of reducing protectionism to allow for free trade.

It could be said that the WTO has been quite successful

at liberalising the economies of LEDCs but less
successful at reducing the protectionism of the MEDCs.

But although there are still many forms of protectionism

on a global scale, there has been a reduction of
protectionism on a regional scale as a result of the
increase in TRADING BLOCS.
Regional trading blocs can reduce barriers between
member countries but often maintain and increase
restrictions and protectionism against non member
countries.

Global trade is becoming dominated by the power of the

regional trading bloc.
EUROPEAN UNION – Highly integrated
trading bloc of European countries

Members: Austria: Belgium: Cyprus; Czech

Republic; Denmark; Estonia; Finland; France;
Germany; Greece; Hungary; Ireland; Italy;
Latvia; Lithuania; Luxembourg; Malta;
Netherlands; Poland; Portugal; Slovakia;
Slovenia; Spain; Sweden; United Kingdom
The EU has become the most powerful
trading bloc in the world with a GDP nearly as
large as that of the United States.
It is also the largest importer of agricultural
products from developing countries, and
maintains close links to its former colonies in
the ACP group through trade preferences and
aid deals.
The EU has found it difficult to shed its
protectionist past based on the idea of self-
sufficiency in agriculture which limits
agricultural exports from the other countries,
although it has implemented a major reform
of its Common Agricultural Policy to shift
subsides to support the environment.
 Members: Canada; Mexico; United
NAFTA – LEDC and MEDC States
The United States has linked with
trading bloc Canada and Mexico to form a free trade
zone, the North American Free Trade
Agreement (NAFTA).
The NAFTA agreement covers
environmental and labour issues as well
as trade and investment, but US unions
and environmental groups argue that
the safeguards are too weak.
Plans to include the rest of Latin
America creating a Free Trade Area of
the Americas (FTAA) have been put on
hold following opposition from key
countries like Brazil.
But the US is separately signing free
trade agreements with some Andean
Pact nations and on 1 January 2006 the
Central American Free Trade Area
(CAFTA) will come into effect, including
Guatemala, Honduras, Nicaragua, El
Salvador, Costa Rica, and Dominican
Republic.
Meanwhile, the regional free trade pact
called Mercosur, between Brazil,
Argentina, Uruguay, and Paraguay, will
be expanded to include Venezuela..
ASEAN – Regional Bloc of Pacific rim countries

Members: Australia; Brunei; Canada; Chile; China;

Hong Kong; Indonesia; Japan; South Korea;
Malaysia; Mexico; New Zealand; Papua New Guinea;
Peru; Philippines; Russia; Singapore; Taiwan;
Thailand; United States; Vietnam

The Asia-Pacific Economic Cooperation forum is a

loose grouping of the countries bordering the Pacific
Ocean who have pledged to facilitate free trade.
Its 21 members range account for 45% of world
trade.
They have pledged to liberalises trade among
themselves by 2010 for developed countries and
2015 for developing countries.
Recently China has begun signing bilateral free trade
deals with a number of Apec members.

Cairns Group – Agricultural
producers
Members: Argentina; Australia; Bolivia;
Brazil; Canada; Chile; Colombia; Costa
Rica; Guatemala; Indonesia; Malaysia;
New Zealand; Paraguay; Philippines;
South Africa; Thailand; Uruguay
The Cairns group of agricultural exporting
nations was formed in 1986 to lobby at the
last round of world trade talks in order to
free up trade in agricultural products.
It is named after the town in Australia
where the first meeting took place.
Highly efficient agricultural producers,
including those in both developed and
developing countries, want to ensure that
their products are not excluded from
markets in Europe and Asia.
The developing country members of this
group have now formed their own
grouping, the G20..
G20 – Bloc of LEDCs to rival EU and USA

Members: Argentina, Bolivia, Brazil, Chile,

China, Cuba, Egypt, Guatemala, India,
Indonesia, Mexico, Nigeria, Pakistan, Paraguay,
Philippines, South Africa, Thailand, Tanzania,
Uruguay, Venezuela, Zimbabwe
At the Cancun meeting of the world trade talks in
September 2003, a powerful new grouping of
developing countries emerged.
Led by rapidly growing countries and major
exporters like Brazil, China, India, and South
Africa, this group has been powerful enough to
challenge the EU and the US in trade
negotiations.
At Cancun, the G20 made it clear that it could
not accept the EU plans to include investment
and competition as elements in the trade talks.
Now, the G20 are standing firm in insisting that
rich countries make concessions on agriculture
before there will be any final agreement on
services or reductions in tariffs on manufactured
goods.
OPEC – Trading bloc of oil exporters

The Organization of the

Petroleum Exporting
Countries (OPEC) is an
international organization
made up of Algeria, Indonesia,
Iran, Iraq, Kuwait, Libya,
Nigeria, Qatar, Saudi Arabia,
the United Arab Emirates, and
Venezuela. Since 1965 its
international headquarters
have been in Vienna, Austria.
It is considered to be a cartel
by many observers
The growth in world trade has been unevenly spread. Some developing
countries - often in Asia - have increased growth by producing more
manufactured goods. But others - often in Africa - have fallen further behind.
The world’s poorest countries – the 49 least developed countries – have
not shared in the growth of world trade. The 646m people in the top
exporting countries - the US, Germany, Japan, France and UK - have
100 times more trade than their poor counterparts.
Many poor countries depend on a single primary export like wood, coffee,
copper or cotton. But prices for such commodities have been declining. Prices
of manufactured goods have, in contrast, risen in relative terms.
Many poor countries depend on a single primary export like wood, coffee,
copper or cotton. But prices for such commodities have been declining.
Prices of manufactured goods have, in contrast, risen in relative terms.
Nigeria and Korea stand at the opposite ends of the development
spectrum. Twenty years ago, their exports were the same value, but
Korea developed a diversified manufacturing base, while Nigeria was
dependent on oil, which fell in value. Korea’s high-tech exports like cars
and electronic goods have raised its standard of living.
Huge agricultural subsidies by Western countries to their small farm
populations far outweigh the aid given to developing countries. The
rich countries have repeatedly pledged to reduce the size of their
farm supports. So far the amount of such subsidies has changed
little in 20 years, while the amount of aid has declined.
The fastest growing area of world trade is the service sector. The
rich countries have concentrated on business and financial
services, while tourism and travel dominate poor country services.
There is controversy over moves by rich countries to sell services
like telecommunications, water and public transport to poor
countries.
Globally, the proportion of people in poverty has declined, but as the population
grows the actual number of poor people is still rising. Declining poverty in Asia
suggests the benefits of trade have trickled down to the poorest. But poverty is
expected to rise in Africa, where trade is weak and factors such as war, HIV and
debt are prevalent.