Submitted by: pooja yadav MFM SEMM-III

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 Trading blocs are relationships between countries, generally in 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.

The emergence of regional trade blocs, such as the North American Free Trade Agreement (NAFTA), the expanded EU, and other regional trade agreements like MERCUSUR in South America

 Geographical proximity and often the sharing of common borders 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 Free Trade of the Americas Similar levels of economic development as in the European Union Similar views on the mutual benefits of free trade as in NAFTA Regional political needs and considerations as in the ASEAN

Free Trade Area Customs Union

Elimination of Trade Barriers

+ Common External Trade Positions

Common Market Economi c Union Political Union

+ Labor/Capital Mobility

+ Coordinated Economic and Fiscal Policy

+ Coordinated Political and Social Policy

Type of Bloc Type of Bloc

Free Trade Common Free Harmonization Free Trade Common Free Harmonization Among External Movement of of All Among External Movement of of All Members Tariffs Factors of Economic Members Tariffs Factors of Economic Production Policies Production Policies Free-trade Area Free-trade Area Customs Union Customs Union Common Market Common Market Economic Union Economic Union

Features of Bloc Features of Bloc

Europe has two trade blocks European Union Seen as the emerging power with almost 25 members European Free Trade Association Has only four members

Product of two political factors:

Devastation of WWI and WWII and desire for peace Desire for European nations to hold their own, politically and economically, 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 European Union

Objectives:
Remove frontier controls Mutual recognition of product standards Open public procurement to non nationals Lift barriers to banking and insurance competition Remove restrictions on foreign exchange transactions Abolish cabotage restrictions

Benefits:
Savings from using only one currency Easy to compare prices, resulting in lower prices Forces 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

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

EU in 2004 is the single largest market with a population greater than the US 10 new countries formally accepted into EU in 2002
Population of EU will increase to 450 million Create European barriers to trade from the outside? Might effect EU bureaucracy and decision making process

Regional economic integration is on the rise in the Americas NAFTA MERCOSUR Plans for FTAA

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 sectors Mexican 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

PROS

NAFTA

CONS

Enlarged and productive regional base Labor-intensive industries move to Mexico Mexico gets investment and employment Increased Mexican income to buy US/Canada goods Demand for goods increases jobs Consumers get lower prices

Loss of jobs to Mexico

Mexican firms have to compete against efficient US/Canada firms Mexican firms become more efficient Environmental degradation Loss of national sovereignty

Bolivia, Colombia, Ecuador, Peru, Venezuela Nearly failed. Rejuvenated in 1990 in the Galapagos Declaration Changed from FTA to customs union in 1992 Still has many political and economic problems

1988: Argentina, Brazil. 1990: Paraguay, Uruguay 1995: Agreed to move toward a full customs union Trade quadrupled between 1990-1998 Has significant trade diversion issues Revival in 2003 by Brazils president to be modeled after EU with common currency and elected parliament

Created in 1967
Objective to achieve free trade between member countries and 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

Founded in 1990 to promote open trade and practical economic cooperation

Promote a sense of community 18 members 50% of worlds GNP 40% of global trade

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

Born in 1985 7 members countries : Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. it has 1.3 billion inhabitants represents 22% of the world population but only 1.9% of the world GNP. SAARC has been a sheer failure. the total external trade of the region 0.8% of world exports and 1.3% of world imports the reason being political dispute between member countries

Still some progress has been achieved SAPTA (South Asian Preferential Trading Agreement) has come into force in 1995 Consensus on SAFTA (South Asian Free Trade Area) has been reached

History:
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 1014, 1960.

Functions:
The OPEC MCs coordinate their oil production policies in order to help stabilize the oil market and to help oil producers achieve a reasonable rate of return on their investments. This policy is also designed to ensure that oil consumers continue to receive stable supplies of oil.

Members: -Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE, Venezuela.

9 trade blocs on the continent Many countries are members of more than one group Progress slow due to political turmoil and deep suspicion of free trade Less developed, less diversified economies need protection In 2001 Kenya, Uganda and Tanzania relaunched the East African Community (EAC) to establish a customs union 24 years after it had collapsed

Blocs are Good: Forming a free trade area must be good because it is a move towards free trade Free trade should improve welfare in these countries
Blocs are Bad: Blocs may encourage people to buy from a high cost partner supplier Trade regulations are still a problem Countries create friction with those that are left outside of the bloc

 The most recent round of negotiations for multilateral trade in the World Trade Organization continues to drag on due to the increasing number of participants with their own views and requirements. The attractiveness of free trade agreements will remain high. Countries interested in increasing trade will circumvent the delays in the WTO by making their own agreements. The expansion of current trade agreements is also taking placeas with the expansion of NAFTA into the Free Trade Agreement for the Americas (FTAA).