Anda di halaman 1dari 19

INTRODUCTION TO TRADE BLOCS

A trade bloc is a type of intergovernmental agreement, often part of a regional

intergovernmental organization, where regional barriers to trade, (tariffs and nontariff

barriers) are reduced or eliminated among the participating states. 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. 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.

Advocates of worldwide free trade are generally opposed to trading blocs, which, they

argue, encourage regional as opposed to global free trade. 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.

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

theEuropean Union). Depending on the level of economic integration, trade blocs can fall

1
into different categories, such aspreferential trading areas, free trade areas, customs

unions, common markets and economic and monetary unions.

OBJECTIVE OF TRADING BLOCS

A bloc means groups. Trading blocs means grouping of countries. It means a group of

nations united for some common actions. Trading bloc is a voluntary grouping of

countries of a specific region for common benefit. It indicates regional economic

integration of nations for mutual benefits. In general terms, regional trade blocks are

associations of nations to promote trade within the block and defend its members against

global competition. Trading blocs are highly organised and based on shared interest to

promote economic and social interest of the member countries. There are different types

of trading blocs such as Free Trade Area, Customs union, Economic Union, custom

union, political union, common market etc. trading blocs leads to greater international

bargaining power, increased competition between members, rapid spread of technology

etc. Lowering trade barriers is one of the most obvious means of encouraging trade.

OBJECTIVES OF TRADING BLOCS:

i. To remove trade restrictions among member nations.

ii. To improve social, political, economic and cultural relations among member

nations.

iii. To encourage free transfer of resources.

iv. To establish collective bargaining.

2
v. To promote economic growth.

SAARC:

It stands for South Asian Association for Regional Cooperation. SAARC is an economic

integration of South Asian countries for regional cooperation. It was established on 8 th

December 1985.

It consists of nations of South Asia that includes Bangladesh, Bhutan, India, Maldives,

Nepal, Pakistan and Srilanka. SAARC focus on areas such as Science and Technology,

agricultural and rural development, tele-communication, postal services etc.

SAARC members signed an agreement called SAPTA (South Asian Preferential Trade

Agreement). This agreement was signed to provide a framework for the exchange of

trade concessions

It aims at accelerating the process of economic and social development in member states.

Afghanistan became the eighth member of this group in 2007.

OPEC: Oil and Petroleum exporting countries:

Opec is an organization consisting of world's oil and petroleum exporting countries. The

Organization of the Petroleum Exporting Countries (OPEC) was created in 1960 to unify

and protect the interests of oil-producing countries. OPEC has maintained its

headquarters in Vienna since 1965.

3
The original members of OPEC included Iran, Iraq, Kuwait, Saudi Arabia, and

Venezuela. OPEC has since expanded to include seven more countries (Algeria, Angola,

Indonesia, Libya, Nigeria, Qatar, and United Arab Emirates) making a total membership

of 12.

The main objective of this bloc is to unify and coordinate member countries petroleum

policies and to provide them with technical and economic aid. There has been a

continuous increase in India's share of export to opec countries.

EU - European Union:

European Union is considered as one of the powerful trading bloc in the world. It was

brought into existence in 1st January 1958 by the treaty of Rome. France, Western

Germany, Italy, Belgium, Netherland and Luxemburg were the founder members of

European Union. Initially it was known as European Economic Community (EEC).

It has a common currency called 'EURO'. It also offers tremendous trade opportunities

for non-European firms. At present there are twenty seven members in this bloc that

includes: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia,

Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania,

Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia,

Spain, Sweden, and the United Kingdom.

4
NAFTA:

North American Free Trade Agreement the North American Free Trade Agreement or

NAFTA is an agreement signed by the governments of the United States, Canada, and

Mexico creating a trilateral trade bloc in North America.

The agreement came into force on January 1,1994 NAFTA is the most powerful trading

blocs in the world. USA, Canada, Mexico are the members of NAFTA. The objective of

NAFTA is to reduce barriers on the flow of goods, services and people among member

nations, protection to investment in member countries etc. European Union and NAFTA

accounts for over fifty percent of the world trade.

ADVANTAGES AND DISADVANTAGES OF TRADE BLOCS

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.

5
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. 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 theWorld Trade Organization, which includes the majority of the world's

countries, regional trade bloc countries contribute to regionalism rather than global

integration.

6
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.

REGIONAL TRADE BLOCKS, TARIFFS AND TRADE BARRIERS

The Internet and technological advances in telecommunications link trade partners

across the globe.

Yet, this does not mean that trade barriers are non-existent. While the World Trade

Organization (WTO) promotes global multilateral free trade, regional trade blocks

provide their members with the mechanisms for competing in an aggressive global

market.

Regardless of the size of your business, it is essential to know the international trade

regulations that govern your import and/or export operations. This article provides a brief

7
description of each trade block – date established, list of members, goals, population, and

GDP (PPP). Links are provided for more detailed information of trade agreements and

tariffs.

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:

ASEAN (Association of Southeast Asian Nations) Updated 22 Jan

2014 Established on August 8, 1967, in Bangkok/Thailand.

Member States: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia,

Myanmar, Philippines, Singapore, Thailand, and Vietnam.

8
ASEAN Economic Community (AEC): Learn more about ASEAN Leaders'

vision to transform ASEAN into a single market and production base that is highly

competitive and fully integrated into the global ecomony by 2015.

EU (European Union) Updated 22 Jan 2014

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 (28). These include Austria,

Belgium, Bulgaria, Croatia (2013), Cyprus, Czech Republic, Denmark, Estonia, Finland,

France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg,

Malta, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, The Netherlands,

and the United Kingdom.

MERCOSUR (Mercado Comun del Cono Sul - Southern Cone Common Market)

Official site is available only in Spanish and Portuguese.Updated 23 Jan 2014

Established on 26 March 1991 with the Treaty of Assunción.

Full members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela. Boliivia

is undergoing process of becoming a full member. Associate members include Chile,

Colombia, Ecuador, Guyana, Peru, and Suriname. Associate members have access to

9
NAFTA (North American Free Trade Agreement) Updated 27 Jan

2014 Agreement signed on 1 January 1994.

Members: Canada, Mexico, and the United States of America.

Goals: Eliminate trade barriers among member states, promote conditions for free

trade, increase investment opportunities, and protect intellectual property rights.

TYPES OF TRADING BLOCS

A regional trading bloc is a group of countries within a geographical region that protect

themselves from imports from non-members. Trading blocs are a form of economic

integration, and increasingly shape the pattern of world trade. There are several types of

trading bloc:

Preferential Trade Area

Preferential Trade Areas (PTAs) exist when countries within a geographical region agree

to reduce or eliminate tariffbarriers on selected goods imported from other members of

the area. This is often the first small step towards the creation of a trading bloc.

Free Trade Area

Free Trade Areas (FTAs) are created when two or more countries in a region agree to

reduce or eliminate barriers to trade on all goods coming from other members.

10
Customs Union

A customs union involves the removal of tariff barriers between members, plus the

acceptance of a common (unified) external tariff against non-members. This means that

members may negotiate as a single bloc with 3rd parties, such as with other trading blocs,

or with the WTO.

Common Market

A ‘common market’ is the first significant step towards full economic integration, and

occurs when member countries trade freely in all economic resources – not just tangible

goods. This means that all barriers to trade in goods, services, capital, and labour are

removed. In addition, as well as removing tariffs, non-tariff barriers are also reduced and

eliminated. For a common market to be successful there must also be a significant level

of harmonisation of micro-economic policies, and common rules regarding monopoly

power and other anti-competitive practices.

The European Union (EU)

The EU is the world’s largest trading bloc, and second largest economy, after the USA.

The EU was originally called the Economic Community (Common Market, or The Six)

after Its formation following theTreaty of Rome in 1957. The original six members

were Germany, France, Italy, Belgium, Netherlands, and Luxembourg.

The initial aim was to create a single market for goods, services, capital, and labour by

eliminating barriers to trade and promoting free trade between members.

11
In terms of dealing with non-members, common tariff barriers were erected against cheap

imports, such as those from Japan, whose goods prices were artificially low because of

the undervalued yen.

By 2014, following continuous enlargement, the EU had 28 members. Croatia is the latest

country to join, in July 2013.

The main advantages for members of trading blocs

Free trade within the bloc

Knowing that they have free access to each other's markets, members are encouraged to

specialise. This means that, at the regional level, there is a wider application of the

principle of comparative advantage.

Market access and trade creation

Easier access to each other’s markets means that trade between members is likely to

increase. Trade creation exists when free trade enables high cost domestic producers to

be replaced by lower cost, and more efficient imports. Because low cost imports lead to

lower priced imports, there is a 'consumption effect', with increased demand resulting

from lower prices.

THE MAIN DISADVANTAGES OF TRADING BLOCS

Loss of benefits

The benefits of free trade between countries in different blocs is lost.

12
Distortion of trade

Trading blocs are likely to distort world trade, and reduce the beneficial effects of

specialisation and the exploitation ofcomparative advantage.

Inefficiencies and trade diversion

Inefficient producers within the bloc can be protected from more efficient ones outside

the bloc. For example, inefficient European farmers may be protected from low-cost

imports from developing countries. Trade diversion arises when trade is diverted away

from efficient producers who are based outside the trading area.

TRADE BARRIES

Trade barriers are government-induced restrictions on international trade.[1] The barriers

can take many forms, including the following:

Tariffs

Non-tariff barriers to trade

Import licenses

Export licenses

Import quotas

Subsidies

Voluntary Export Restraints

13
Local content requirements

Embargo

Currency devaluation[2]

Trade restriction

Most trade barriers work on the same principle: the imposition of some sort of cost on

trade that raises the price of the traded products. If two or more nations repeatedly use

trade barriers against each other, then a trade war results.

Economists generally agree that trade barriers are detrimental and decrease overall

economic efficiency, this can be explained by the theory of comparative advantage. In

theory, free trade involves the removal of all such barriers, except perhaps those

considered necessary for health or national security. In practice, however, even those

countries promoting free trade heavily subsidize certain industries, such as agriculture

and steel.

Trade barriers are often criticized for the effect they have on the developing world.

Because rich-country players call most of the shots and set trade policies, goods such as

crops that developing countries are best at producing still face high barriers. Trade

barriers such as taxes on food imports or subsidies for farmers in developed economies

lead to overproduction and dumping on world markets, thus lowering prices and hurting

poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw

commodities and high rates for labor-intensive processed goods. The Commitment to

14
Development Index measures the effect that rich country trade policies actually have on

the developing world.

Another negative aspect of trade barriers is that it would cause a limited choice of

products and would therefore force customers to pay higher prices and accept inferior

quality. Trade barriers may occur in international trade when goods have to cross political

boundaries. A trade barrier is a restriction on what would otherwise be free trade. The

most common form of trade barriers are tariffs, or duties (the two words are often used

interchangeably in the context of international trade), which are usually imposed on

imports. There is also a category of nontariff barriers, also known as nontariff measures,

which also serve to restrict global trade.

There are several different types of duties or tariffs. An export duty is a tax levied on

goods leaving a country, while an import duty is charged on goods entering a country. A

duty or tariff may be categorized according to how it is calculated. An ad valorem tariff

is one that is calculated as a percentage of the value of the goods being imported or

exported. For example, a 20 percent ad valorem duty means that a duty equal to 20

percent of the value of the goods in question must be paid. Duties that are calculated in

other ways include a specific duty, which is based on the quantity, weight, or volume of

goods, and a compound duty (also known as a mixed tariff), which is calculated as a

combination of an ad valorem duty and a specific duty.

Duties and tariffs are also categorized according to their function or purpose. An

antidumping duty is imposed on imports that are priced below fair market value and that

15
would damage domestic producers. Antidumping duties are also called punitive tariffs. A

countervailing duty, another type of punitive tariff, is levied after there has been

substantial or material damage done to domestic producers. A countervailing duty is

specifically charged on imports that have been subsidized by the exporting country's

government. The purpose of a countervailing duty is to offset the subsidy and increase

the domestic price of the imported product.

A prohibitive tariff, also known as an exclusionary tariff, is designed to substantially

reduce or stop altogether the importation of a particular product or commodity. It is

typically used when the amount of an imported good exceeds a certain permitted level. It

may be used to protect domestic producers. Another type of tariff is the end-use tariff,

which is based on the use of an imported product. For example, the same product may be

charged a different duty if it is intended for educational use as opposed to commercial

use.

In addition to duties and tariffs, there are also nontariff barriers (NTBs) to international

trade. These include quantitative restrictions, or quotas, that may be imposed by one

country or as the result of agreements between two or more countries. Examples of

quantitative restrictions include international commodity agreements, voluntary export

restraints, and orderly marketing arrangements.

16
Administrative regulations constitute a second category of NTBs. These include a variety

of requirements that must be met in order for trade to occur, including fees, licenses,

permits, domestic content requirements, financial bonds and deposits, and government

procurement practices. The third type of NTB covers technical regulations that apply to

such areas as packaging, labeling, safety standards, and multilingual requirements.

In 1980 the Agreement on Technical Barriers to Trade, also known as the Standards

Code, came into effect for the purpose of ensuring that administrative and technical

practices do not act as trade barriers. By the end of 1988 the agreement had been signed

by 39 countries. Additional work on promoting unified standards to eliminate these NTBs

was conducted by the General Agreement on Tariffs and Trade (GATT) Standards

Committee, which in 1994 was succeeded by the newly created World Trade

Organization (WTO). As a result more than 131 governments accepted the provisions of

the Technical Barriers to Trade (TBT) Agreement enforced by the WTO.

Standards and testing practices can become technical barriers to trade when they are

developed by national or regional interests and then imposed on the international trading.

The U.S. Department of Commerce' s 1998 report, "National Export Strategy," identified

"the global manipulation of international standards and testing practices by governments

and regional economic blocs" as a major threat to U.S. competitiveness abroad. Under the

TBT Agreement the WTO is supposed to guarantee due process and transparency in the

establishment of international standards. The Department of Commerce, however, has

presented examples where narrow regional or market interests have resulted in standards

17
forced on international trade, and governments and regional economic blocs such as the

European Union (EU) have openly used standards and related practices to achieve market

domination. The United States was among those countries calling for technology- and

trade neutral standards, especially for markets in Latin America and Asia.

Other types of existing technical trade barriers include environmental, health, and safety

certification requirements. In Europe such requirements range from banning imported

beef from cattle raised with hormones to not allowing older airplanes to land because of

noise pollution concerns.

18
CONCLUISON

Trade barriers may occur in international trade when goods have to cross political

boundaries. A trade barrier is a restriction on what would otherwise be free trade. The

most common form of trade barriers are tariffs, or duties (the two words are often used

interchangeably in the context of international trade), which are usually imposed on

imports. There is also a category of nontariff barriers, also known as nontariff measures,

which also serve to restrict global trade. Tariffs and other trade barriers have a definite

effect on consumption and production. They serve to reduce consumption of the imported

product, because the tariff raises the domestic price of the import. They also serve to

stimulate domestic production of the product when that is possible, also because of the

higher domestic price. Proponents of tariffs argue that such an increase in domestic

production is desirable, while opponents argue that it is inefficient from an economic

standpoint. The overall effect of tariffs and trade barriers on international trade is to

reduce the volume of trade and to increase the prices of imports. Proponents of free trade

argue that both of those results are undesirable, while proponents of protectionism argue

that tariffs may be necessary for a variety of reasons.

19