Regional T Rade Blocks (3)
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Transcript of Regional T Rade Blocks (3)
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)