TRADE BLOCS

Definition

A trade bloc is a type of intergovernmental agreement,

where regional barriers to trade, are reduced or eliminated among the

participating states

Members usually share four common traits:

similar levels of per capita GNP, geographic proximity, similar or compatible trading regimes, and political commitment to regional

organization..

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A Hierarchy of Regional Economic Integration Initiatives

Free TradeArea

CustomsUnion

CommonMarket

EconomicUnion

PoliticalUnion

Elimination ofTrade Barriers

+ Common External Trade Positions

+ Labor/Capital Mobility

+ Coordinated Economic and Fiscal Policy

+ Coordinated Political and Social Policy

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Types of Trade Blocs

Level of Integration

No Tariffs and Quotas

Common Tariffs and

Quotas

No Restrictions on Factor

Movements

Harmonized/unified Eco. Policies & Institutions

Unified Eco. & Political

Policies & Institutions

Free Trade Area

Yes No No No No

Customs Union

Yes Yes No No No

Common Market

Yes Yes Yes No No

Economic Union

Yes Yes Yes Yes No

Political Union

Yes Yes Yes Yes Yes

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Regional Economic Integration Benefits

Removal of Trade And InvestmentBarriers

Initial Costs Drop

Prices Drop

Demand Increases

Production Levels Rise

Economies of Scale Benefits

Competition Increases/More Investors

IndustryInnovation Increases

New ProductDevelopment

New ProcessDevelopment

Reallocation/Consolidationof Resources(Comparative Advantage)

Lower CostsAndSupply-Side LedGrowth

FTA

A free-trade area is a trade bloc whose member countries have signed a free-trade agreement (FTA),

which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them.

If people are also free to move between the countries, in addition to FTA, it would also be considered an open border.

FTA

ASEAN Free Trade Area (AFTA) Asia-Pacific Trade Agreement (APTA) Central European Free Trade Agreement (CEFTA) Greater Arab Free Trade Area (GAFTA) - June 1957 Gulf Cooperation Council (GCC) North American Free Trade Agreement (NAFTA) South Asia Free Trade Agreement (SAFTA) Southern African Development Community (SADC) Southern Common Market (MERCOSUR) Trans-Pacific Strategic Economic Partnership (TPP)

SAARC came up in 1985 The South Asian Free Trade Area or SAFTA is an

agreement reached on 6 January 2004 at the 12th SAARC summit in Islamabad, Pakistan.

It created a free trade area of 1.6 billion people in Bangladesh, Bhutan, India, Maldives, Nepal,Pakistan and Sri Lanka (as of 2011, the combined population is 1.8 billion people).

The seven foreign ministers of the region signed a framework agreement on SAFTA to reduce customs duties of all traded goods to zero by the year 2016.

The SAFTA agreement came into force on 1 January 2006 and is operational following the ratification of the agreement by the seven governments.

SAFTA requires the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring their duties down to 20 percent in the first phase of the two-year period ending in 2007.

In the final five-year phase ending 2012, the 20 percent duty will be reduced to zero in a series of annual cuts.

The least developed nations in South Asia (Nepal, Bhutan, Bangladesh, Afghanistan and Maldives) have an additional three years to reduce tariffs to zero.

India and Pakistan ratified the treaty in 2009, whereas Afghanistan as the 8th member state of the SAARC ratified the SAFTA protocol on the 4th of May 2011

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5 european and 2 S.American countries want to have trade liberalization between them..

For cars… and a few more automobile parts

They may have which type of trade bloc agreement..

Why????

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Now they want to rule other… How can they show their united power

and dominate others for their good…

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.

Customs Union

???

How about having free mobility of labor and capital…

Common Market

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.

Common Market

Common Market for Eastern and Southern Africa (COMESA)

Canada – Agreement on Internal Trade (AIT)

European Economic Area (EEA) Switzerland – European Union

Common Market

A single market has many benefits. With full freedom of movement for all the

factors of production between the member countries, the factors of production become more efficiently allocated, further increasing productivity.

For both business within the market and consumers, a single market is a very competitive environment, making the existence of monopolies more difficult.

Common Market…

This means that inefficient companies will suffer a loss of market share and may have to close down.

However, efficient firms can benefit from economies of scale, increased competitiveness and lower costs

Consumers are benefited by the single market in the sense that the competitive environment brings them cheaper products, more efficient providers of products and also increased choice of products

Economic Union An economic union is a type of trade

bloc which is composed of a common market with a customs union.

The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) and a common external trade policy.

The countries often share a common currency.

Purposes for establishing an economic union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries.

Economic union is established through trade pact.

Economic Union

Single market of the European Union CARICOM Single Market and Economy of

the Caribbean Community Union State of Russia and Belarus Monaco - European Union

Political Union

An economic and monetary union is a type of trade bloc which is composed of an 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.

EMU is established through a currency-related trade pact. An intermediate step between pure EMU and a complete economic integration is the fiscal union.

Political Union

Upcoming Political unification of EU…

Cases…