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Submitted by: poojayadavMFM SEMM-III
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Atrade bloc is a type ofintergovernmental agreement, oftenpart of a regional intergovernmental organization, whereregional barriers to trade, (tariffs and non-tariff barriers) arereduced or eliminated among the participating states
Trading blocs are relationships between countries, generallyin 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.
http://en.wikipedia.org/wiki/Trade_pacthttp://en.wikipedia.org/wiki/Intergovernmental_organizationhttp://en.wikipedia.org/wiki/Barriers_to_tradehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Non-tariff_barriers_to_tradehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Barriers_to_tradehttp://en.wikipedia.org/wiki/Barriers_to_tradehttp://en.wikipedia.org/wiki/Intergovernmental_organizationhttp://en.wikipedia.org/wiki/Trade_pact8/3/2019 Trade Blocs FINAL
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The emergence of regionaltrade blocs, such as theNorth American Free TradeAgreement (NAFTA), theexpanded EU, and other
regional trade agreementslike MERCUSUR in SouthAmerica
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Geographical proximity and often the sharing of commonborders 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 FreeTrade of the Americas
Similar levels of economic development as in the
European Union
Similar views on the mutual benefits of free trade as inNAFTA
Regional political needs and considerations as in the
ASEAN
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FreeTradeArea
Customs
Union
CommonMarket
EconomicUnion
Political
Union
Elimination of
Trade Barriers
+ Common External
Trade Positions
+ Labor/CapitalMobility
+ Coordinated Economicand Fiscal Policy
+ Coordinated Political
and Social Policy
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Features of Bloc
Type of Bloc Free Trade
Among
Members
Common
External
Tariffs
Free
Movement of
Factors of
Production
Harmonization
of All
Economic
PoliciesFree-trade Area
Customs Union
Common Market
Economic Union
Features of Bloc
Type of Bloc Free Trade
Among
Members
Common
External
Tariffs
Free
Movement of
Factors ofProduction
Harmonization
of All
EconomicPolicies
Free-trade Area
Customs Union
Common Market
Economic Union
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Europe has two trade blocks
European Union
Seen as the emerging power with almost 25members
European Free Trade Association
Has only four members
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Product of two political factors:
Devastation of WWI and WWII and desire for peace
Desire for European nations to hold their own, politically andeconomically, 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 EuropeanUnion
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Objectives:
Remove frontier controlsMutual recognition of product standards
Open public procurement to non nationals
Lift barriers to banking and insurance competition
Remove restrictions on foreign exchange transactionsAbolish cabotage restrictions
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Benefits:Savings from using only one currency
Easy to compare prices, resulting in lower pricesForces 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
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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
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EU in 2004 is the single largest market with a populationgreater than the US
10 new countries formally accepted into EU in 2002Population of EU will increase to 450 millionCreate European barriers to trade from the outside?
Might effect EU bureaucracy and decision making process
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Regional economic integration is on the rise in theAmericas
NAFTA
MERCOSUR
Plans for FTAA
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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 sectorsMexican 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
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Enlarged and productiveregional baseLabor-intensiveindustries move toMexicoMexico gets investmentand employmentIncreased Mexicanincome to buyUS/Canada goodsDemand for goodsincreases jobsConsumers get lowerprices
Loss of jobs to Mexico
Mexican firms have tocompete against efficient
US/Canada firmsMexican firms becomemore efficientEnvironmentaldegradationLoss of national
sovereignty
CONSNAFTAPROS
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Bolivia, Colombia, Ecuador,Peru, Venezuela
Nearly failed. Rejuvenatedin 1990 in the GalapagosDeclaration
Changed from FTA to
customs union in 1992Still has many political andeconomic problems
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1988: Argentina, Brazil.1990: Paraguay, Uruguay1995: Agreed to movetoward a full customs
unionTrade quadrupled between1990-1998Has significant tradediversion issues
Revival in 2003 by Brazilspresident to be modeledafter EU with commoncurrency and electedparliament
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Created in 1967
Objective to achieve free trade between member countriesand 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
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Founded in 1990 to promote open trade and practicaleconomic cooperation
Promote a sense of community
18 members
50% of worlds GNP
40% of global trade
Despite slow progress, if successful, could become theworlds largest free trade area
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Born in 1985
7 members countries : Bangladesh, Bhutan, India,Maldives, Nepal, Pakistan and Sri Lanka.
it has 1.3 billion inhabitantsrepresents 22% of the world population but only 1.9% ofthe world GNP.
SAARC has been a sheer failure.
the total external trade of the region 0.8% of worldexports and 1.3% of world imports
the reason being political dispute between membercountries
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Still some progress has been achieved
SAPTA(South Asian Preferential Trading Agreement) hascome into force in 1995
Consensus on SAFTA(South Asian Free Trade Area) hasbeen reached
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9 trade blocs on the continent
Many countries are members of more than one group
Progress slow due to political turmoil and deep suspicionof free trade
Less developed, less diversified economies needprotection
In 2001 Kenya, Uganda and Tanzania relaunched the EastAfrican Community (EAC) to establish a customs union 24years after it had collapsed
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Blocs are Good:
Forming a free trade area must be good because it is amove towards free trade
Free trade should improve welfare in these countries
Blocs are Bad:
Blocs may encourage people to buy from a high costpartner supplier
Trade regulations are still a problem
Countries create friction with those that are left outsideof the bloc
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The most recent round of negotiations for multilateraltrade in the World Trade Organization continues to dragon due to the increasing number of participants with theirown views and requirements.
The attractiveness of free trade agreements will remainhigh.
Countries interested in increasing trade will circumventthe delays in the WTO by making their own agreements.
The expansion of current trade agreements is also takingplaceas with the expansion of NAFTA into the FreeTrade Agreement for the Americas (FTAA).
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