TRADE BLOCS

TRADE BLOCS
preferential trade and industry pact among a group of countries. blocs have laissez-faire set of laws for member countries while a separate set of laws is laid for nonmembers. For example, European Union (EU), Association of South East Asian Nations (ASEAN).

TYPES OF TRADE BLOCS

Free

trade Customs Union Common Market Monetary Union Economic Union

FREE TRADE
helps

the external countries to invest in the area and not get taxed Each member is allowed to determine its own commercial policy with respect to non-members.

EXAMPLE: LATIN AMERICAN FREE TRADE ASSOCIATION (LAFTA)

A

group of Latin American countries formed in 1960 with the aim of establishing a free trade. An idea looking at industrialization and the needs of the opening markets in the region, as well the need to develop better mechanisms for the facilitation of trade and transfer of payments.

CUSTOMS UNION
trade agreement by which a group of countries charge a common set of tariffs to the rest of the world while granting free trade among themselves. a Free Trade Area + CET. if Countries A & B are in a customs union, they would both charge the same tariff on goods imported from Country C.

EXAMPLE:

EUROPEAN ECONOMIC
COMMUNITY
An economic organization established in 1957 to reduce tariff barriers and promote trade among the countries of Belgium, Luxembourg, the Netherlands, France, Italy, and West Germany. These countries became the original members of the European Community in 1965

COMMON MARKET
like

with a Customs Union, a common tariff is placed on imports from other nonmember countries, while no tariffs are exist on goods produced by one member country and sold in the other member countrys.

the

free movement of labour and capital is permitted. In other words, any restrictions on immigration, emigration and crossborder investment (amongst member countries) are abolished.

EXAMPLE: COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA(COMESA)

Strategy: 'economic prosperity through regional integration'. with nineteen member states stretching from Libya to Zimbabwe.

MONETARY
member

UNION

countries agree to use a single currency or to fix their rates of exchange for the respective currencies. involves far greater integration and cooperation amongst member countries. without there necessarily having any further integration such as an Economic and Monetary Union, which has in addition a customs union and a single market.

BEST EXAMPLE:
is

EUROPEAN UNION

an economic and political union of 27 independent member states which are located primarily in Europe. member countries have agreed to use a new, single currency the euro!

ECONOMIC UNION
Beyond

the free movement of labour and capital, an economic union incorporates the harmonization of economic policies amongst member states, including the integration of monetary policies, economic policies, taxation and other regulatory requirements.

EUROPEAN UNION IS
PERHAPS THE ONLY TRUE

ECONOMIC UNION IN PLACE

TODAY

ADVANTAGES OF TRADE BLOCS

1. 2.

3. 4. 5.

Access to larger markets leads to internal economies of scale. External economies of scale due to improved infrastructure (e.g. transport and telecoms links) Greater international bargaining power. Increased competition between members. More rapid spread of technology.

DISADVANTAGES OF TRADE BLOCS

1.

2.

3. 4.

Country may lose resources to more efficient members, or to geographical center, and become depressed region. Firms may co-operate, collude and merge, leading to greater monopoly power. Diseconomies of scale if firms become very large. High administrative costs of trading bloc.

GUNTUKA PRANUSH