TRADING BLOCS

UNIT 3 CHAPTER-6

Economic Integration
 

Economic integration is a new reality in the international business market. Business and governments have created a range of institutions, treaties, and agreements that help to
• Overcome trade differences • Boost the free movement of trade, investment, and services across national boundaries

Economic integration is concerned with:
• The removal of trade barriers or impediments between at least two participating nations • The establishment of cooperation and coordination between them

Integration creates high levels of globalization and regionalization

The level of integration defines the nature and degree of economic links among countries  . Economic integration is best viewed as a spectrum with the various integrative agreements in effect today lying in the middle of this spectrum.

.What are trading blocs?  Trading bloc: preferential economic arrangement among a group of countries. • Such blocs have liberal rules for member countries while a separate set of rules is laid for non-members. For example. Association of South East Asian Nations (ASEAN). European Union (EU).

Types of Trading Blocs trade areas Customs Union Common Market Political Unions Economic Union Free .

 Each member is allowed to determined its own commercial policy with respect to non-members.  • Example: Latin American Free Trade Association (LAFTA) .Free Trade Areas Simplest form of economic integration which provides the internal free trade between member nations.

 Internal free trade among the member nations and also adopts a uniform commercial policy against the non-members.  • Example: EEC – European Economic Community .Customs Union More advanced form.

 It has common commercial policy is respect to non-members.  .Common Market There are no barriers to trade among members and factors of production such as capital. labour and technology are mobile among them.

• Example: European Union has introduced a common currency EURO 2000. Common Agricultural Policy of the European Union. .Economic Union   Level of integration is more developed. Members adopt common economic policies like.

• Example: the Europe Union (EU) is moving towards a political union similar to one created by 52 states of America. .Political Union  It is the ultimate type of economic integration whereby member countries achieve not only monetary and fiscal integration but also political integration.

transport and telecoms links) Greater international bargaining power. Access to larger markets leads to internal economies of scale.g. . More rapid spread of technology.Advantages of Trading Blocs 1. External economies of scale due to improved infrastructure (e. Increased competition between members. 3. 5. 2. 4.

or to geographical center. Firms may co-operate. Country may lose resources to more efficient members. 4. collude and merge.Disadvantages of Trading Blocs 1. 2. . and become depressed region. 3. leading to greater monopoly power. Diseconomies of scale if firms become very large. High administrative costs of trading bloc.

Consumers get better quality goods and services at competitive price Employment opportunities in the region increase. The overall business performance in 'terms of productivity. .Trade Blocs-Opportunities a. b. quality. d. Elimination of trade barriers within the region would encourage the efficient firms to expand their business activities in all countries within the region. Healthy competition within the region would help the less efficient firms in acquiring competencies in order to challenge the efficient firms. f. e. Delivery and customer service will improve. c. price.

The resources of the less efficient countries are exploited by the firms from the advanced countries of the region.Trading Blocs . The less developed countries become still poorer whereas the advanced countries of the region become still richer. The removal of trade barriers provides opportunities to the efficient firms to enter the different markets within the region.Threat a. It discourages trade with non-members as trade with nonmembers is subject to strict rules and trade barriers. b. e. c. The less developed countries of the region mostly become consumption centres while the advanced countries of the region become the production centres. . This endangers the survival of the less efficient firms. d.

Italy. Netherlands and Luxembourg. Belgium.European Economic Community (EEC)  Economic integration in Europe from 1948 to the mid 1980s: • Organization for European Economic Cooperation (OEEC) • Treaty of Rome • Six member nations: France. • Now there are 15 members. • European Free Trade Association (EFTA) • Common agricultural policy (CAP) . Germany.

France • Directly elected by population – 732 members • Debates legislation – Consultative body Court of Justice • Supreme appeals court for EU law • 1 judge from each state – required to act as independent officials     . implementing & monitoring compliance .EU laws • Commissioners appointed by each country – 5 year renewable terms • Competition Commissioner regulator of competition and M&A Council of the European Union • Ultimate controlling authority – approves proposed laws • 1 representative from each state – varies with topic • Use majority voting rules rather than unanimous agreement European Parliament – Strasbourg. Belgium • Proposing.Organization of EEC  European Council • Heads of State & President of European Commission • Resolves major policy issues & sets direction – 2x year European Commission – Brussels.

Functions of EEC/EU  Common Agricultural Policy (CAP). . • Imports allowed only when DD>SS. • Free movement from one nation to the other. Common Transport Policy.   European Monetary Union (EMU). • Rich farmers became richer.

North American Free Trade Agreement-NAFTA  North American integration has an interest in purely economic issues and there are no constituencies for political integration. • Came into being in 1994 • U. Canada and Mexico .-Canada Free Trade Agreement • North American Free Trade Agreement (NAFTA) • Member Countries: US.S.

• Pollution Control. • Improve political relations. • Protection of Intellectual Property Rights. • Enhance competitive advantage.  Measures: • Residents of NAFTA can invest easily in other member nations. • Similar Product Standards • Free flow of FoP.Other Aspects of NAFTA  Objectives • More business opportunities in Mexico. . • Assist Mexico in earning additional foreign exchange. • Reduce the prices • Enhance industrial development.

It was implemented without prior preparations.What are the drawbacks?  Most of the US industries shifted to Mexico because Mexico offered less stringent policies.  .

Free Trade Blocs in America .

Examples are SAARC. or growth triangles . It has substantial trade liberalisation. which are named transnational export processing zones.Association of South-East Asian Nations (ASEAN)       The development in Asia has been different from that in Europe and the Americas Asian interest in regional integration is increasing for pragmatic reasons Asia accounts for 20% of world trade. and the China Circle. It has also created numerous sub-regional economic trade zones. There are less formal agreements bilaterally and multilaterally in abundance. natural economic territories.

• Tariff cut from 0. Phillipines. . • Strength skilled and educated human resource.50% to 20% beginning with 15 products. • Created Asean Free Trade Area (AFTA) in 1994. Brunei. Thailand and Indonesia In 1992. Malaysia.established CEPT (Common Effective Preferential Tariffs) Plan • Free trade area in 15 years.Brief Background of ASEAN   A group of 6 Nations: Singapore.

• To reduce tariff on the products produced in ASEAN countries . • To establish free trade area.About AFTA  Objectives: • To encourage inflow of foreign investments.

enhance economic development. Associate members: Finland. Denmark. Britain. abolish trade restrictions. Swedan and Switzerland. Portugal. Iceland.European Free Trade Association. Objectives: • • • • To To To To eliminate all tariffs. Norway.EFTA     Formed in 1959. enable free trade. . Member nations: Austria.

develop region economically. Bangladesh. provide conducive environment enhance mutual assistance. Pakistan.South Asian Association for Regional Cooperation (SAARC)    Member nations: India. Established in 1983. Maldives and Sri Lanka. Objectives: • • • • • • To To To To To To improve quality of life and welfare of the people. socially and culturally. . enhance the self reliance. extend co-operation to other trade blocs. Bhutan.

 SAPTA .Other Trade Blocs..

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