TRADE BLOCS

 Trade Blocs is a group of countries which are geographically close to each

other and have similar trade policies with their mutual co-operation allow free
flow of goods.
 They have liberal rules for the member countries and separate set of rules for
the non-member.
 These are Inter-Governmental Associations to promote business trade and
exchange beyond national boundaries.
 Its role is to allow more efficient combinations technology, natural resources,
labor forces and management talent across countries.
 The features of Trade Blocs are voluntary in character, mutual negotiations,
regional in character, divisions based on political considerations and existence
based on usefulness.
 The goal of trade blocs is to promote trade within the block while also
defending its members against global competition.
 They desired good trade among member countries in order to achieve this
objectives.
 Depending on the stage of the agreement, the trade bloc's goal is to increase
the flow of goods, services, capital, and labor. This, in turn, strengthens
member countries' economic power, stimulates economic growth, and
encourages more efficient resource allocation.

 The positive effects of Trade Blocs are Economic Integration, Co-operative

Spirit, Expansion of Markets, Growth and Development of the Region,
Uniform policies, Increase in trade, and Product and Market Development

 The negative effects of Trade Blocs are for the non-member countries:
Common External Barriers, Absence of Collective Bargaining, Affects
Competition, Affects global and international trade, High Tariffs, Import
Restrictions, and Loss of Political Sovereignty

 Intra-regional trade means trade carried on within one trading blocs. Trade
Blocs have contributed the following favorable factors for the growth of Intra-
regional Trade.
 Removal of trade barriers – free trades involves the removal of all such
barriers, except perhaps those considered necessary for health or national
security.
 Transfer of labor and capital – labor and capital are both inputs into the
production process, but the income received by workers and capital-owners
likely accumulated to different economic classes of people, and so this
consistency was reassuring to those who worry about workers’ evolving
standards of living.
 Uniformity in political and economic policies – the political economy of a
country refers to its political and economic systems, together. The political
system includes the set of formal and informal legal institutions and structures
that comprise the government or state and its sovereignty over a territory or
 people. Whereas the economic system refers to the way in which a country
organizes its economy, most are command, market, or mixed economies.
 Close relations between members – business relations are the connections
that exist between all entities that engage in commerce. That includes the
relationship between various stakeholders in any business network.
 Transport and other infrastructure facilities – it determines the
accessibility degree of locations and regions, thus contributing to their
differentiation in the localization decision process of firms and families.
 Common external barriers on non-members – unlike in free trade
agreements, a common external tariff is imposed on non-members of the
union. When countries outside the union trade with countries in the customs
union, they need to make a single payment for the goods that have crossed the
border. Once inside the union, they can trade freely with no added tariff.
 Common economic policy – the economic policy of government covers
systems for setting levels of taxation, government budgets, the money supply
and interest rates as well as the labor market, national ownership, and many
other areas of government interventions into the economy
 Regional economic groupings are one of the major instruments of promoting
international trade activities among countries. It focuses on creation of larger
economic unit from smaller national economies.
 The Preferential Trade Agreement requires the lowest level of commitment,
this is done by reducing the barriers to trade but not by abolishing them
completely. Also, in PTA, dealings with non-members are not addressed, so
member countries maintain policies of their own.
 Free Trade Area (FTA) is the next level of commitment where member
countries agree to eliminate trade barriers among themselves but continue to
maintain independent policies in their dealings with non-member countries.
Goods and services flow freely between member countries. However, each
member has a different policy regarding external tariffs when trading with
non-member countries.
 In Custom Unions, member countries not only eliminate internal trade
barriers but they also adopt common policies for trade barriers on any non-
member countries. Free trade area + each member has a uniform policy on
external tariffs.
 In a Common Market, members eliminate internal trade barriers, adopt
common external trade barriers, and allow free movement of resources among
the member countries. Customs union + free flow of factors of production.
 While in the Economic Union, members eliminate internal trade barriers,
adopt common external trade barriers, allow free movement of resources
among the member countries, and adopt a uniform set of economic policies.
Common market + common economic policy
 When an economic union involves unifying currencies, it becomes an
economic and monetary union. Monetary union is the first major step towards
macro-economic integration, and enables economies to converge even more
closely. It involves scrapping individual currencies, and adopting a single,
shared currency. This means that there is a common monetary policy, common
 exchange rate, including interest rates and the regulation of the quantity of
money.
 Regional Trade Agreement is a treaty between two or more governments
that define the rules of trade for all signatories and to encourage free
movement of goods and services across the borders of its members. The
agreement comes with internal rules that member countries follow among
themselves. When dealing with non-member countries, there are external rules
in place that the members adhere to.
 The purpose of GATT (General Agreement on Tariffs and Trade) was to
avoid trade wars by raising protectionist barriers as witnessed during the
interwar period. However, GATT was eventually superseded by a more formal
WTO (World Trade Organization) in 1995, who managed to address the issues
that GATT was unable to addressed, such as the expansion of trade in
services, investment and intellectual property. GATT was also incapable of
providing a strong and efficient system for dispute settlement unlike WTO
who are capable to it.

 Trade Creation and Trade Diversion- The economic integration helps in

generating trade because trade shifts to a member either because of its comparative
advantage in production of particular goods or it drives a cost advantage because of
elimination of trade barriers.
 Reduced Import Price: If the country is a member of some trading block,
then its bargaining power increases. If the block countries impose tariffs on
the exporting country, the damage in terms of lost sales will be very high and
exporting country will be bound to reduce its price. Among the member
countries, the tariffs get eliminated, leading to a decrease in the import price
for them.
 Increased Competition and Economies of Scale: Integration results in
increased market size that attracts a number of competing firms resulting in
increased competition, greater efficiency and lower prices for consumers.
Because large market firms also operate on economies of scale, as a corollary,
cost per unit decreases. Common markets also lend the advantage of external
economies of scale. Because a common market allows factors of production to
flow freely, firms can have access to cheaper capital, more skilled labor, or
superior technology. These factors will improve the quality of the firm’s
product or service, will lower costs, or even do both.
 Higher Factor Productivity: With economic integration, mobility will lead to
the movement of labor and capital from areas of low productivity to areas of
high productivity, resulting in decrease in production costs.
 Better International Political Relations: Economic integration aims to
reduce costs for both consumers and producers to increase trade between the
countries involved in the agreement. Economic integration is sometimes
referred as regional integration as it often occurs among neighbouring nations
such as India and Pakistan.
 ASEAN (Association of Southeast Asian Nations) - this group is a primary
trade of Asia. Their goals are economic integration and economic and
cooperation through complementary industry programs; preferential trading.
 Today, ASEAN economic cooperation covers the following areas: trade, investment,
industry, services, finance, agriculture, forestry, energy, transportation and
communication, intellectual property, small and medium enterprises, and tourism.
 EU (European Union) - this group is an intergovernmental and supranational union
of 25 European countries.
 The treaty was designed to enhance European political and economic integration by
creating a single currency (the euro), a unified foreign and security policy, and
common citizenship rights and by advancing cooperation in the areas of immigration,
asylum, and judicial affairs.
 CARTELS AND COMMODITY PRICE AGREEMENTS- Producers and
consumers of primary commodities also come together and make a cartel or enter into
an agreement to stabilize commodity prices and supply. These cartels are very
important for countries like in the Middle East and African countries where a major
portion of the export consists of crude petroleum, natural gas, copper, tobacco,
coffee, cocoa, tea and sugar.
 Commodity agreements are of two basic types: Producers’ alliances are exclusive
membership agreements between producing and exporting countries. And
International Commodity Agreements (ICCAs) are agreement between producing and
consuming countries.

Group 1 (TRADE BLOCS)

Lycagail Manzano
Eliyah Paula Alonzo
Shaina Pila
Jennielyn Soliven
Maria Angelica Molina
Jonalyn Laresma