Global trading blocs essay

The question therefore is which between multilateral agreements and FTAs is faster to implement. Comecon: This trading bloc consists of the U. As the bloc enlarges, its members gain progressively as the terms of trade are shifted more and more in their favour. Essay 3. Trade creation exists when free trade enables high cost domestic producers to be replaced by lower cost, and more efficient imports.

Demerits of trade blocs

Such an arrangement would most likely increase political stability across the geographic zone, with a significant level of increase in trade and investment. To begin with, members of the trading bloc may not realise additional economics of scale from global trade liberalisation, which often offers only meek opening of international markets. Governments impose tariffs with the aim of protecting their economies and to control the prices. The research will thus seek to justify that regional trading blocs are building blocks to liberalisation of international trade. Therefore, it is easier for a smaller group of states to discuss customs unions first. Once India obtains its special privilege, it would not interested in less interest in attending WTO meetings and signing multilateral free trade agreements that would instead eliminate those privileges. See: Trade creation and trade diversion Economies of scale Producers can benefit from the application of scale economies , which will lead to lower costs and lower prices for consumers. Even then, the gains made by the expansion of a bloc may not necessarily be felt by all member states. The role played by the EU is fundamental because the union doubles as the most developed and most complexly structured of the major trade blocs. With the formation of the regional bloc, a new majority of the population may support the need to push for further liberalisation. Inefficiencies and trade diversion Inefficient producers within the bloc can be protected from more efficient ones outside the bloc. Most restrictions on trade in industrial goods were removed by , however, and a common external tariff had come into operation. Having attained a common trade policy, they can then enter multilateral discussions as a group. Essentially, the creation of the economic regional blocs aims to minimize the obstacles between nations that share the same geographic border and to facilitate the circulations of goods and services.

Protection Firms inside the bloc are protected from cheaper imports from outside, such as the protection of the EU shoe industry from cheap imports from China and Vietnam.

There are two more factors to propose that members of a regional trade bloc may not be interested in global liberalisation. According to Deardorff and Stern, new members cause changes in the relative prices within the bloc, and this results in benefits to some members as others are harmed.

Conclusion of trading blocs

Beef and wheat are also overproduced and have to be stockpiled. Such economic integration may eventually lead to some from of political integration. At first Britain and other European countries did not feel it was in their best interests to join, e. Although established in the Common Market did not immediately abolish all tariffs and restrictions. During the s many former UK colonies formed their own trading blocs in reaction to the UK joining the European common market. Nevertheless, the significance of regional trade blocs and the relationship between them and international trade cannot be gainsaid, as more recently there has been significant interest in the less formal trade arrangements otherwise known as triangles or quadrangles. In view of multilateral negotiations, it can be slow and awkward for one nation to be involved in talks with more than countries. Tariffs have been lowered or abolished and there are plans for integrating agricultural and industrial development and opening up new areas. See: EU Sugar Case Retaliation The development of one regional trading bloc is likely to stimulate the development of others. The WTO membership reached by [29], and the costs of negotiations certainly rise as this number increases. This had to be done gradually to allow the economies of the various countries to adjust to the changes. They intervene in trades for two main reasons: the first one is economic whereas the second one is political. The main reason for this is that the long-standing rivalry between the various European powers has led to two world wars which have greatly disrupted world trade. According to Gabel, liberalised trade may influence national economic conditions in a wide array of ways that are significant to the welfare of the citizens in member states of the EU.

Political Unity: Trading blocs such as the Common Market have as a long-term aim some form of political unity. Second, a regional free trade area leads to the creation of a self reinforcing process, in that as the market formed by a bloc expands, it becomes progressively more appealing for non-member states to join the bloc in order to be accorded the same trade preferences as the member states.

Global trading blocs essay

They intervene in trades for two main reasons: the first one is economic whereas the second one is political. This allows for larger-scale and more efficient production which in turn allows members to produce more goods more competitively for export outside the trading bloc. That is, trade blocs would be second compared to an undistorted free trade system. Second, a regional free trade area leads to the creation of a self reinforcing process, in that as the market formed by a bloc expands, it becomes progressively more appealing for non-member states to join the bloc in order to be accorded the same trade preferences as the member states. Trade creation exists when free trade enables high cost domestic producers to be replaced by lower cost, and more efficient imports. This agreement can be in different forms and depths, for instance there is Free Trade Area is a trading bloc that has no tariff, then Custom Union is where there is common level of trade barriers, in Economic unions such as European Union, the member. The two key features of a trade bloc is that 1 it involves a cutback or abolition of obstacles to trade, and 2 the trade liberalisation that is attained through the trade bloc is discriminatory in purview of the fact that it is applicable only to the member states of the trade bloc and non-member countries are shown prejudice in their dealings with members of the trade bloc. The result is that there is political support for a trade liberalisation in a self-propelling process. It is for this reason that is not pointless to say that countries would want to protect the blocs they are in, and this sets back the negotiations of global trade liberalisation under the WTO.

A case of increasing political stability can be seen by the expansion of the EU. This means that, at the regional level, there is a wider application of the principle of comparative advantage.

disadvantages of trading blocs

The forces that support liberalisation might win out over protectionists if the only choice available is between the status quo and multilateral liberalisation.

The Common Market, regarded as a single unit, has a productive capacity and a population almost as great as that of the U.

Trade blocs geography

It implies that there is only one negotiation process, one representative — that is the EC, and that at the completion of the process there is just one agreement rather than of 27 dissimilar sets of rules of trade with each of the trading parents. Having attained a common trade policy, they can then enter multilateral discussions as a group. Second, a regional free trade area leads to the creation of a self reinforcing process, in that as the market formed by a bloc expands, it becomes progressively more appealing for non-member states to join the bloc in order to be accorded the same trade preferences as the member states. This had to be done gradually to allow the economies of the various countries to adjust to the changes. A case of increasing political stability can be seen by the expansion of the EU. All in all, it is still difficult to answer questions regarding the aspects of regional trade agreements and their connection with multilateralism. According to Deardorff and Stern, new members cause changes in the relative prices within the bloc, and this results in benefits to some members as others are harmed.
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Regional Trading Blocs