Showing posts with label Trade Blocs. Show all posts
Showing posts with label Trade Blocs. Show all posts

Advantages/Disadvantages Trade Blocs


What are the advantages and disadvantages of trade blocs?


A:

QUICK ANSWER
The advantages of trading blocs include easy access to each other's markets, protection of individual markets from cheap imports and increased trade between member countries. Disadvantages of trading blocs include limited trade with producers outside the trading bloc, distortion of world trade and retaliation by other countries. 
CONTINUE READING

KEEP LEARNING





A significant advantage of a free trade bloc, such as NAFTA, is that consumers in all member countries benefit from higher quality goods and services at lower prices. This happens because of the elimination of barriers to trade, such as tariffs and quotas, which allows companies from different countries to compete equally with local companies. These companies benefit from increased access to resources, which lowers the cost of production of goods and services significantly.

Disadvantages of free trade blocs include the displacement of jobs because of increased competition from companies in member countries. Workers are usually displaced as companies are closed and they may remain unemployed for extended periods of time; workers usually get jobs later, but at a lower wage. National economies within a free trade bloc are susceptible to events such as recessions in other member countries, which affect them directly. This is because free trade blocs encourage specialization among member countries, which increases their dependency on each other.
The different types of trading blocs include: Preferential Trade Areas, Free Trade Areas, customs unions and common markets

Labels: ,

Trade Blocs

In recent years there has been a flurry of bi-lateral trade deals between countries and the emergence of regional trading blocs. For example, the European Union now has over 30 separate international trade agreements including those with countries such as Colombia and South Korea.
Some of these deals are free-trade agreements that involve a reduction in tariff and non-tariff import controls to liberalise trade in goods and services between countries.
The most sophisticated RTAs include rules on flows of investment, co-ordination of competition policies, agreements on environmental policies and the free movement of labour.
Examples of Regional Trade Agreements (RTAs):
The number of RTAs has risen from around 70 in 1990 to over 300 now – this both reflects and reinforces a switch towards greater intra-regional trade most notably between many of the world's fast-growing emerging market economies. No regional trade agreement is the same!
The WTO permits the existence of trade blocs, provided that they result in lower protection against outside countries than existed before the creation of the trade bloc
  • European Union (EU) – a customs union, a single market and now with a single currency
  • European Free Trade Area (EFTA)
  • North American Free Trade Agreement (NAFTA) between the USA, Canada and Mexico
  • Mercosur - a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela
  • Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA)
  • Common Market of Eastern and Southern Africa (COMESA)
  • South Asian Free Trade Area (SAFTA) created in 2006 with countries such as India and Pakistan
  • Pacific Alliance – 2013 – a regional trade agreement between Chile, Colombia, Mexico and Peru
  • Trans-Pacific Partnership (TPP) - a proposed free trade agreement being negotiated during 2013 between Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam
General notes on regional trade blocs
Trade blocs are usually groups of countries in specific regions that manage and promote trade activities. Trade blocs lead to trade liberalisation (the freeing of trade from protectionist measures) and trade creation between members, since they are treated favourably in comparison to non-members. However, trade diversion away from non-members is also likely to occur, especially if protectionist measures are imposed against non-members. Trade diversion contradicts the aims of the WTO and distorts comparative advantage
Print page
Labels: ,

Trade Blocs










Labels: ,

Advantages/disadvantages Trade Blocs

The main advantages for members of trading blocs

Free trade within the bloc

Knowing that they have free access to each other's markets, members are encouraged to specialise. This means that, at the regional level, there is a wider application of the principle of comparative advantage.

Market access and trade creation

Easier access to each other’s markets means that trade between members is likely to increase. Trade creation exists when free trade enables high cost domestic producers to be replaced by lower cost, and more efficient imports. Because low cost imports lead to lower priced imports, there is a 'consumption effect', with increased demand resulting from lower prices.

Economies of scale

Producers can benefit from the application of scale economies, which will lead to lower costs and lower prices for consumers.

Jobs

Jobs may be created as a consequence of increased trade between member economies.

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.

The main disadvantages of trading blocs

Loss of benefits

The benefits of free trade between countries in different blocs is lost.

Distortion of trade

Trading blocs are likely to distort world trade, and reduce the beneficial effects of specialisation and the exploitation of comparative advantage.

Inefficiencies and trade diversion

Inefficient producers within the bloc can be protected from more efficient ones outside the bloc. For example, inefficient European farmers may be protected from low-cost imports from developing countries. Trade diversion arises when trade is diverted away from efficient producers who are based outside the trading area.

Retaliation

The development of one regional trading bloc is likely to stimulate the development of others. This can lead to trade disputes, such as those between the EU and NAFTA, including the recent Boeing (US)/Airbus (EU) dispute. The EU and US have a long history of trade disputes, including the dispute over US steel tariffs, which were declared illegal by the WTO in 2005. In addition, there are the so-called beef wars with the US applying £60m tariffs on EU beef in response to the EU’s ban on US beef treated with hormones; andcomplaints to the WTO of each other’s generous agricultural support.
During the 1970s many former UK colonies formed their own trading blocs in reaction to the UK joining the European common market.
See: The EU


Labels: ,

Trading Blocs

Trading blocs

A regional trading bloc is a group of countries within a geographical region that protect themselves from imports from non-members. Trading blocs are a form of economic integration, and increasingly shape the pattern of world trade. There are several types of trading bloc:

Preferential Trade Area

Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc.

Free Trade Area

Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or eliminate barriers to trade on all goods coming from other members.

Customs Union

A customs union involves the removal of tariff barriers between members, plus the acceptance of a common (unified) external tariff against non-members. This means that members may negotiate as a single bloc with 3rd parties, such as with other trading blocs, or with the WTO.
Read more on customs unions.

Common Market

A ‘common market’ (or single market) is the first significant step towards full economic integration, and occurs when member countries trade freely in all economic resources – not just tangible goods. This means that all barriers to trade in goods, services, capital, and labour are removed. In addition, as well as removing tariffs, non-tariff barriers are also reduced and eliminated. For a common market to be successful there must also be a significant level of harmonisation of micro-economic policies, and common rules regarding monopoly power and other anti-competitive practices. There may also be common policies affecting key industries, such as the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) of the European Single Market (ESM).
Read more on: Single markets
See: The EU

Labels: ,
Subscribe to: Posts (Atom)