Assignment # 1

INTERNATIONAL BUSINESS

Topics: - Trade Blocs / Regional Trade Agreements (RTAs)

European Union

SUBMITTED TO- SUBMITTED BY-

Dr. K. S. L. Das Amit Dubey (BM-010187)

(Lectr. IB) PGDM-IT (Sec. D)

INSTITUTE OF MANAGEMENT STUDIES

(GHAZIABAD)

REGIONAL TRADE BLOCKS AT A GLANCE

1
 (European Union)

The concept of trade blocks is crucial in the context of

international trade. Trade blocks are free trade zones designed to
encourage trade activities across nations. The formation of trade
blocks involves a number of agreements on tariff, trade and tax.
The activities of trade blocks have huge importance in the
economic and political scenarios of the contemporary world.
Over the years trading blocks have played a major role in
regulating the trend and pattern of international trade.

Regional trade blocks protect the interests of the member

countries. The primary aim of trade block activities is to create a
favorable economic framework for promotion of cross border
trade among the member countries.

Different regional blocks have come up in the period of

economic liberalization in various parts of the world. Some of
the functionally active trading blocks are listed below:

 NAFTA (North American Free Trade Agreement)

 EU (European Union)
 ASEAN (Association of Southeast Asian Nations)
 MERCOSUR (Mercado Comun del Cono Sur)
 CEFTA (Central European Free Trade Agreement)
 GAFTA (Greater Arab Free Trade Area)
 SAARC (South Asian Association for Regional
Cooperation)
 CEMAC (Economic and Monetary Community of Central
Africa)
 East African Community (EAC)
 SACU (South African Customs Union)
 PARTA or PIF (Pacific Regional Trade Agreement)
 AEC (African Economic Community)
 CACM (Central American Common Market)

A particular country may be a member of more than one

regional trading block. However, in order to do away with

2
 overlapping, such nations are normally put within the most
dynamic trade block.

 Activities of Trade Blocks

It is true that the principal objective of all trade blocks is

promotion of trade; however the difference lies in their modes of
operation. The activities of trade blocks can be evaluated by
using three basic measures.

 The number of latest agreements, meetings and other

activities undertaken by the regional trade blocks.
 The pattern of future planning regarding trade promotion and
focus on intergovernmental associations and quicker timeframe
for policy implementation.
 Number of practical achievements attained by the member
countries.
In practice, the success of trading blocks crucially depends on
the performance of the member countries. To ensure effective

3
trade promotion the trading blocks need to be more flexible and
accommodative. Besides trade promotion, the regional blocks
are also expected to take part in other domains of the member
countries. Effective management of trade block activities
ensures all-round development of the member nations.

-ECONOMIC UNION-

Motto: United in diversity

The European Union (EU) is an economic and political union

of 27 member states, which are located primarily in Europe. The
EU traces its origins from the European Coal and Steel
Community (ECSC) and the European Economic Community
(EEC) formed by six countries in the 1950s. In the intervening
years the EU has grown in size by the accession of new member
states, and in power by the addition of policy areas to its remit.
The Maastricht Treaty established the European Union under its
current name in 1993. The last amendment to the constitutional
basis of the EU, the Treaty of Lisbon, came into force in 2009.
The EU operates through a hybrid system of supranational
independent institutions and intergovernmental made decisions
negotiated by the member states. Important institutions of the
EU include the European Commission, the Council of the
European Union, the European Council, the Court of Justice of
the European Union, and the European Central Bank. EU
citizens elect the European Parliament every five years.
The EU has developed a single market through a standardized
system of laws, which apply in all member states including the
abolition of passport controls within the Schengen area. It
ensures the free movement of people, goods, services, and

4
capital, enacts legislation in justice and home affairs, and
maintains common policies on trade, agriculture, fisheries and
regional development. A monetary union, the Eurozone, was
established in 1999 and is currently composed of seventeen
member states. Through the Common Foreign and Security
Policy the EU has developed a limited role in external relations
and defence. Permanent diplomatic missions have been
established around the world and the EU is represented at the
United Nations, the WTO, the G8 and the G-20

An economic union is a type of trade bloc, which is composed

of a common market with a customs union. The participant
countries have both common policies on product regulation,
freedom of movement of goods, services and the factors of
production (capital and labor) and a common external trade
policy.

Purposes for establishing an economic union normally include

increasing economic efficiency and establishing closer political
and cultural ties between the member countries.

Economic union is established through trade pact.

Geography of the European Union

The territory of the EU consists of the combined territories of
its 27 member states with some exceptions, outlined below.
The territory of the EU is not the same as that of Europe, as
parts of the continent are outside the EU. Some parts of
member states are not part of the EU, despite forming part of
the European continent (for example the Isle of Man and
Channel Islands (three Crown Dependencies), and the Faroe
Islands (a territory of Denmark)). The island country of
Cyprus, a member of the EU, is closer to Turkey than to
continental Europe and is often considered part of Asia.
Several territories associated with member states that are
outside geographic Europe are also not part of the EU (such

5
as Greenland and Aruba). Some overseas territories are part
of the EU even though geographically not part of Europe,
such as the Azores, French Guiana, Martinique, and Melilla.
As well, although being technically part of the EU, EU law is
suspended in Northern Cyprus as it is under the de facto
control of the Turkish Republic of North Cyprus, a self-
proclaimed state that is recognized only by Turkey.

List of economic unions

Every Economic and monetary union has also an Economic

Union
 Single market of the European Union
 CARICOM Single Market and Economy of the Caribbean
Community
 Union State of Russia and Belarus
 Monaco - European Union

Additionally the autonomous and dependent territories, such as

some of the EU member state special territories, are sometimes
treated as separate customs territory from their mainland state or
have varying arrangements of formal or de-facto customs union,
common market and currency union (or combinations thereof)
with the mainland and in regards to third countries trough the
trade pacts signed by the mainland state

European trade is a complex but efficient system, involving 50

European countries in total, with 27 nations in the European
Union (EU). Formed in 1993, the EU works on the same trade
objectives as that of the European Economic Community (EEC).
It has developed a ‘single market’ and ‘customs union’ among
its member states.

6
European Trade: Significance of EU

Free movement of goods, services and people characterizes

trade in the EU. The freedom of capital flow facilitates
uninhibited investment in the real estate and stock markets. All
EU member countries follow the same trade policies for all
sectors, including agriculture and fisheries. These two sectors
account for a significant portion of exports.

Trade in the EU has become simpler with the adoption of the

common currency known as the Euro by 16 member states.
Benefits of using the Euro are:

 Creates a single market

 Maintains price stability in member states
 Minimizes exchange rate problems
 Simplifies travel for European citizens
 Insulates the ‘Eurozone’ from external economic shocks
by boosting internal trade

European Trade: Imports

Some import related facts pertaining to European trade are:

 The EU is a customs union. So, all member states are

subjected to the same import duties.
 The imports from the US face the Most-Favored-Nation
(MFN) tariff. The MFN tariff is also applicable to other
countries, which signed the World Trade Organization
(WTO) agreement.
 The tariffs on certain processed products are determined
on the basis of their ingredients. Tariffs on fruits or
vegetables are dependent on season and daily import price.

7
Trade with Europe: Exports

A EU state does not levy taxes for exports to other member

states. According to the Eurostat data for January 2009, the
largest exporters among the EU countries are France, Germany
and Netherlands

Taxes may, however, be levied on goods exported outside the

EU. The global recession in 2007-2008 led to a sharp decline in
its trade volumes.

Some truly critical exports that the European countries

continued with are:

 Machinery: All of Europe.

 Automobiles: The UK, France, Germany, Spain and Italy.
 Aircraft: France and Germany.
 Electronics: The Netherlands, Germany and Italy.
 Military equipment: The UK, Germany, France, and Italy.
 Food products such as wine, pastas, cheese, chocolates,
beer and agricultural products: This spans both Western
and Northern Europe.

Some of the critical ports in the EU are Southampton, Antwerp

and Hamburg.

European Trade: Global Share

The International Monetary Fund (IMF) indicates that the EU

accounts for 31% of the global economic output. The combined
GDP of the EU nations exceed the GDP of the US. The EU is
the largest exporter and second largest importer in the world.

With its strong presence in the world economy, the EU assumes

a highly strategic role in devising foreign policies in the WTO,
Group of Eight (G-8) summits and the United Nation (UN).