TRADE BLOCS

An agreement between states, regions, or countries, to reduce barriers to trade between the participating regions. OR A set of countries which engage in international trade together, and are usually related through a free trade agreement or other association

NAFTA
Effective as of January 1, 1994

A trade agreement between CANADA, MEXICO, and the UNITED STATES which provides for the elimination of tariffs on North American goods shipped among the three countries.

LIST OF TRADE BLOCS

Regional trade blocs: European Union (EU) African Union (AU) Union of South American Nations (UNASUR) Caribbean Community (CARICOM) Central American Integration System (SICA) Arab League (AL) European Free Trade Association (EFTA)

Eurasian Economic Community (EAEC)

 Association of Southeast Asian Nations (ASEAN)

Central European Free Trade Agreement (CEFTA) North American Free Trade Agreement (NAFTA) South Asian Association for Regional Cooperation (SAARC) Pacific Islands Forum (PIF)

Advantages of Trading Blocs

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

Disadvantages of Trading Blocs

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

Trade Blocs-Opportunities
a. 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. The overall business performance in 'terms of productivity, quality, price,

b.

c.

d.
e.

Delivery and customer service will improve.

Consumers get better quality goods and services at competitive price

f.

Employment opportunities in the region increase.

Trade Blocs - Threat

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