A trade bloc is a preferential trade agreement between a range of nations, aimed at significantly reducing or removing trade barriers within the member states. Regional trade blocs are formed by neighbouring countries or countries that are in close proximity to each other. 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 first aspect of trade blocs above is in line with the mission of the World trade Organisation (WTO) and its antecedent, the General Agreement on Tariffs and Trade (GATT). The principle of Non-discrimination under the GATT stipulates that no member state shall show prejudice between GATT members during the operations of world trade. In the same magnitude, the WTO offers an environment for negotiating agreements that are focused on reducing barriers to international trade and making sure that trade is carried out on a basis of openness, thus contributing to economic growth as well as development. Notably, although trade blocs have different structures, they are premised on the same objective, that is, to lessen trade barriers among member states.
The second aspect of trade blocs however seems to be in conflict with the motive of the GATT/WTO system. The preamble of the GATT is very clear on promoting non-discrimination in international trade by reinforcing the need for reciprocal and equally advantageous arrangements focused on substantial cutbacks in tariffs and other obstacles to trade and to the abolition of discriminatory treatment in international trade. Equally, under the WTO as well as under its predecessor, the GATT, trade discrimination is promoted through the use of the principles of the Most-Favoured-Nation (MFN) that requires treatment of other people equally as pertains to trade and the principle of National Treatment which stipulates that foreigners and locals should be treated equally in trade matters.
The above overview of regional trading blocs implies that different opinions can be stated regarding how trading blocs affect liberalisation of trade. [...]
Table of Contents
CHAPTER 1: INTRODUCTION
1.2 Theme of the research
1.3 Aim of the research
1.4 Scope of the research
1.5 Research methodology
CHAPTER 2: LITERATURE REVIEW
2.1 Trade blocs as stumbling blocks to liberalisation of trade
2.2 Regional trade blocs as building blocks to liberalisation of international trade
2.3 Regional trading blocs and political stability, democratic development and security issues
2.4 Concluding remarking on the review of literature
CHAPTER 3: ANALYSIS OF THE REGIONAL TRADING BLOCS
3.1 Analysis of the selected regional blocs
3.1.1 The EU
3.1.2 NAFTA
3.1.3 ASEAN
3.1.4 MERCOSUR
CHAPTER 4: HOW REGIONAL BLOCS ENHANCE TRADE LIBERALISATION
4.1 Evidence from trade statistics between regions
4.1.1 EU relations trade with other regional trading blocs/countries
4.1.1.1 EU and MERCOSUR
4.1.1.2 The EU, Latin America, and the Caribbean (LAC)
4.1.1.3 EU versus Africa, Caribbean and the Pacific (ACP)
4.1.2 ASEAN relations trade with other regional trading blocs/countries
4.2 Trading blocs and foreign direct investment (FDI)
4.3 Regional trading blocs and the gravity model
CONCLUSION
Research Objective and Themes
The primary objective of this research is to critically analyze the role of regional trading blocs in the context of international trade liberalization. It seeks to demystify the 1930s analogy that labeled these blocs as mere obstacles, aiming instead to justify their function as essential building blocks for global trade integration.
- The dual nature of trading blocs as both "stumbling blocks" and "building blocks" to international trade.
- Economic integration within specific regional blocs: EU, NAFTA, ASEAN, and MERCOSUR.
- The nexus between regionalism, foreign direct investment (FDI), and multinational corporations.
- The influence of regional trade agreements on political stability, security, and global liberalization.
- Empirical evaluation of trade statistics and the application of the gravity model to measure regional trade impact.
Excerpt from the Book
2.1 Trade blocs as stumbling blocks to liberalisation of trade
Frankel, Stein and Wei evaluate trading blocs as stumbling blocks to liberalisation of trade by looking at factors such as the trading blocs’ market power and incentive to protect, manipulation by special interests, scarce negotiator resources, and the point that firms’ support for free trade agreements may be a political dead end. According to the same authors, as trading blocs become larger, they gain more collective monopoly power, and thus have a higher optimal tariff command. This aspect is referred to as the “incentive to protect.” Each of the blocs then seeks to move the terms of trade in its favour by raising tariffs against the other trading blocs. When the actions of trading blocs are combined the result is that terms of trade are not improved and that the general welfare is not improved as opposed to the aim of WTO.
The argument regarding manipulation states that establishing a regional trading bloc results in opportunities for trade-sensitive industries to manipulate the process, especially in those sectors that might be adversely affected. As noted by Wonnacott and Lutz, negotiators often seek to exclude from free trade agreements those sectors that would be most threatened by welfare-enhancing trade creation. For instance, the members of ASEAN have in the past exempted nearly all the important sectors from the system of preferences that they are supposed to offer each other.
Summary of Chapters
CHAPTER 1: INTRODUCTION: This chapter defines regional trade blocs as preferential agreements aimed at reducing trade barriers and outlines the research objective of evaluating their role in international trade liberalization.
CHAPTER 2: LITERATURE REVIEW: This section examines the academic debate surrounding trade blocs, specifically their dual categorization as potential "stumbling blocks" or "building blocks" for global trade.
CHAPTER 3: ANALYSIS OF THE REGIONAL TRADING BLOCS: This chapter provides a detailed examination of four major regional blocs—the EU, NAFTA, ASEAN, and MERCOSUR—to understand their structures and operational effects.
CHAPTER 4: HOW REGIONAL BLOCS ENHANCE TRADE LIBERALISATION: This section investigates empirical evidence, including trade statistics, FDI flows, and the gravity model, to demonstrate how regional integration fosters global trade.
CONCLUSION: The concluding chapter synthesizes the research findings, confirming that regional trading blocs generally function as building blocks for liberalization, despite inherent discriminatory aspects.
Keywords
Regional Trade Blocs, International Trade, Trade Liberalisation, World Trade Organisation (WTO), Foreign Direct Investment (FDI), Gravity Model, Economic Integration, EU, NAFTA, ASEAN, MERCOSUR, Multinational Corporations, Customs Union, Free Trade Area, Global Welfare.
Frequently Asked Questions
What is the core focus of this research?
The work primarily examines how regional trade blocs influence the liberalization of international trade, focusing on whether they serve to support or hinder global trade efforts.
What are the main thematic areas covered in this work?
The key themes include the "stumbling block versus building block" debate, the impact of regionalism on political stability, the role of multinational corporations, and the influence of trade blocs on foreign direct investment (FDI).
What is the primary research goal?
The goal is to demystify historical views that perceived regional trading blocs purely as obstacles and to provide an analytical justification for their role as positive contributors to global trade.
Which scientific methodology does the research employ?
The research uses a descriptive analytical approach, gathering information from a broad spectrum of secondary sources, including academic books, journals, and reports from international organizations like the WTO, OECD, and the World Bank.
What is discussed in the main body of the paper?
The main body analyzes specific trade blocs (EU, NAFTA, ASEAN, MERCOSUR) using trade statistics and theoretical frameworks, such as the gravity model and FDI impact assessments.
What primary keywords characterize this research?
The research is characterized by terms like regional trade blocs, trade liberalisation, WTO, FDI, economic integration, and the gravity model.
How does the research assess the impact of NAFTA?
The work analyzes NAFTA by looking at trade volume increases, its function as a manufacturing platform, and its impact on the wage gap between member states.
What conclusion does the author draw regarding regional blocs?
The author concludes that regional trading blocs should be viewed predominantly as "building blocks" for trade liberalization, as they encourage broader integration and competitiveness despite initial discriminatory features.
- Quote paper
- Kelly Bill (Author), 2011, How Regional Trade Blocs affect Liberalisation of International Trade, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/280110
