Download Trading-Blocs

Trading blocs & WTO
Research the current 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.
•
•
•
•
Who is in the trading bloc?
What purpose does the trading bloc have?
What are the benefits to the member countries?
What are the criticisms?
http://www.timesunion.com/business/article/U-S-11-countriesreach-trade-deal-6552136.php
Free Trade Area
Free Trade Areas (FTAs) are created when two or
more countries in a region agree to eliminate
barriers to trade on all goods coming from other
members.
http://europa.eu/pol/pdf/flipbook/en/trade_e
n.pdf
With just 7% of the
world’s population,
the EU's trade with
the rest of the world
accounts for around
20% of global exports
and imports.
Around two-thirds of
EU countries’ total
trade is done with
other EU countries.
Article research: What are the aims of a FTA?
Potential economic gains
The European Commission calculates that
completion of all the free trade talks now
under way could increase the EU’s GDP by
more than 2 %. That is the equivalent of
adding a country like Austria or Denmark to
the EU economy. It could also support the
jobs of more than 2 million people.
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.
http://blogs.telegraph.co.uk/news/danielhannan/100186074/the-eu-is-not-a-freetrade-area-but-a-customs-union-until-we-understand-the-difference-the-debateabout-our-membership-is-meaningless/
Common Market
Like customs union, but also have
• common taxation
• laws on production
• employment
• free movement of labour
• absence of special treatment by members
toward their own domestic industries
(EU not quite here yet – may never be)
The main advantages for members of
trading blocs
•
•
•
•
•
Free trade within the bloc
Market access and trade creation
Economies of scale
Jobs
Protection
The main disadvantages of trading
blocs
• Loss of benefits
• Distortion of trade
• Inefficiencies and trade diversion (CAP – EU Sugar
case)
http://www.economicsonline.co.uk/Global_econ
omics/Common_Agricultural_Policy.html#The_Ca
se_of_Sugar
• Retaliation
(http://www.telegraph.co.uk/finance/newsbysect
or/transport/11304963/EU-launches-tradedispute-against-US-over-Boeing-subsidies.html)
Trading Bloc Definitions
Trade Creation – consumption shifts from high-cost producer to low
cost producer – specialisation leads to comparative advantage
winning the trade battle
Trade Diversion – consumption shifts from lower-cost producer to a
higher-cost producer (reducing world efficiency) – eg. if tariff
exists on all imports of wool, and New Zealand is the lowest cost
producer, then UK will import from New Zealand. But once
customs union created, no tariff on Irish wool so it bears a
cheaper price tag, even though Irish may be higher cost
producers – loss to world efficiency as UK chooses Irish wool.
Dumping: – the practice of selling products for below the cost it is
sold at in the domestic market – usually for the purpose of
attempting to push out competition or just to get rid of extra
stock
Potential Conflict Between
WTO & Trading Blocs
• barriers go up between members & non-members
• members trading can lead to trade diversion – less
efficiency
• weaker countries may not be excluded from larger
markets
• trading bloc rules may prevent members from pursuing
potential benefits of trade with non-members
• if trade becomes concentrated in these zones, WTO
may become obsolete or powerless
Evaluating the WTO
• WTO role particularly important during times of world recession
(countries tempted to look inward and ↑ protectionism)
• General reduction in world tariffs may be more due to groups of
countries recognising mutually beneficial trade rather than through
action of the WTO (states tend to operate in their own interests)
• Some poorer countries were allowed to join even with high tariffs in
place (eg. India) whereas other are still blocked (eg. China & Russia)
• Special exemptions for “economic emergency” give convenient cover
for predatory tariffs (eg. USA steel tariff)
• Many countries have replaced tariffs with non-tariff barriers to trade
(eg. Exports subsidies & import regulations) – this is harder to combat
• Anti-globalisation protestors view the global marketplace as the source
for poverty and inequality as the rich countries MNC’s get richer
without the poor countries being able to benefit