Trade blocs are also known as Trade blocks or Economic Integration scheme or Regional Integration Agreement or Regional Integration Arrangement (RIA) or Regional Trade Agreement (RTA). This concept is designed to achieve various economic, social, and political purposes.

    The origin of Trade Blocs is in an economic integration scheme and considered as a building block of economic development of the member countries.

    International business is significantly impacted by scheme of economic integration of different nations.

    There has been a rapid increase in trade blocs or RTAs since 1990’s.

    Definition

    A trade bloc can be defined as a ‘preferential trade agreement’ (PTA) between a subset of countries, designed to significantly reduce or remove trade barriers within member countries.

    Total No. Of RTAs till May 2003: 265 notified to GATT/WTO and only 180 in force then

    Many countries belong to more than one RTA’s: for e.g. Mexico was a part of 13 FTA’s in 2003

    More than half of world trade occurs within actual or prospective trading blocs. More than 30% of world trade already takes place within the existing RIA’s.

    Motivations to form trade blocs

    To obtaining economic benefits from achieving a more efficient production structure by exploiting economies of scale

    To strengthen political ties and managing migration flows for non political benefits

    To increase security for smaller countries by forming trade blocs with larger countries.

    To improve members bargaining strength in multilateral trade negotiations

    To ensure growth and survival of infant industries by protecting regional market.

    Characteristics of Integration Schemes (Trade Blocs)

    Free Trade Area

    Free Trade among Members

    1. Custom Unions

    Free Trade among Members + common External Commercial Policy

    2. Common Market

    Free Trade among Members + common External Commercial Policy+Free Factor Mobility within the market

    3. Economic union

    Free Trade among Members + common External Commercial Policy+Free Factor Mobility within the market+Harmonised economic policies

    4. Economic Integration

    Free Trade among Members + common External Commercial Policy+Free Factor Mobility within the market+Harmonised economic policies+Supernational organisational structure

    Trade Blocs

    The European Union (EU)

    The North American Free Trade Agreement (NAFTA)

    The European Free Trade Agreement (EFTA)

    The European Agreements and the European Economic Area (EEA)

    The Canada-US Free Trade Agreement (CUSTA)

    US Israel Free Trade Agreement

    The Common Market of the South (MERCOSUR)

    The Central American Common Market (CACM)

    The Andean Pact

    The Latin American Integration Association (LAIA)

    The Caribbean Community and Common Market (CARICOM)

    Communauté Economique de Afrique Occidentale (CEAO)

    Union Economique et Monétaire de l’Afrique Occidentale (UEMOA)

    Union Douanière et Economique d’Afrique Centrale (UDEAC)

    The Common Market of Eastern and Southern Africa (COMESA)

    Preferential Trade Area for Eastern and Southern African States (PTA),

    The Southern African Customs Union (SACU)

    The Association of Southeast Nations (ASEAN)

    The ASEAN Free Trade Area (AFTA)

    The Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA).

    Trade Blocs Details

    1. European Union (EU)

    Also known as European Economic Community (EEC), European Common Market (ECM), or the European Community

    EU originaly comprised of 6 nations on January 1, 1958

    Belgium

    France

    Federal Republic of Germany

    Italy

    Luxemburg

    The Netherlands

    2. NAFTA

    The North American Free Trade Agreement, in 1988, signed between US and Canada, then Mexico in 1994.

    Now 15 members

    NAFTA is a very important free trade area made up of developed and developing countries.

    Purpose

    To eliminate all tariffs on products moving among the three countries

    To end other barriers to services and investment capital within north America

    NAFTA covers the following areas:

    a. Market access

    b. Trade rules

    c. Services

    d. Investment

    e. Intellectual property

    f. Dispute settlement

    NAFTA has achieved substantial trade liberalisation.

    Reference Books

    Sanoussi Bilal, “Trade blocs”, in R. Jones ed., Routledge Encyclopedia of International Political Economy, Routledge, forthcoming (2001)

    Francis Cherunilam, International Business, 4th Edition, Eastern Economy Edition, PHI

    V K Bhalla and S Shiva Ramu, International Business Environment and Management, 12th Revised and Enlarged Edition, Anmol Publications Pvt Ltd.