Trade Blocs

How have trade agreements affected world trade?

For the global economy to fully benefit from trade, there has to be a liberal (free) trade system. Each country can produce what it has a comparative advantage at producing and trade its products with other countries.

But there has been a history of PROTECTIONISM in the global economy. Restrictions, import quotas, duties, trade embargos, tariffs, non tariff barriers, subsidises. All of these limit the flows of traded goods and services, this has the affect of reducing the volume of trade and therefore any benefits that trade can bring. If a country attempt to protect its economy often other countries will impose protectionist policies on that country’s goods and services thereby negating the benefits of protectionism.

The WTO (World Trade Organisation) has the stated aim of reducing protectionism to allow for free trade. It could be said that the WTO has been quite successful at liberalising the economies of LEDCs but less successful at reducing the protectionism of the MEDCs. But although there are still many forms of protectionism on a global scale, there has been a reduction of protectionism on a regional scale as a result of the increase in TRADING BLOCS.

Regional trading blocs can reduce barriers between member countries but often maintain and increase restrictions and protectionism against non member countries. Global trade is becoming dominated by the power of the regional trading bloc.

EUROPEAN UNION – Highly integrated trading bloc of European countries

EUROPEAN UNION – Highly integrated trading bloc of European countries Members: Austria: Belgium: Cyprus; Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hungary; Ireland; Italy; Latvia; Lithuania; Luxembourg; Malta; Netherlands; Poland; Portugal; Slovakia; Slovenia; Spain; Sweden; United Kingdom The EU has become the most powerful trading bloc in the world with a GDP nearly as large as that of the United States. It is also the largest importer of agricultural products from developing countries, and maintains close links to its former colonies in the ACP group through trade preferences and aid deals. The EU has found it difficult to shed its protectionist past based on the idea of self-sufficiency in agriculture which limits agricultural exports from the other countries, although it has implemented a major reform of its Common Agricultural Policy to shift subsides to support the environment.

NAFTA – LEDC and MEDC trading bloc

NAFTA – LEDC and MEDC trading bloc Members: Canada; Mexico; United States The United States has linked with Canada and Mexico to form a free trade zone, the North American Free Trade Agreement (NAFTA). The NAFTA agreement covers environmental and labour issues as well as trade and investment, but US unions and environmental groups argue that the safeguards are too weak. Plans to include the rest of Latin America creating a Free Trade Area of the Americas (FTAA) have been put on hold following opposition from key countries like Brazil. But the US is separately signing free trade agreements with some Andean Pact nations and on 1 January 2006 the Central American Free Trade Area (CAFTA) will come into effect, including Guatemala, Honduras, Nicaragua, El Salvador, Costa Rica, and Dominican Republic. Meanwhile, the regional free trade pact called Mercosur, between Brazil, Argentina, Uruguay, and Paraguay, will be expanded to include Venezuela..

ASEAN – Regional Bloc of Pacific rim countries

ASEAN – Regional Bloc of Pacific rim countries Members: Australia; Brunei; Canada; Chile; China; Hong Kong; Indonesia; Japan; South Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; Philippines; Russia; Singapore; Taiwan; Thailand; United States; Vietnam The Asia-Pacific Economic Cooperation forum is a loose grouping of the countries bordering the Pacific Ocean who have pledged to facilitate free trade. Its 21 members range account for 45% of world trade. They have pledged to liberalises trade among themselves by 2010 for developed countries and 2015 for developing countries. Recently China has begun signing bilateral free trade deals with a number of Apec members.

Cairns Group – Agricultural producers

Cairns Group – Agricultural producers Members: Argentina; Australia; Bolivia; Brazil; Canada; Chile; Colombia; Costa Rica; Guatemala; Indonesia; Malaysia; New Zealand; Paraguay; Philippines; South Africa; Thailand; Uruguay The Cairns group of agricultural exporting nations was formed in 1986 to lobby at the last round of world trade talks in order to free up trade in agricultural products. It is named after the town in Australia where the first meeting took place. Highly efficient agricultural producers, including those in both developed and developing countries, want to ensure that their products are not excluded from markets in Europe and Asia. The developing country members of this group have now formed their own grouping, the G20..

G20 – Bloc of LEDCs to rival EU and USA

G20 – Bloc of LEDCs to rival EU and USA Members: Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Philippines, South Africa, Thailand, Tanzania, Uruguay, Venezuela, Zimbabwe At the Cancun meeting of the world trade talks in September 2003, a powerful new grouping of developing countries emerged. Led by rapidly growing countries and major exporters like Brazil, China, India, and South Africa, this group has been powerful enough to challenge the EU and the US in trade negotiations. At Cancun, the G20 made it clear that it could not accept the EU plans to include investment and competition as elements in the trade talks. Now, the G20 are standing firm in insisting that rich countries make concessions on agriculture before there will be any final agreement on services or reductions in tariffs on manufactured goods.

OPEC – Trading bloc of oil exporters

OPEC – Trading bloc of oil exporters The Organization of the Petroleum Exporting Countries (OPEC) is an international organization made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Since 1965 its international headquarters have been in Vienna, Austria. It is considered to be a cartel by many observers

The growth in world trade has been unevenly spread. Some developing countries - often in Asia - have increased growth by producing more manufactured goods. But others - often in Africa - have fallen further behind.

The world’s poorest countries – the 49 least developed countries – have not shared in the growth of world trade. The 646m people in the top exporting countries - the US, Germany, Japan, France and UK - have 100 times more trade than their poor counterparts.

Many poor countries depend on a single primary export like wood, coffee, copper or cotton. But prices for such commodities have been declining. Prices of manufactured goods have, in contrast, risen in relative terms.

Many poor countries depend on a single primary export like wood, coffee, copper or cotton. But prices for such commodities have been declining. Prices of manufactured goods have, in contrast, risen in relative terms.

Nigeria and Korea stand at the opposite ends of the development spectrum. Twenty years ago, their exports were the same value, but Korea developed a diversified manufacturing base, while Nigeria was dependent on oil, which fell in value. Korea’s high-tech exports like cars and electronic goods have raised its standard of living.

Huge agricultural subsidies by Western countries to their small farm populations far outweigh the aid given to developing countries. The rich countries have repeatedly pledged to reduce the size of their farm supports. So far the amount of such subsidies has changed little in 20 years, while the amount of aid has declined.

The fastest growing area of world trade is the service sector. The rich countries have concentrated on business and financial services, while tourism and travel dominate poor country services. There is controversy over moves by rich countries to sell services like telecommunications, water and public transport to poor countries.

Globally, the proportion of people in poverty has declined, but as the population grows the actual number of poor people is still rising. Declining poverty in Asia suggests the benefits of trade have trickled down to the poorest. But poverty is expected to rise in Africa, where trade is weak and factors such as war, HIV and debt are prevalent.