This document discusses economic integration and trading blocs. It defines economic integration as agreements between nations to reduce trade barriers and boost cooperation. Trading blocs are preferential trade agreements between groups of countries that establish liberal trade rules for members. The document outlines different types of trading blocs from free trade areas to political unions. It provides examples like the EU, NAFTA, ASEAN, EFTA, and SAARC. Both opportunities and threats of trading blocs are mentioned. Key aspects of major trading blocs are summarized.

1. TRADING BLOCS
UNIT 3
CHAPTER-6

2. Economic Integration
 Economic integration is a new reality in the international
business market.
 Business and governments have created a range of
institutions, treaties, and agreements that help to
• Overcome trade differences
• Boost the free movement of trade, investment, and services
across national boundaries
 Economic integration is concerned with:
• The removal of trade barriers or impediments between at least
two participating nations
• The establishment of cooperation and coordination between them
 Integration creates high levels of globalization and
regionalization

3.  Economic integration is best viewed
as a spectrum with the various
integrative agreements in effect
today lying in the middle of this
spectrum.
 The level of integration defines the
nature and degree of economic links
among countries

4. What are trading blocs?
 Trading blocTrading bloc: preferential economic
arrangement among a group of
countries.
• Such blocs have liberal rules for
member countries while a separate set
of rules is laid for non-members. For
example, European Union (EU),
Association of South East Asian
Nations (ASEAN).

5. Types of Trading BlocsTypes of Trading Blocs
Free trade areas
Customs Union
Common Market
Political Unions
Economic Union

6. Free Trade Areas
 Simplest form of economic integration
which provides the internal free trade
between member nations.
 Each member is allowed to determined
its own commercial policy with respect
to non-members.
• Example: Latin American Free Trade
Association (LAFTA)

7. Customs Union
 More advanced form.
 Internal free trade among the
member nations and also adopts a
uniform commercial policy against
the non-members.
• Example: EEC – European Economic
Community

8. Common Market
 There are no barriers to trade
among members and factors of
production such as capital, labour
and technology are mobile among
them.
 It has common commercial policy is
respect to non-members.

9. Economic Union
 Level of integration is more developed.
 Members adopt common economic
policies like; Common Agricultural
Policy of the European Union.
• Example: European Union has introduced
a common currency EURO 2000.

10. Political Union
 It is the ultimate type of economic
integration whereby member countries
achieve not only monetary and fiscal
integration but also political integration.
• Example: the Europe Union (EU) is moving
towards a political union similar to one created
by 52 states of America.

11. 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.

12. 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.

13. 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.
b. Healthy competition within the region would help the less
efficient firms in acquiring competencies in order to
challenge the efficient firms.
c. The overall business performance in 'terms of productivity,
quality, price,
d. Delivery and customer service will improve.
e. Consumers get better quality goods and services at
competitive price
f. Employment opportunities in the region increase.

14. Trading 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.

15. European Economic
Community (EEC)
 Economic integration in Europe from
1948 to the mid 1980s:
• Organization for European Economic
Cooperation (OEEC)
• Treaty of Rome
• Six member nations: France, Germany, Italy,
Belgium, Netherlands and Luxembourg.
• Now there are 15 members.
• European Free Trade Association (EFTA)
• Common agricultural policy (CAP)

16. Organization of EEC
 European Council
• Heads of State & President of European Commission
• Resolves major policy issues & sets direction – 2x year
 European Commission – Brussels, Belgium
• Proposing, implementing & monitoring compliance - EU laws
• Commissioners appointed by each country – 5 year renewable terms
• Competition Commissioner regulator of competition and M&A
 Council of the European Union
• Ultimate controlling authority – approves proposed laws
• 1 representative from each state – varies with topic
• Use majority voting rules rather than unanimous agreement
 European Parliament – Strasbourg, France
• Directly elected by population – 732 members
• Debates legislation – Consultative body
 Court of Justice
• Supreme appeals court for EU law
• 1 judge from each state – required to act as independent officials

17. Functions of EEC/EU
 Common Agricultural Policy (CAP).
• Free movement from one nation to the
other,
• Imports allowed only when DD>SS,
• Rich farmers became richer,
 European Monetary Union (EMU).
 Common Transport Policy.

18. North American Free Trade
Agreement-NAFTA
 North American integration has an interest in
purely economic issues and there are no
constituencies for political integration.
• Came into being in 1994
• U.S.-Canada Free Trade Agreement
• North American Free Trade Agreement (NAFTA)
• Member Countries: US, Canada and Mexico

19. Other Aspects of NAFTA
 Objectives
• More business
opportunities in
Mexico.
• Enhance competitive
advantage.
• Reduce the prices
• Enhance industrial
development.
• Assist Mexico in
earning additional
foreign exchange.
• Improve political
relations.
 Measures:
• Residents of NAFTA can
invest easily in other
member nations.
• Protection of Intellectual
Property Rights.
• Similar Product
Standards
• Free flow of FoP.
• Pollution Control.

20. What are the drawbacks?
 Most of the US industries shifted to
Mexico because Mexico offered less
stringent policies.
 It was implemented without prior
preparations.

21. Free Trade Blocs in America

22. Association of South-East
Asian Nations (ASEAN)
 The development in Asia has been different from
that in Europe and the Americas
 Asian interest in regional integration is
increasing for pragmatic reasons
 Asia accounts for 20% of world trade.
 It has substantial trade liberalisation.
 There are less formal agreements bilaterally and
multilaterally in abundance. Examples are
SAARC, and the China Circle.
 It has also created numerous sub-regional
economic trade zones, which are named
transnational export processing zones, natural
economic territories, or growth triangles

23. Brief Background of ASEAN
 A group of 6 Nations: Singapore, Brunei,
Malaysia, Phillipines, Thailand and Indonesia
 In 1992- established CEPT (Common Effective
Preferential Tariffs) Plan
• Free trade area in 15 years.
• Tariff cut from 0.50% to 20% beginning with 15
products.
• Strength skilled and educated human resource.
• Created Asean Free Trade Area (AFTA) in 1994.

24. About AFTA
 Objectives:
• To encourage inflow of foreign investments.
• To establish free trade area.
• To reduce tariff on the products produced in ASEAN
countries

25. European Free Trade
Association- EFTA
 Formed in 1959.
 Member nations: Austria, Norway,
Portugal, Swedan and Switzerland.
 Associate members: Finland, Iceland,
Britain, Denmark.
 Objectives:
• To eliminate all tariffs.
• To abolish trade restrictions.
• To enhance economic development.
• To enable free trade.

26. South Asian Association for
Regional Cooperation (SAARC)
 Member nations: India, Bangladesh, Bhutan,
Pakistan, Maldives and Sri Lanka.
 Established in 1983.
 Objectives:
• To improve quality of life and welfare of the people.
• To develop region economically, socially and culturally.
• To enhance the self reliance,
• To provide conducive environment
• To enhance mutual assistance.
• To extend co-operation to other trade blocs.

27. Other Trade Blocs..
 SAPTA