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8/8/2019 Regional Trading Blocs-Are They Barriers to Free Trade?
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Presented By:
Sandeep Kumar BaranwalShreya Bhattacharya
Sheena GoyalNikhil Thorat
Shantanu
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Objectives of the Study
To investigate appropriancy of Foreign Trade Policy andPractices of countries of the world
To observe the constructive and destructive implications ofRegional Trading Blocs vis--vis Global Free Trade
To investigate whether Global Free Trade is more importantthan Regional Trading Blocs.
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Methodology
Descriptive Analytical Framework
Extensive use of Secondary Data
Alternative Scenario Analysis
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Limitations of the Study
Descriptive
No Country Wise Analysis
No specific stand
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Regional Trading Blocs are not barriers to Free Trade
Pursuit of Global Free Trade lead to the development of Rival Trading Blocs Regional Trading Blocs are the second best option , given that Global Free Trade is not realizable in real world Formation of Regional Trading Blocs are stepping stones to realization of Global Free Trade Global Free Trade may ensure efficient utilization of World Resources and Technologies
Regional Trading Bloc would collude into Global trading bloc Types of trade barrier that regional trading blocs would offer, though important but not significant to put abarrier to Global Free Trade
Liberalization of conditions that restricts Global Free Trade would not itself ensure the non realization of WorldEconomic System due to presence of complex market failure. There can only be a drive towards Global FreeTrade.
Regional Trading Blocs are barriers to Free Trade
An existence of Regional Trading Bloc provides an impetus for other countries to form a new Regional Trading
Bloc Regional Trading Bloc leads directly to Protectionism WTO rules can easily be defeated by Regional Trading Blocs
General Assumption
Realization of Global Trading Bloc amounts to realization of Global Free Trade and hence World EconomicSystem
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LiteratureReview
Guiding Principles of VariousRegional Trading Blocs
Prerequisite for the stimulation of domestic, regional and foreign direct
investment and the expansion, growth and the development of the economies ofeach member state and the region as a whole Kinshasa Resolution on theEstablishment of a COMESA: Common Market for Eastern and Southern Africa(1998).
To contribute the harmonious development and expansion of world trade andprovide a catalyst to broader international cooperation North American Free
Trade Agreement (1992).
The regional integration did not hamper world trade liberalization, but ratherwas an essential component of it, enabling countries at differing levels ofdevelopment to participate more effectively in world trade. The representativeof Colombia to the WTO working party meeting on Mercosur, 10-11, Oct. 1995.
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LiteratureReviewGuiding Principles of VariousRegional Trading Blocs
A stimulus to the development of the national economies by expanding investment and
production opportunities, trade, and foreign exchange earnings Agreement on the CommonEffective Preferential Tariff Scheme for the ASEAN Free Trade Area (1992).
To create an expanded market for the goods and services produced in their territories and toreduce distortions to trade Treaty on Free Trade Between the Republic of Colombia, the Republicof Venezuela and the United Mexican States (1994).
Pursuing stronger regional trade agreements can help form the building blocks for globalfree trade deals, Alejandro Foxley (a senior associate in the Carnegie InternationalEconomics Program, and at the Corporacin de Estudios para Latinoamrica (CIEPLAN) inSantiago, Chile) writes. Increasing trade will not only help middle-income economiesdevelop but also drive growth around the world as the financial crisis recedes.
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Models and Theories Regional Trading Bloc is not a barrier to Free Trade
Porters Diamond Model of International Trade
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Models and Theories Regional Trading Bloc is not a barrier to Free Trade
Transaction Cost Theory of
International Trade
Market Imperfection Theory of
International Trade
Eclectic Theory
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Models and Theories Regional Trading Bloc is not a barrier to Free Trade
Trade Creation Theory
This involves a shift in domestic consumer spendingfrom a higher cost domestic source to a lower costpartner source within the EU, as a result of the
abolition tariffs on intra-union trade. So for exampleUK households may switch their spending on car andhome insurance away from a higher-priced UKsupplier towards a French insurance companyoperating in the UK market.
Similarly, Western European car manufacturers maybe able to find and then benefit from a cheaper sourceof glass or rubber for tyres from other countries withinthe customs union than if they were reliant on
domestic supply sources with trade restrictions inplace. Trade creation should stimulate an increase inintra-EU trade within the customs union and should, intheory, lead to an improvement in the efficientallocation of scarce resources and gains in consumerand producer welfare.
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Impact of Regional Trading Blocs
on
World Trade
FreightDynamics Debt Position
FDI Flows
Infrastructure
Investment
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1980 1985 1990 1997 2003
LAC 16.4 10.6 14.4 21.1 16.0
CAN 3.7 3.2 4.1 12.1 9.0
MERCOSUR 11.6 5.5 8.9 24.9 11.9
CACM 23.1 14.4 14.1 13.3 20.7
CARICOM 8.3 11.3 12.4 16.7 21.3
NAFTA 33.6 43.9 41.4 49.1 55.0
FTAA (34) 33.6 43.9 41.4 49.1 60.1
ASEAN (10) 17.4 18.6 19.0 24.0 22.7*
EU(15) 55.6 59.9 64.9 62.9 62.7
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Regional Trading Blocs are barriersto Free Trade
Article XXIV of theGATT limits on the rights ofRegional Trading Bloc
A Regional Trading Bloc must:
Not on the whole raise protection against excluded countries
Reduce internal tariffs to zero and remove other restrictive regulations
of commerce other than those justified by other GATT articles
Cover substantially all trade.
These conditions ensure thatRegional Trading Bloc do notundermine the access of other countries to its market
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Models and Theories Regional Trading Blocs are barriers to Free Trade
TradeDiversion Theory
An imposition of tariff by a Regional Trading
Bloc on Rest of the World lead to inefficient
utilization of resources and imposes costs on
the society in form of dead weight loss.
Dynamism of Regional Trading Blocs
The presence of Regional Trading Bloc create
incentives for excluded countries to join
existing Regional Trading Bloc, to form newRegional Trading Bloc of their own, or to
change their external trade policy in other
ways
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Models and Theories Regional Trading Blocs are barriers to Free Trade
Disincentives to Developing Countries to open up
their economy to Global Free Trade
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IfUnstable
WorldEconomi
cSystem
Analysis ofcircumstances under
which unstable WorldEconomic System
arises
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http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/
turkishweekly.net
ibgeog2009.wikispaces.com
ibgeography.com
http://www.international.gc.ca/economist-economiste/analysis-analyse/research-recherche/10_pre.aspx
qwickstep.com
http://ec.europa.eu/ireland/about_the_eu/eu_in_the_world/trade/index_en.htm
ec.europa.eu
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Thanks