Sunday, 22 December 2019

Unit 12: Trade Blocks

0 comments

Unit 12: Trade Blocks


After the era of Globalisation, we are entering the era of Regionalisation.

Except a few nations, almost all the signatories of WTO are also members of any RTA (Regional Trade Agreement) and most of them are members of more than one RTA.

India too has entered into many free trade agreements.

India signed a comprehensive treaty with Singapore; Britain hopes that India will also sign the same treaty with European Union.

Every country is in a hurry to gain entry in other nations’ markets and to have access to the raw material of other nations.

When two or more nations come together for the sake of business and reduce the barrier of international trade among them, then a regional trading block comes into existence.

RTAs have many advantages as they result in Trade Creation and Trade Diversion, reduces and eliminates the import duty and other non-trade barriers, thus allowing the free movement of goods and services among nations.

It also helps in achieving the economies of scale, to take advantages of higher factor productivity which results in reduction in the prices of goods and services in the member nations and in creation of jobs in member nations.

RTAs can be of many types such as Preferential Trade Agreement, Free Trade Area (FTA), Custom Union and Common Market.

Some of the most famous RTAs are European Union, APEC, MERCOSUR, NAFTA, ASEAN, etc.



India has also signed RTAs such as India-ASEAN, SAFTA, Bangladesh-India-Sri Lanka- Notes Thailand Economic Cooperation (BIST-EC), India-Thailand FTA, India-Sri Lanka Bilateral Free Trade Area, and India-Singapore Comprehensive Economic Cooperation Agreement (CECA).


APEC: Asia Pacific Economic Cooperation (APEC) consisting of 21 countries was formed in 1989.

ASEAN: The Association of Southeast Asian Nations was established by five member countries, namely Indonesia, Malaysia, Philippines, Singapore, and Thailand.

Later Brunei, Darussalam, Vietnam, Laos and Myanmar and Cambodia also joined.

CECA: India-Singapore Comprehensive Economic Cooperation Agreement (CECA).

European Union: The European Union or EU is an intergovernmental and supranational union of 25 European countries, known as member states.

Free Trade Area (FTA): In free trade area, countries eliminate duties among themselves while maintaining them with the outsiders MERCOSUR: It is a trading block in Latin America comprising Brazil, Argentina, Uruguay and Paraguay as its members.

NAFTA: In January 1994, Canada, the United States and Mexico launched the North American Free Trade Agreement (NAFTA) OPEC: Oil Producing and Exporting Countries (OPEC) is a group/cartel of Oil producing countries.

OPEC controls Oil prices by controlling the total output.

Regional Trade Agreement/Regional Trade Block: When two or more nations come together for the sake of business and reduce barriers of international trade among themselves, then a regional trading block comes into existence.

SAARC: The South Asian Association for Regional Cooperation was established on December 8, 1985.

It involves seven States of the Indian Sub-Continent, i.e., Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

SAPTA: South Asian Preferential Arrangement (SAPTA) signed by the SAARC members.

Trade Creation: In trade creation, trade shifts to a member (member country of regional block) either because of countries’ comparative advantage in production of particular goods or because the country simply gets the cost advantage because of elimination of trade barriers.

Trade Diversion: Trade diversion is a cost to a particular non-member (of some RTA) country when a group of countries trade among themselves.

Thus, trade diverts from the non-member to member country.

No comments:

Post a comment