Why Are Trading Blocs Formed

The most famous political union that exists today is that of the United States. In the early years following Britain`s Declaration of Independence in 1776, individual states went through a process similar to the evolutionary path of developing various forms of trading blocs. The EU and the US have a long history of trade disputes, including the dispute over US steel tariffs, which were declared illegal by the WTO in 2005. In addition, there are the so-called beef wars, in which the US imposes £60 million in tariffs on EU beef in response to the EU ban on hormone-treated US beef. and complaints to the WTO about each other`s generous agricultural support. In the 1970s, many former British colonies formed their own trading blocs in response to the UK`s accession to the European single market. A common market (or internal market) is the first important step towards full economic integration and is created while member countries freely trade all economic resources, not just material goods. Weak growth in trade between members of the two Latin American blocs Growth in intra-bloc activities in Latin American trading blocs has been weak, particularly in Mercosur, which recorded a 3% decline in internal trade compared to the pre-2008 crisis level. Although the bloc performed better, trends also show a decline in trade within the Pacific Alliance, despite the growth recorded in 2011, when the agreement was signed. In addition to the advantages, the participation of states in the trading bloc has a number of disadvantages. The Hanseatic League of the late 12th century was one of the first documented trading blocs.

It was introduced to protect the economic interests and political privileges of northern European trade associations. This trading bloc began to lose power in the late 16th century due to increased trade with English, Roman, Dutch and Ottoman merchants. The last official meeting took place in 1669, although it was not officially dissolved until 1871 with the foundation of the German Empire. The existence of the German Empire was made possible by the introduction of a new trading bloc, the German Customs Union of 1834. The majority of German states were members in 1866. This strong trade agreement led to the founding of the North German Confederation in 1867, which eventually became the German Empire in 1871. Other trading blocs became important again until after World War II with the General Agreement on Tariffs and Trade (GATT) of 1948. The agreement originally had 23 member countries and by 1994 it had 123 members. GATT became the World Trade Organization in 1995. This trend towards trading blocs was observed in middle-income countries in the 1960s and 1970s and after the fall of communism in the 1990s.

By the end of the 20th century, more than half of the world`s nations were members of some sort of trade bloc agreement. Despite the inherent advantages of trade block agreements, they also have several disadvantages. Many economists believe that regional trading blocs prohibit global economic growth. Indeed, they promote regionalism and thus undermine the objective of the World Trade Organization (WTO). The majority of the world`s countries are members of the WTO. Moreover, membership of a trading bloc can effectively reduce a country`s political autonomy. This is especially true when the trade bloc is expanded to cover issues such as immigration, human rights and environmental protection. Another disadvantage of trading blocs is that small local businesses are often driven into bankruptcy when larger international companies are able to produce the same goods at a lower cost.

In Latin America, Mercosur and the newly formed Blocs of the Pacific Alliance together account for about 93% of the region`s GDP at 2014 market prices. Who participates in these trading blocks and how do they compare? In terms of trade outside the blocs, the United States accounts for about 50 percent of the Pacific Alliance`s merchandise trade (largely due to close ties between Mexico and the United States), compared to 11 percent for Mercosur. China accounts for 12 to 14 percent of total trade with the two trading blocs. Both blocs are in the process of including more countries in trade agreements: Bolivia in Mercosur and Costa Rica in the Pacific Alliance are the first in the queue. This corresponds to a 3.8% increase in the population of Mercosur to 295.9 million and an increase in the population of the Pacific Alliance of 2.2% to about 226.2 million inhabitants. Nominal GDP will increase by about one percent in Mercosur and by two percent in the Pacific Alliance. Despite the different sizes of their economies, Canada and Mexico are the largest and second largest trading partners of the United States. Nevertheless, trade between Canada and Mexico remains insignificant, while the Canadian and Mexican economies depend on the U.S. economy as their main export market. Canada and Mexico provided about 87% of their respective total exports to the United States in 2004.

In both countries, nearly half of their trade with the United States is on an internal basis, with parent companies and their subsidiaries shipping parts and products between their own business units. Size, composition and performance of Mercosur and the Pacific Alliance The Pacific Alliance is a Latin American trading bloc founded in 2011 between Chile, Colombia, Mexico and Peru. Together, the four countries have a total population of about $221.3 million and a GDP of $2.1 trillion. Founded in 1991, the Common Market of the South (Mercosur) includes Argentina, Brazil, Paraguay, Uruguay and Venezuela. Together, the five Mercosur countries have a population of 285.0 million and a GDP of US$3.5 trillion. Trade diversion occurs when trade is diverted from efficient producers established outside the trading area. As these free trade areas show, their trade relations are anything but stable. Mexico also concluded a formal transatlantic free trade agreement with the European Union in 2000 without the participation of the United States. On the other hand, the United States and Chile also concluded a free trade agreement on 11 December 2002. One of the main objectives of a trading bloc is to help its member countries develop. After the 2008 financial crisis, between 2011 and 2014, the countries of the Pacific Alliance recorded an average annual real GDP growth of 3.1% compared to 1.5% in Mercosur. However, neither region has seen a return to the rapid growth rates (around 5%) that preceded the financial crisis.

Trade blocs can be autonomous agreements between several states (such as the North American Free Trade Agreement) or part of a regional organization (such as the European Union). Depending on the degree of economic integration, trading blocs can be classified as preferential trade zones, free trade areas, customs unions, common markets or economic and monetary unions. [1] As a general rule, trading blocs have their own administrative and regulatory authorities. Some trading blocs also set political goals. The objective of trading blocs is to free trade from protectionist measures and to create a favourable environment for trade among members. Economists have identified 5 general benefits of setting up a trading bloc. Benefits include competition, market efficiency, trade effects, economies of scale and foreign direct investment. Since the trading blocs unite several international markets, manufacturers, producers and other companies from member countries are also brought together. This puts them in direct competition with each other, which ultimately leads to increased efficiency as they try to increase their profit margins. As trading blocs remove barriers to trade, previously expensive or unavailable products become available in new markets at affordable prices.

This changes consumer demand and behavior, as most customers turn to the cheapest products (known as commercial effects). Manufacturers and companies with the lowest prices are made more efficient and are able to increase production, which translates into market efficiency. As these economies strengthen, they encourage foreign direct investment. Trade blocs in LATIN AMERICA: comparison of the PACIFIC ALLIANCE and MERCOSUR One of the areas supposed to benefit from these agreements, trade within the blocs, accounts for about 4% of the total trade of the Pacific Alliance and about 14% of Mercosur. The best-known examples of trading blocs in Europe are: there are various ways for countries to “protect” their domestic economies from foreign competition. One of them is through negotiating blocks. Regional cooperation agreements of the 1990s, such as NAFTA and Mercosur, greatly facilitated intra-continent trade, but South American markets are even less open than those in East Asia. Although many people doubted the power of the U.S. government to oppose domestic industry demanding protection, many see the FTAA as more than a distant hypothesis and are already preparing for it. A trade bloc is a trade agreement between governments, which are usually located in a common geographic area.

The agreement is concluded in order to protect Member States against excessive imports from third countries. In order to promote trade between Member States, customs duties, taxes and other barriers to trade between them are often reduced or eliminated. Among the best-known examples of major trading blocs seen in the world today are the North American Free Trade Agreement (NAFTA), the Association of Southeast Asian Nations (ASEAN), the European Union (EU), the Southern Common Market (MERCOSUR) and the Southern African Development Community (SADC). Negotiating blocs are usually groups of countries in certain regions that manage and promote business activities. Trade blocs lead to trade liberalization (exemption from trade protectionist measures) and the creation of trade between members, as they are treated favorably compared to non-members. A free trade area that has a higher degree of integration than a loosely formed regional cooperative involves a formal agreement between two or more countries to reduce or eliminate tariff and non-tariff barriers to trade between partner countries. .