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Trade Blocks Saarc, Nafta
Trade Blocks Saarc, Nafta
Section 4.3
trade areas Custom unions Common markets Examples Advantages of trade blocks Disadvantages of trade blocks
Custom Union
A Group of two or more independent countries who agree to abolish trade barriers (tariffs and quotas) between members, while adopting a common external tariff with non-members.
Common Market
A
fully integrated market area allowing free trade for members as well as labor and capital mobility. A common market may also adopt a common currency (e.g. Euro). Economic Convergence
Member countries usually have a set of common economic targets e.g. Fiscal deficit should remain under 3% of GDP for all EU members
Austria, Finland, Greece, Luxembourg, Spain, Belgium, France, Ireland, Netherlands, Sweden, Denmark, Germany, Italy, Portugal, United Kingdom, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia
NAFTA
Indonesia, Malaysia, Brunei, Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar, Vietnam
MERCOSUR
market size Trade creation Specialization results in a more efficient allocation of resources Exploitation of economies of scale Specialization results in large scale production, which in turn results in cost reductions when economies of scale are present.
competition results in lower prices, which benefit consumers Greater choices Improvement in quality due to the exposure to more competition More rapid spread of technology among members Prevent wars due to the creation of common interests
of trade blocks may be able to negotiate better trade terms with the rest of the world than as individual nations Trade blocks may result in greater labor mobility and hence help reduce unemployment in member nations
FDI: Investment owned and operated by a foreign country. e.g. a multinational corporation builds a plant in the country
Trade
may flow to the more efficient larger countries to the detriment of smaller members It may encourage mergers and takeovers leading to greater oligopolistic collusion
may arise between trading blocks on the one hand and global institutions such as the WTO on the other.
The WTO aims at abolishing tariffs and NTBs between all member countries and requires members to treat all other members on most favored nation (MFN) basis.
The End