Lecture 4 Trade blocs

Editor's Notes

• #3: A trade bloc is a group of countries that join together to increase trade between themselves to gain economic benefits. https://courses.lumenlearning.com/wm-microeconomics/chapter/trade-policy-organizations-and-agreements/ Regional Trading Agreements There are different types of economic integration across the globe, ranging from free trade agreements, in which participants allow each other’s imports without tariffs or quotas, to common markets, in which participants have a common external trade policy as well as free trade within the group, to full economic unions, in which, in addition to a common market, monetary and fiscal policies are coordinated. Many nations belong both to the World Trade Organization and to regional trading agreements. The best known of these regional trading agreements is the European Union. In the years after World War II, leaders of several European nations reasoned that if they could tie their economies together more closely, they might be more likely to avoid another devastating war. Their efforts began with a free trade association, evolved into a common market, and then transformed into what is nearly a full economic union, known as the European Union. (The EU, as it is often called, has not included a common fiscal policy.) The EU has a number of goals. For example, in the early 2000s it introduced a common currency for Europe, the euro, and phased out most of the former national forms of money like the German mark and the French franc, though a few have retained their own currency. Another key element of the union is to eliminate barriers to the mobility of goods, labor, and capital across Europe. For the United States, perhaps the best-known regional trading agreement is the North American Free Trade Agreement (NAFTA). The United States also participates in some less-prominent regional trading agreements, like the Caribbean Basin Initiative, which offers reduced tariffs for imports from these countries, and a free trade agreement with Israel. The world has seen a flood of regional trading agreements in recent years. About 100 such agreements are now in place. A few of the more prominent ones are listed in Table 2. Some are just agreements to continue talking; others set specific goals for reducing tariffs, import quotas, and nontariff barriers. One economist described the current trade treaties as a “spaghetti bowl,” which is what a map with lines connecting all the countries with trade treaties looks like. There is concern among economists who favor free trade that some of these regional agreements may promise free trade, but actually act as a way for the countries within the regional agreement to try to limit trade from anywhere else. In some cases, the regional trade agreements may even conflict with the broader agreements of the World Trade Organization. There are a variety of ways in which countries can “protect” their domestic economies from competition from abroad. One of them is through trading blocs. A trading bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organisation, where regional barriers to international trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states, allowing them to trade with each other as easily as possible. The idea is that member countries freely trade with each other, but establish barriers to trade with non-members, which has had a significant impact on the pattern of global trade. International trade agreements can open up new opportunities for exporters. They can also ensure access to competitively priced imports from other countries. https://www.intelligenteconomist.com/trading-bloc/#1-trade-creation A trading bloc is a formal agreement between two or more regional countries that remove trade barriers between the countries in the agreement while keeping trade barriers for other countries.
• #6: https://www.economicsonline.co.uk/Global_economics/Trading_blocs.html https://www.tutorialspoint.com/international_business_management/regional_trading_blocs.htm The advantages of having a Regional Trading Bloc are as follows − Foreign Direct Investment − Foreign direct investment (FDI) surges in TRBs and it benefits the economies of participating nations. Economies of Scale − The larger markets created results in lower costs due to mass manufacturing of products locally. These markets form economies of scale. Competition − Trade blocs bring manufacturers from various economies, resulting in greater competition. The competition promotes efficiency within firms. Trade Effects − As tariffs are removed, the cost of imports goes down. Demand changes and consumers become the king. Market Efficiency − The increased consumption, the changes in demand, and a greater amount of products result in an efficient market.
• #7: https://www.economicsonline.co.uk/Global_economics/Trading_blocs.html https://www.tutorialspoint.com/international_business_management/regional_trading_blocs.htm The disadvantages of having a Regional Trading Bloc are as follows − Regionalism − Trading blocs have bias in favor of their member countries. These economies establish tariffs and quotas that protect intra-regional trade from outside forces. Rather than following the World Trade Organization, regional trade bloc countries participate in regionalism. Loss of Sovereignty − A trading bloc, particularly when it becomes a political union, leads to partial loss of sovereignty of the member nations. Concessions − The RTB countries want to let non-member firms gain domestic market access only after levying taxes. Countries that join a trading bloc needs to make some concessions. Interdependence − The countries of a bloc become interdependent on each other. A natural disaster, conflict, or revolution in one country may have adverse effect on the economies of all participants. https://www.intelligenteconomist.com/trading-bloc/#1-trade-creation
• #8: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo https://www.economicsonline.co.uk/Global_economics/Trading_blocs.html
• #9: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo Preferential Trade Agreement is the lowest level of commitment to trade barrier reduction between member countries, which lower, but not eliminate trade barriers among themselves. Dealings with No-members is not addressed. They maintain their own policies of their own choosing towards non-member countries.
• #10: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo The next level of commitment is the Free Trade Agreement. Member countries agree to eliminate trade barriers among themselves, but they continue to maintain independent policies in dealing with non-member countries. Ex. NAFTA (Canada, Mexico and USA) agree to eliminate the trade barriers among themselves, but each country maintain the independent, separate trading policy with other non-members. Two or more countries form a Free Trade Area in which trade barriers between the countries are abolished but each country maintains its own tariffs against non-member countries. For example, the North American Free Trade Agreement (NAFTA) between the USA, Canada & Mexico created a free trade area.
• #11: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo The third type of trade bloc is a Customs Union, where member countries not only eliminate trade barriers among themselves, but adopt common policies for trade barriers towards non-members. A Customs Union is like a free trade area except that member countries maintain a common tariff against non-member countries.
• #12: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo http://www.authorstream.com/Presentation/juliapeters-2888979-chapter-economic-integration/ http://www.authorstream.com/Presentation/juliapeters-2888979-chapter-economic-integration/
• #13: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo http://www.authorstream.com/Presentation/juliapeters-2888979-chapter-economic-integration/ After Customs Union, the next trade blocs address not only the free trade of goods and services among member countries, but also the free transfer of resources, like capital and labor. Ex. Mercosur, COMESA, ECOWAS… A Common Market is like a customs union but there is a free flow of factors of productions between the countries. For example, no permits are required to work in another member country.
• #15: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo http://www.authorstream.com/Presentation/juliapeters-2888979-chapter-economic-integration/ Example for Economic Union is EU that has adopted a common currency (one monetary policy), as well as unified fiscal and other social policies. An Economic Union has the same benefits as a common market but there is a common tax system and employs the same currency. For example, the European Union is an economic union.
• #16: https://www.youtube.com/watch?v=YDUq0DINhYk&feature=emb_logo
• #17: https://www.tutorialspoint.com/international_business_management/major_trade_blocs.htm https://www.slideshare.net/PuneethKamath/different-trade-blocs
• #18: https://www.investopedia.com/terms/n/nafta.asp https://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement
• #19: https://www.investopedia.com/terms/n/nafta.asp https://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement https://ustr.gov/usmca Why NAFTA Was Formed About one-fourth of all U.S. imports, such as crude oil, machinery, gold, vehicles, fresh produce, livestock, and processed foods, originate from Canada and Mexico, which are the U.S.'s second- and third-largest suppliers of imported goods. In addition, approximately one-third of U.S. exports, particularly machinery, vehicle parts, mineral fuel/oil, and plastics are destined for Canada and Mexico. Key Takeaways The North American Free Trade Agreement (NAFTA) was implemented in 1994 to encourage trade between the U.S., Mexico, and Canada. President Trump made a campaign promise to repeal NAFTA, and in August 2018, he announced a new trade deal with Mexico to replace it. In September 2018, Canada joined the deal: the United States-Mexico-Canada Agreement (USMCA), which was signed into effect on November 30, 2018.
• #20: https://www.investopedia.com/terms/e/europeanunion.asp https://en.wikipedia.org/wiki/European_Union https://europa.eu/european-union/about-eu_en https://europarlamentti.info/en/values-and-objectives/objectives/
• #21: https://www.investopedia.com/terms/e/europeanunion.asp https://en.wikipedia.org/wiki/European_Union https://europa.eu/european-union/about-eu_en https://europarlamentti.info/en/values-and-objectives/objectives/
• #22: https://www.investopedia.com/terms/e/europeanunion.asp https://www.sobranie.mk/about-the-european-union-ns_article-key-dates-in-the-history-of-european-integration.nspx
• #23: https://www.investopedia.com/terms/e/europeanunion.asp https://www.sobranie.mk/about-the-european-union-ns_article-key-dates-in-the-history-of-european-integration.nspx
• #24: https://www.investopedia.com/terms/e/europeanunion.asp https://en.wikipedia.org/wiki/European_Union https://europa.eu/european-union/about-eu_en https://www.investopedia.com/terms/b/brexit.asp The European Union (EU) consists of a group of countries that acts as one economic unit in the world economy. Its official currency is the euro; 19 of its 28 members have adopted the currency.1 In a 2016 referendum, the U.K. voted to leave the EU. Though the terms of Brexit had been challenged many times, Jan 31, 2020 marked the official enactment of Britain leaving the EU 
• #25: https://www.investopedia.com/terms/e/europeanunion.asp https://en.wikipedia.org/wiki/European_Union https://europa.eu/european-union/about-eu_en https://www.investopedia.com/terms/b/brexit.asp The European Union (EU) consists of a group of countries that acts as one economic unit in the world economy. Its official currency is the euro; 19 of its 28 members have adopted the currency.1 In a 2016 referendum, the U.K. voted to leave the EU. Though the terms of Brexit had been challenged many times, Jan 31, 2020 marked the official enactment of Britain leaving the EU 
• #26: https://en.wikipedia.org/wiki/ASEAN https://www.investopedia.com/terms/a/asean.asp The Association of Southeast Asian Nations (ASEAN) is a group of 10 nations in Southeast Asia that work together to promote political, economic, and cultural growth and solidarity.Since 1995, the ASEAN members have enjoyed a free trade zone with each other after a successful tariff-cutting effort. ASEAN was formed in 1967 with the signing of the Bangkok Declaration. The association was initially composed of the following five members: Indonesia Malaysia The Philippines Singapore Thailand The original purpose of the group was to calm tensions between its members and to contain the spread of communism in the region. However, ASEAN's priorities shifted. In the 1990s, the association incorporated the communist states of Vietnam (1995) and Laos (1997) as well as quasi-communist Cambodia (1999). Brunei joined in 1984 and Myanmar in 1997. A 1995 agreement created a nuclear-free zone in Southeast Asia. Since 1993, the bloc has been cutting tariffs in an effort to create an ASEAN Free Trade Area, which the group's website describes as "virtually established." As a result, according to the ASEAN report, "ASEAN Key Figures 2018," ASEAN total merchandise trade increased from $790 billion in 2000 to $2,574 billion in 2017. ASEAN's 10 economies represented $2.8 trillion in combined gross domestic product (GDP) in 2017, and the group is considered the world's fifth-largest economy. The group's combined population was 642 million in 2017, according to the ASEAN report. In the ASEAN Declaration, ASEAN states that it aims to achieve the following: Regional economic growth, social progress and cultural development in the region Regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region Collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific, and administrative fields Mutual assistance through training and research facilities in the educational, professional, technical, and administrative spheres agricultural collaboration among the ASEAN member countries Nuclear Free ASEAN The bloc also focused on peace and stability in the region. On 15 December 1995, the Southeast Asian Nuclear-Weapon-Free Zone Treaty was signed to turn Southeast Asia into a nuclear-weapon-free zone. The treaty took effect on 28 March 1997 after all but one of the member states had ratified it. It became fully effective on 21 June 2001 after the Philippines ratified it, effectively banning all nuclear weapons in the region.[33] A similar treaty was signed in 2017, however, Singapore abstained from the vote.[34] https://asean.org/?static_post=treaty-on-the-southeast-asia-nuclear-weapon-free-zone
• #27: https://en.wikipedia.org/wiki/ASEAN https://www.investopedia.com/terms/a/asean.asp The Association of Southeast Asian Nations (ASEAN) is a group of 10 nations in Southeast Asia that work together to promote political, economic, and cultural growth and solidarity.Since 1995, the ASEAN members have enjoyed a free trade zone with each other after a successful tariff-cutting effort. ASEAN was formed in 1967 with the signing of the Bangkok Declaration. The association was initially composed of the following five members: Indonesia Malaysia The Philippines Singapore Thailand The original purpose of the group was to calm tensions between its members and to contain the spread of communism in the region. However, ASEAN's priorities shifted. In the 1990s, the association incorporated the communist states of Vietnam (1995) and Laos (1997) as well as quasi-communist Cambodia (1999). Brunei joined in 1984 and Myanmar in 1997. A 1995 agreement created a nuclear-free zone in Southeast Asia. Since 1993, the bloc has been cutting tariffs in an effort to create an ASEAN Free Trade Area, which the group's website describes as "virtually established." As a result, according to the ASEAN report, "ASEAN Key Figures 2018," ASEAN total merchandise trade increased from $790 billion in 2000 to $2,574 billion in 2017. ASEAN's 10 economies represented $2.8 trillion in combined gross domestic product (GDP) in 2017, and the group is considered the world's fifth-largest economy. The group's combined population was 642 million in 2017, according to the ASEAN report. In the ASEAN Declaration, ASEAN states that it aims to achieve the following: Regional economic growth, social progress and cultural development in the region Regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region Collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific, and administrative fields Mutual assistance through training and research facilities in the educational, professional, technical, and administrative spheres agricultural collaboration among the ASEAN member countries Nuclear Free ASEAN The bloc also focused on peace and stability in the region. On 15 December 1995, the Southeast Asian Nuclear-Weapon-Free Zone Treaty was signed to turn Southeast Asia into a nuclear-weapon-free zone. The treaty took effect on 28 March 1997 after all but one of the member states had ratified it. It became fully effective on 21 June 2001 after the Philippines ratified it, effectively banning all nuclear weapons in the region.[33] A similar treaty was signed in 2017, however, Singapore abstained from the vote.[34] https://asean.org/?static_post=treaty-on-the-southeast-asia-nuclear-weapon-free-zone
• #28: https://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation
• #29: After the USSR's intervention in Afghanistan, the efforts to establish the union was accelerated in 1979 and the resulting rapid deterioration of South Asian security situation.[9] Responding to Rahman and Birendra's convention, the officials of the foreign ministries of the seven countries met for the first time in Colombo in April 1981.[9] The Bangladeshi proposal was promptly endorsed by Nepal, Sri Lanka, Bhutan, and the Maldives but India and Pakistan were sceptical initially.[9] The Indian concern was the proposal's reference to the security matters in South Asia and feared that Rahman's proposal for a regional organisation might provide an opportunity for new smaller neighbours to re-internationalize all bilateral issues and to join with each other to form an opposition against India. Pakistan assumed that it might be an Indian strategy to organize the other South Asian countries against Pakistan and ensure a regional market for Indian products, thereby consolidating and further strengthening India's economic dominance in the region.[9]
• #30: https://en.wikipedia.org/wiki/Mercosur https://www.mercosur.int/en/about-mercosur/mercosur-in-brief/
• #31: https://en.wikipedia.org/wiki/Mercosur https://www.mercosur.int/en/about-mercosur/mercosur-in-brief/
• #32: https://www.britannica.com/topic/Central-American-Common-Market
• #33: https://en.wikipedia.org/wiki/Latin_American_Integration_Association https://www.slideshare.net/PuneethKamath/different-trade-blocs
• #34: https://www.slideshare.net/PuneethKamath/different-trade-blocs https://en.wikipedia.org/wiki/OPEC 2020 Saudi-Russian price war Main article: 2020 Russia–Saudi Arabia oil price war In early March 2020, OPEC officials presented an ultimatum to Russia to cut production by 1.5% of world supply. Russia, which foresaw continuing cuts as American shale oil production increased, rejected the demand, ending the three-year partnership between OPEC and major non-OPEC providers.[114] Another factor was weakening global demand resulting from the COVID-19 pandemic.[115] This also resulted in 'OPEC plus' failing to extend the agreement cutting 2.1 million barrels per day that was set to expire at the end of March. Saudi Arabia, which has absorbed a disproportionate amount of the cuts to convince Russia to stay in the agreement, notified its buyers on 7 March that they would raise output and discount their oil in April. This prompted a Brent crude price crash of more than 30% before a slight recovery and widespread turmoil in financial markets.[114] Several pundits saw this as a Saudi-Russian price war, or game of chicken which cause the "other side to blink first".[116][117][118][119] Saudi Arabia had in March 2020 $500 billion of foreign exchange reserves, while at that time Russia's reserves were $580 billion. The debt-to-GDP ratio of the Saudis was 25%, while the Russian ratio was 15%.[116] Another remarked that the Saudis can produce oil at as low a price as $3 per barrel, whereas Russia needs $30 per barrel to cover production costs.[119] Another analyst claims that "it’s about assaulting the Western economy, especially America’s."[118] In order to ward of from the oil exporters price war which can make shale oil production uneconomical, US may protect its crude oil market share by passing the NOPEC bill.[120] In April 2020, OPEC and a group of other oil producers, including Russia, agreed to extend production cuts until the end of July. The cartel and its allies agreed to cut oil production in May and June by 9.7 million barrels a day, equal to around 10% of global output, in an effort to prop up prices, which had previously fallen to record lows.[121]