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trading blocs

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Nowadays, the world is increasingly divided into trade blocs. Two types of trading blocs are recognized by the WTO : the free trade areas, where member states have removed all tariff barriers between them but where each member states can set its own tariffs on imports from non member countries ( EFTA, NAFTA, ASEAN, APEC) and the customs union, where countries agree on common tariffs from non members and remove all trade barriers between them ( like the EU, the Southern Common Market MERCOSUR formed by Argentina, Brazil, Paraguay and Uruguay). However there are also the common market in which members allow full freedom of factors flows (migration of labour and capital) among themselves in addition to having a customs union and the full economic union, in which member countries unify all their economic policies, including monetary, fiscal and welfare policies as well as policy toward trade and factor migration. Trade blocs were formed in order to facilitate exchanges between nations that look like to each other as far as economy, politics and culture are concerned by removing tariff barriers between its members. Free trade is the trade between nations without protective customs tariffs. Protectionism can be definite as the establishment of barriers to the importation of goods and services from foreign countries in order to protect domestic producers. We can wonder if forming a trade bloc is a step toward free trade or a step toward protectionism and what are the advantages and disadvantages of forming a regional trade bloc like the EU. ...read more.


4 - Increases opportunities for business investments Belonging to a regional trade bloc like the EU increases opportunities for business investments because it could be a way to conquer other markets. In that case, belonging to NAFTA could be a spring-board for the US to conquer and tap South American markets as Mexico is already a member state. 5 - Better working conditions for the less favoured nations Thanks to the opening of frontiers, people will be able to circulate freely. For example, Eastern workers may be able to move and benefit from better living standards and working conditions in western countries. It is also an opportunity for workers to upgrade their skills and gain more advance job training. All that enables countries to improve their competitiveness because of an educated and more skilled workforce. 6 - CAP The members of a customs union like the EU can take advantage of Brussel's subsidies as regards agriculture and the Common Agricultural Policy (CAP). The aim of the Common Agricultural Policy is to provide farmers with a reasonable standard of living and benefit to consumers because it offers them quality food at fair prices. It was created to guarantee farm incomes, food safety, quality and environmentally sustainable production. III - Economic disadvantages of forming a regional trade bloc like the EU. 1 - Economic interdependence The United States and Europe are the most dominant powers in the world. ...read more.


H owever the country is in front of some difficulties because its first competitor (the United States) subsides its cotton exports. That is why in the WTO Doha Round, African countries insisted on the reduction and elimination of Northern, especially EU subsidies for agriculture to give African farmers the opportunity to accede to high purchasing power markets. 7....About taxes All the citizens of a member state can live in any country of the European Union. However, they have to pay their tax in the country where they earn their wages but we can notice that there is a big difference as regards taxes between countries, people with very high wages move to low taxes countries. 8 - Discrimination between countries The implementation of a customs union encourages intra-community trade. As a consequence cheaper imports from non partners country may be replaced by expensive imports from a better country. In that case, it allows free trade between members while restricting imports from outside countries. 9 - Redundancies As competition is often tougher when the customs union is implemented, regional trade agreements may entail rounds of redundancies. The opening of markets led to much restructuring and downsizing due to foreign competition. Eventually, forming a trade bloc is a step toward free trade as it simplifies exchanges, as it boosts the economies of the poorest countries of the agreement and because it lowers prices by raising competition. However, we can not but notice that it is a step toward protectionism because it pushes back all the non member countries and encourages discrimination between countries. ...read more.

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