The most well know trade bloc is NAFTA, between the United States, Canada and Mexico. In the North Atlantic Free Trade Association there is free trade, but not the same degree of harmonisation as the European Union, because trade blocs are also groups of nations who form a custom or economic union. And the EU aims not only at a custom union, but also at an economic union; this means a harmonisation of taxes or monetary policy, and moving towards a single currency.
Trade blocs exist in various types. Indeed, different levels of trade blocs can be distinguished, because some of them liberalise more economic transactions than others. The first major category is the PTA, which stands for Preferential Trade Area. Under this, member countries agree to lower, but not eliminate, trade barriers within the group down to levels below those created against outside economies. The second major category is the FTA, Free Trade Area. Here, all trade restrictions between members of a trade bloc are eliminated, but while each member maintains his own restrictions on trade with third countries. An example of FTA is the NAFTA, as mentioned above. The third category is the CU, Customs Union. It is characterized by free trade within the area, and common national trade with outsiders. The fourth one and almost last, is the CM, which is the Common Market. The CM allows for the free trade of goods among members, sets common tariffs against outside countries, and permits the free movement of factors of production among members. And finally, we have the EU, Economic (and monetary) Union: this type has all the characteristics of a CM, but in addition, members agree to a uniform set of macroeconomic and microeconomic policies. The European Union is an example of economic union.
But some opponents of trade blocs believe that such agreements are detrimental to global free trade.
Since the 1960s, an important motivation of development of trading blocs is to compete with the outside world. The fast development of the EU and Japan reminded the United States of its rather decreasing position in the world economy. So the USA started thinking about Canada and Mexico, which are two of its closest countries. So far, Canada and Mexico also wished for their products to enter the American market and to attract more of the American investment. Thus, the three countries formed in 1992 the NAFTA. In addition, NAFTA’s development was an opportunity for establishing a unique relationship between a relatively poor Third World nation and two of the world’s richest countries.
But in recent years, trade blocs have been increasingly common and popular in the world. For example, the NAFTA has achieved positive results. Indeed, the links between the USA, Canada and Mexico have increased: US transnational corporations have moved to Mexico and have reaped higher profits, and Canada exports to the USA increased by 80% and by 65% to Mexico in the first five years of NAFTA. Moreover, more than one million jobs have been created in Canada, and in 1998, 68% of foreign direct investment into Canada came from the USA and Mexico, reaching $147.3 billion for the US investment. Since NAFTA, Mexico has been brought from profound economic crisis to a solid economic position and Mexican business’ competitiveness has improved. An increase in trade between Mexico and the USA is also remarkable: over 88% of exports go to the USA, while their bilateral trade rose from $82 billion to $200 billion in seven years. NAFTA’s impact on Mexico can also be illustrated by maquiladoras (factories which import materials to make goods they re-export). Indeed, maquiladoras have greatly increased in number since NAFTA.
Although NAFTA and EU are both trade blocs, they still show some differences. This is because, contrarily to the EU, NAFTA is limited to trade only, so it does not permit free movement of labour or attempt to redistribute wealth to poorer regions within its boundaries, doesn’t seek political union or to establish a common currency, and doesn’t affect existing border controls nor aim to establish a customs union with common external tariffs. Yet, both NAFTA and EU may allow other countries to join –considering that all current members agree.
So, trading blocs like the EU do speed up globalisation. Indeed, within the EU, there has been: a marked integration of the national economies and an increase in trade amongst members, greater movement of capital and labour –there has been for example, immigration from Poland of many workers to UK and Ireland–, as well as a single currency and single monetary policy –the euro. It is also argued that trading blocs help globalisation by making global negotiations easier. For example, as of trade negotiations, the EU will negotiate as a single trading bloc, making it easier to push through practises which increase free trade.
However, trading blocs sometimes don’t help the process of globalisation. Rather than lead to greater globalisation, it is argued trading blocs create conflicting parties fighting for regional interests. Also, there are many other factors more influential in contributing to globalisation that have nothing to do with trading blocs. The most important factors contributing to globalisation include: the growth of TNCs, better technology which makes global communication and transport easier, improved transport and communication which helps reduce barriers of distance, tariff reductions and the promotion of free trade. Examples showing how trade blocs hinder globalisation are the critics of NAFTA within the USA citing the growth of the merchandise trade deficit, as well as Mexico “swapping” one kind of trade dependence for another and the fact that Mexican government didn’t prepare the country enough for such a change; indeed, Mexican farmers have been really hard hit by it.
In conclusion, if we look at the major motivation of a trading bloc, which is competing with other regions and countries, we can say that trading blocs do hamper globalisation to some extent. A prove is the fact that they changed the pattern of the world economy and divided the world into trading areas. But still there isn’t any contradiction in their nature: they both pursue free trade, and they both require their member countries to transfer some of their economies. The difference is that trade blocs concentrate within a region while globalisation is on the global level –as its name indicates it. Therefore, their contradiction doesn’t lie on their nature, but on their scale. So it is “normal” that trading blocs and globalisation coexist in the same time.