Trading Blocs and growing intra-regional Trade

An important trend in international trade has been the growth of intra-regional trade. Intra-regional trade has been fostered by the economic integration schemes or trading blocs.

Some people view world trade as consisting broadly of intra-regional trade and inter regional trade. There is also talk of regionalization Vs globalization of world trade.

The share of intra-regional trade in the total world trade increased in the 1980s in Western Europe, North America and Asia. In other words, trade within the region grew substantially faster than world trade. In 1990, intra regional trade in goods accounted for 61% of total trade in goods of the European Community, 41% for Asia and 35% for North America. Over 60% of the trade of the Pacific rim nations stays within the area.

Regional integration schemes tend to increase intra-regional trade. For example, trade between the 12 members of the EC increased from about 40% in 1960 to 60% in 1990. Intra-regional trade increased in the EFTA and ASEAN.

There is a worldwide trend towards forming new regional arrangements and to strengthen the existing ones. Inspired by the EEC, several regional integration schemes have been formed by the developing countries, particularly in the Latin America and Africa. However, none of them could become a commendable success. By the late 1970s, outward oriented policies had begun to capture the imagination of policy makers. In the years that followed, unilateral, nondiscriminatory trade liberalization became the order of the day and regionalism was pushed to the background. The situation, however, changed by the end of the 1980s and today regionalism is ‘back with a vengeance’. In its current incarnation, regionalism has engulfed all major players in the world economy. Latin American countries are eager to join with North America in free trade agreement. The possibility of the division of the world into three major trading blocs – Americas, Europe and East Asia – is seriously debated.

A brief account of the different forms of economics integration and the important integration schemes across the world are given below.

Economic integration is a general term, which covers several kinds of arrangements by which two or more countries agree to draw their economies closer together. All of the arrangements have one common feature – the use of tariffs to discriminate against goods produced by countries, which are not parties to the agreement. All tariffs discriminate against foreign products. The key feature of the various agreements for integration is that tariffs are used to discriminate among different countries. This kind of discrimination is achieved by according preferential treatment to the goods produced by the other member countries.

There are several degrees or levels of economic integration. The important forms of economic integration are outlined below.

A free trade area is a grouping of countries to bring about free trade between them. The free trade area abolishes all restrictions on trade among the members; but each member is left free to determine its own commercial policy with non-members.

The customs union is a more advanced level of economic integration than the free trade area. It not only eliminates all restrictions on trade among members but also adopts a uniform commercial policy against non-members.

The common market is a step ahead of the customs union. A common market allows free movement of labor and capital within the common market, besides having the two characteristics of the customs union, namely, free trade among members and a uniform tariff policy towards outsiders.

A still more advanced level of integration union. Apart from satisfying the conditions of the common market mentioned above, the economic union achieves some degree of harmonization of economic policies such as monetary policy, fiscal policy, etc. This is what the European Community (EC) is striving to achieve.

The ultimate form is full economic integration characterized by the completion of the removal of all barriers to intra-bloc movement of goods and factors, unification of social as well as economic policies and all the members bound by decisions of a super national authority consisting of executive, Judicial and legislative branches.