Trading blocs are resulting in increased protectionism - Explain?

Answer 1

It has been suggested by many commentators that trading blocs are a sound and efficient way to create sustainable economic growth. Explain negatives and positives effects on countries when becoming part of trading blocs. After the last decade the move to form regional trading blocs has increased dramatically as 194 trade agreements have been notified to the general agreement on trade and tariffs and the world trade organization. Trading blocs are when groups of countries have established special preferential arrangements, governing trade between other members. Trading blocs are created to encourage trading partners to buy and sell goods already made in their home countries The reason by the formation of trading blocs can be characterized as a move from 'close regionalism' to a more open model. The most common reason for the formation of trading blocs today is not for taking advantage of the economic benefits of being a member of a trading bloc, but of increasing the international political and economic leverage of those nations that are members of the trading bloc. In particular, the European Union was formed with both of these goals in mind. The definition of trading blocs varies wid ely, however according to this definition a trading bloc is defined by four characteristics. These long-term gains can include - increased competition, economies of scale, stimulus to investment and a more efficient use of economic resources. the recent wave of trade regionalization has spread to almost all continents in the world The formation of free trade zones and trade blocs is one of the major issues facing the world trading system - whether it will lead to increased protectionism, or whether the trade blocs will promote trade liberalization. Belgium and Luxembourg formed an economic union in the 1920's. Every significant economy in the world, except China, has signed on to the World Trade Organization. Competition and scale affects refer to the advantage of increased direct investment from the formation of economies of scale. the increase of efficiency and determination to develop could lead to increased competition leading to a greater oligopolistic collusion because of the integration, for example the EU is in a free trade agreement and therefore have a equal part in the bloc however if all parties become competitive all members will be participating in a oligopoly which could prove an advantage as they all have reached there goals however could leas the market resulting in tension between bloc members. The European union also share a foreign investment with there inflows increasing from 28% to 33% during 11 years. Asia Pacific Economic Corporation (APEC) and COMESA are other examples of free trade areas. Free trade is certainly more efficient than discriminatory trade, and has provided overall has provided many economic benefits unlike most of the proclaimed regional trading arrangements of thirty years ago, the current round of free trade arrangements (FTAs) is having a significant effect on trade. Another disadvantage is that they are not good methods for liberalizing trade with outsiders, which appears essential to outside members. This leads to the erosion of monopoly positions and consequently promotes efficiency gains within firms. it is vital that when setting up trading blocs it is essential that they are done so with the right framework of policies e. Trading blocs can also encourage economies of scale to those markets who do not obtain enough inputs to achieve such goals.