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regional trading blocks

Page history last edited by Brian D Butler 9 years, 10 months ago







Table of contents: 




Regional trading blocs


create distinction between those countries in your block, and those outside. By definition, this goes against the principles of free trade (no preferences).  This is often called a "two-tier" system, where there are two sets of regulations, tariffs and rules depending on whether you are inside or outside of the block. 


Examples include:


North America


Latin America

  • Mercosur


  • Andean Community:   Venezuela joined the Andean pact in 1973, with the promise of reducing trade and investment barriers for regional partners, but increasing barriers for outside countries, and effectively isolating the group from the rest of the world.   This fit in nicely with the theory of "dependency", and the desire to be independent from outside influence.   The Andean Pact included Venezuela, Colombia, Ecuador, Peru and Bolivia.    (But, Venezuela dropped out in retaliation when Peru signed a free trade agreement with the USA)
  • Union of South American Nations (União de Nações Sul-Americanas, Spanish: Unión de Naciones Suramericanas, and abbreviated as Unasur and Unasul)



Why its an issue?


With the failure of the Doha Round, the trading system in the 21st century will require substantial reform. The problems of the Doha Round and the proliferation of regionalism confront WTO members with many challenges.  We are moving away from the ideal of one single set of rules that would govern world trade, and toward a system of plularlism.  



The trouble with Regional Trading Blocs


Sep 3rd 2009 From The Economist : "Regional trade deals are no substitute for a Doha agreement. Indeed, they are its enemy"


Taken as a trend, regional trading blocks amount to a dangerous erosion of the system of multilateral trade on which global prosperity depends.  bilateral deals impose so much paperwork and bureaucracy on trade that companies rarely make use of their provisions.  


When bilateral agreements are attractive to companies, it is often for the wrong reasons. Many bilateral trade deals offer favourable treatment to a few companies from a particular country at the expense of all the rest from elsewhere in the world. The companies that lose out may well be lower-cost producers, since such agreements are dictated more by politics than by economics. If so, the economy will suffer. Even if such a deal is eventually superseded by a broader one, it may already have caused long-term damage by allowing less efficient firms to become entrenched. Economies that are too small to extract concessions from their bigger bilateral negotiating partners fare particularly badly.


Then there is the complexity of the growing number of bilateral and regional deals. Each has its own rules and administrative requirements, leading to a confusing spaghetti (or perhaps noodle soup) of preferential agreements, instead of the predictability that multilateralism promises. As such agreements multiply, there is less chance that they create the wealth that their authors claim.


Some claim that the tricky issues that stand in the way of a multilateral deal can be more easily resolved when only two countries are sitting at the table. That rarely happens: in the rush to conclude an agreement, such issues are often shelved. India’s deal with ASEAN last year, for instance, put aside the poisonous question of farm trade, which was one of the deal-breakers in the Doha talks last July.


Bilateral agreements, thus, do not, on the whole, serve as stepping stones to a comprehensive global deal. On the contrary, they both distract governments from the multilateral process and offer cover for politicians’ failure to advance it. Moreover, the fear of losing favourable treatment in a bilateral agreement can deter governments from talking tough in multilateral negotiations.


Some defenders of bilateralism admit all this, but cling to one argument they regard as clinching—that bilateral agreements are at least possible, whereas the chances of concluding Doha seem ever more remote. The comparison, they say, is not between local deals and a global one, but between regional deals and no deals at all.


This argument ignores the lessons of the past. The history of the multilateral trading system is littered with rows, hiatuses, disillusion, despair—and sudden success. In the 1970s many people wrote off the precursor to the World Trade Organisation. The ministerial meeting of 1982 failed and the later Uruguay round of talks nearly collapsed, before being successfully concluded. Even now, amid deep pessimism about ever finishing Doha, the Indian government is holding a summit of trade ministers in the hope of restarting the talks. If they truly want Doha to succeed, the bilateralists need first to acknowledge that their own deals are poisoning its chances.





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