Trade Blocs
Sanoussi Bilal, “Trade blocs”, in R. Jones ed., Routledge Encyclopedia of International Political Economy, Routledge, forthcoming (2001).
Trade blocs 1.Definition and examples A trade bloc can be defined as a ‘preferential trade agreement’ (PTA) between a subset of countries, designed to significantly reduce or remove trade barriers within member countries. When a trade bloc comprises neighbouring or geographically close countries, it is referred to as a ‘regional trade (or integration) agreement’. It is sometimes also referred to as a ‘natural’ trade bloc to underline that the preferential trade is between countries that have presumably low transport costs or trade intensively with one another. The two principal characteristics of a trade bloc are that: (1) it implies a reduction or elimination of barriers to trade, and (2) this trade liberalisation is discriminatory, in the sense that it applies only to the member countries of the trade bloc, outside countries being discriminated against in their trade relations with trade bloc members. Though few, there exist as well regionial integration agreements in which co-operation rather than preferential market access is emphasised. Trade blocs can also entail deeper forms of integration, for instance of international competition, investment, labour and capital markets (including movements of factors of production), monetary policy, etc. The integration of countries into trade blocs is commonly referred to as ‘regionalism’, irrespective of whether the trade bloc has a geographical basis or not. The first waves of PTAs appeared in the 1930s leading to a fragmentation of the world into trade blocs. This ‘old (first) regionalism’ is also associated with regional initiatives involving developing countries in the 1950s and 1960s.1 Based on the objective of import-substitution industrialisation, the rationale was that developing countries could reap the benefit from economies of scale by opening up their trade
Trade blocs 1.Definition and examples A trade bloc can be defined as a ‘preferential trade agreement’ (PTA) between a subset of countries, designed to significantly reduce or remove trade barriers within member countries. When a trade bloc comprises neighbouring or geographically close countries, it is referred to as a ‘regional trade (or integration) agreement’. It is sometimes also referred to as a ‘natural’ trade bloc to underline that the preferential trade is between countries that have presumably low transport costs or trade intensively with one another. The two principal characteristics of a trade bloc are that: (1) it implies a reduction or elimination of barriers to trade, and (2) this trade liberalisation is discriminatory, in the sense that it applies only to the member countries of the trade bloc, outside countries being discriminated against in their trade relations with trade bloc members. Though few, there exist as well regionial integration agreements in which co-operation rather than preferential market access is emphasised. Trade blocs can also entail deeper forms of integration, for instance of international competition, investment, labour and capital markets (including movements of factors of production), monetary policy, etc. The integration of countries into trade blocs is commonly referred to as ‘regionalism’, irrespective of whether the trade bloc has a geographical basis or not. The first waves of PTAs appeared in the 1930s leading to a fragmentation of the world into trade blocs. This ‘old (first) regionalism’ is also associated with regional initiatives involving developing countries in the 1950s and 1960s.1 Based on the objective of import-substitution industrialisation, the rationale was that developing countries could reap the benefit from economies of scale by opening up their trade
References: Baldwin, Richard E. (1995), “A Domino Theory of Regionalism”, in R. Baldwin, P. Haarparanta and J. Kianden (eds.), Expanding Membership of the European Union, Cambridge: Cambridge University Press. Baldwin, Richard E. (1997), “The Causes of Regionalism”, World Economy, vol.20, No.7, 865-888. Bhagwati, Jagdish and Arvind Panagariya (1996), “The Theory of Preferential Trade Agreements: Historical Evolution and Current Trends”, American Economic Review, vol.86, 82-87. Bond, E., and C. Syropoulos (1996), “The Size of Trading Blocs: Market Power and Welfare Effects”, Journal of International Economics, vol.40, No.1, 411-437. Cadot, Olivier, Jaime de Melo and Marcelo Olarreaga (1998), “Can Bilateralism Ease the Pains of Multilateral Trade Liberalization?”, CEPR Discussion Paper No.1878, London: Centre for Economic Policy Research. Ethier, Wilfred (1998), “The New Regionalism”, Economic Journal, vol.108, 1149-1161. Fernandez, Raquel (1997) and J. Portes (1998), “Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements”, World Bank Economic Review, vol.12, No.2, 197-220. Foroutan, Faezeh (1998), “Does Membership in a Regional Preferential Trade Agreement Make a Country More or Less Protectionist?”, World Economy, vol.21, No.3, 305-335. Frankel, Jeffrey A., Ernesto Stein and Shang-jin Wei (1995), “Trading Blocs and the Americas: The Natural, the Unnatural and the Super-Natural”, Journal of Economic Development, vol.47, 61-95. Grossman, Gene and Elhanan Helpman (1995), “The Politics of Free-Trade Agreements”, American Economic Review, vol.84, 833-850. Krishna, Parvin (1998), “Regionalism and Multilateralism: A Political Economy Approach”, Quarterly Journal of Economics, vol.113, 227-251. Krueger, Anne O. (1997), “Free Trade Agreements versus Customs Unions”, Journal of Development Economics, vol.54, 169-187. Krugman, Paul (1991a), “Is Bilateralism Bad?”, in Helpman, E. and A. Razin (eds.), International Trade and Trade Policy, Cambridge, MA: MIT Press. Krugman, Paul (1991b), “The Move Towards Free Trade Zones”, in Policy Implications of Trade and Currency Zones, Symposium Sponsored by the Federal Reserve Bank of Kansas City, Kansas City, KS. Krugman, Paul (1993), “Regionalism versus Multilateralism: Analytical Notes”, in J. de Melo and A. Panagariya (eds.), New Dimensions in Regional Integration, Cambridge: Cambridge University Press. Levy, Philip I. (1997), “A Political-Economic Analysis of Free-Trade Agreements”, American Economic Review, vol.87, 506-519. Lipsey, R.G. (1957), “The Theory of Customs Union: Trade Diversion and Welfare”, Economica, vol.24, 40-46. Lipsey, R.G. and K. Lancaster (1956), “The General Theory of the Second Best”, Review of Economic Studies, vol.24, 11-32. Meade, James E. (1955), The Theory of Customs Unions, Amsterdam: North Holland. Mundell, Robert A. (1964), “Tariff Preferences and the Terms of Trade”, Manchester School of Economic and Social Studies, vol.32, 1-13. Panagariya, Arvind (1998), “Do Transport Costs Justify Regional Preferential Trading Arrangements? No”, Weltwirtschaftliches Archiv, vol. 134, No.2, 280-300. Schiff, Maurice and L. Alan Winters (1997), “Regional Integration as Diplomacy”, CEPR Discussion Paper No.1690, London: Centre for Economic Policy Research. Soloaga, Isidro and L. Alan Winters (1999), “Regionalism in the Nineties: What Effect on Trade?”, World Bank Policy Research Working Paper No.2156, Washington, D.C.: The World Bank. Viner, Jacob (1950), The Customs Union Issues, New York: Carnegie Endowment for International Peace. Winters, L. Alan (1999), “Regionalism versus Multilateralism”, in R. Baldwin, D. Cole, A Sapir and A. Venables (eds.), Regional Integration, Cambridge: Cambridge University Press. Further Readings Anderson, Kym and Richard Blackhurst (eds.) (1993), Regional Integration and the Global Trading System, New York: St. Martin’s Press. Baldwin, R., D. Cole, A Sapir and A. Venables (eds.) (1999), Regional Integration, Cambridge: Cambridge University Press. Bhagwati, Jagdish and Arvind Panagariya (eds.) (1996), The Economics of Free Trade Areas, Washington, D.C.: AEI Press. Melo, Jaime de and Arvind Panagariya (eds.) (1993), New Dimensions in Regional Integration, Cambridge: Cambridge University Press.