strategy

Strengthening trading blocs

Synonyms:

Operating regional or hemispheric trade zones

Implementation:

In recent years, the world's most important developments toward establishing regional trade blocs have been the creation of the [North American Free Trade Agreement] or [NAFTA] (Canada, Mexico, USA), and the 15 member European Union [EU]. Other regional trade blocks or organizations include among others: ANDEAN Pact (Bolivia, Colombia, Ecuador, Peru, and Venezuela); Southern Common Market or MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay); Central American Common Market (CACM); the Group of Three (Colombia, Mexico, Venezuela); ASEAN (Indonesia, Malaysia, Philippines, Singapore, and Thailand).

The EEC/EU and the USA have asked business to come up with proposals which may eventually lead to a free trade area between the USA and the EEC/EU. Canada has proposed a "WTO plus" among countries which want to further broaden their trade liberalization. The heads of state of 34 American countries met in December 1994 at the Summit of the Americas where they agreed to create a hemispheric free trade zone by the year 2005; negotiations were to begin in January 1995. The area is called either AFTA (American Free Trade Area), or FTAA (Free Trade Area of the Americas). Talks between the Andean Pact and MERCOSUR began in January 1995 to prepare for entry into the AFTA/FTAA. Chile has commenced negotiations for entry into NAFTA and hopes to finalize them in 1995. In December the MERCOSUR trade group of Argentina, Brazil, Paraguay, and Uruguay agreed to become a customs union as of January 1st 1995. Bolivia and Chile concluded successful first round negotiations of free trade membership with MERCOSUR in January 1995. On the 22 December 1994, the EEC/EU and MERCOSUR signed a joint declaration to develop an inter-regional association. The ANDEAN Pact countries of Bolivia, Colombia, Ecuador, Peru, and Venezuela agreed in November 1994 to establish unified tarifs from February 1995 for the remaining 8% of sensitive products. In November 1994 in Indonesia, 18 APEC members declared that a free trade zone will be established in the Pacific Rim in 3 target stages; 2010 for industrialized countries, 2015 for industrializing countries, and 2020 for developing countries. The USA is pushing APEC to start free trade measures sooner. In 1994, ASEAN countries agreed to increase steps towards free trade, and to bring internal trade down to 0-5% by the year 2003 in place of 2008. Vietnam is planning to become a member of ASEAN this year. The CARICOM Single Market and Economy, known unofficially as the Caribbean Common Market, was proposed in 1989, within the framework of the Caribbean Community (CARICOM). In 1994, the Association of Caribbean States (ACS) was established, and is designed to include all the countries of the Caribbean basin, with the Caribbean Community (CARICOM) still existing as the 'inner core' of relationship within the region. There are 25 member nations. Proposed activities include a Trade, Development and External Economic Relations Programme, and the formulation of strategies for convergence of trade policies within ACS countries and identifying initiatives to promote increased trade between members and with the rest of the world.

A recently abolished trade block of note was COMECON, which was dominated by the former Soviet Union, and achieved a partly involuntary economic integration among the captive European nations who were its members and who were forced to trade with the Soviets on unfavourable terms.

Claim:

1. The impact of regional trading blocs on world trade and the world economy is as yet not very clear. Whether they will be trade-diverting or trade-creating, however, is a major cause for concern, particularly at a time when major efforts have been made and are still under way in many developing countries to reform their policies so as to make their economies more oriented towards the outside; and when in the centrally planned economies efforts are being made towards fuller integration into the world trading system. That the weaker developing countries might be marginalized remains a frightful possibility; an equally frightful possibility is the eruption of trade wars between the blocs. The current round of trade negotiations must play an important role in safeguarding and strengthening the open multilateral trading system so that existing and future economic integration will further - not undermine - the expansion of world trade based on comparative advantage and the needs of developing countries.

Counter Claim:

1. Regional trade agreements among underprivileged countries, such as ASEAN (Association of Southeast Asian Nations), SADC (Southern African Development Cooperation), SAFTA ([South Asian Free Trade Agreement]) and MERCOSUR (Southern Common Market), have also emerged. All these regional agreements consist of the transfer of decision-making power from the national level to regional institutions which are even more distant from people and less democratic than the nation-state.

2. The APEC, along with other regional and plurilateral free trade blocs, are instruments of the triad of economic powers; the US, EU and Japan, either in securing their spheres of influence or in negotiating terms of their competition in certain geographical or economic areas. It is in this context that the APEC was able to push the EU to accept US demands in the WTO in the fear that the APEC will evolve into the more effective US instrument. As the EU tries to counterbalance the APEC with ASEM, the APEC remains an important instrument of the US both in pushing for globalization in the Pacific rim and in pushing for its agenda globally, including the WTO.

3. Regional trading arrangements for developing countries are as likely to produce trade diversion as trade creation.

Broader:

Strengthening trade
Developing external trades
Enabling common markets

Narrower:

Creating free trade zones
Adopting regional trade policies

Constrains:

Trading between different economic systems
Reducing discriminatory formation of regional trade groupings

Facilitated by:

Forming alliances
Establishing economic zones
Fostering regional international integration

Organizations: