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International business 
Assignment on 
Trade blocs 
Made by 
Banu priya 
Bhavana raghavendran 
Santha kumara 
Sunitha priya
Trade blocs operation and structure 
Definition of trade blocs 
A set of countries which engage in international trade together, and are usually related through 
a free trade agreement or other association. 
The Role and Importance of Trading Blocs are as follows: 
Trading blocs have played a positive role in the development of international trade. This can be 
explained with the help of following points: 
1. Economic integration: 
Trading blocs have resulted in economic integration. It represents various forms of economic 
integration in a region like SAARC, OPEC, ASEAN, EU etc. Trading blocs unifies different 
independent economies and bring the nations closer. Trading blocs helps in enhancing degree of 
regional co-operation and interrelationship. It brings the nation closer by unifying independent 
economies and facilitates economic cooperation among the members of the group. 
2. Free transfer of resources: 
Trading blocs helps in elimination of tariff, and non-tariff barriers and facilitates free transfer of 
resources across the border of member countries. This help in optimum utilization of available 
resources. This is because no country in the world is self-sufficient and they need to depend upon 
one another for the fulfillment of their requirement. 
3. Increase in Trade: 
Free transfer of resources helps in increasing the productivity of member nations. They eliminate 
trade barriers and encourage free trade. This increase import and export activities of member 
nations, which results into increase in trade revenues. Trading blocs are sound and efficient to 
create sustainable economic growth. Trading blocs are created to encourage trading partners to 
buy and sell goods already made in their home countries. It also encourages economies of scale. 
4. Employment opportunities: 
Large-scale production and distribution leads to an increase in employment opportunities directly 
and indirectly. These results into increase in income level of the people, which enhance the 
standard of living of the economy. Trading blocs tend to increase in income and employment 
level of the member countries. Capital is required to generate more and more employment 
opportunities. Trading blocs lead to free transfer of resources viz natural, human and capital 
resources, which are optimally utilized for creating employment opportunities. 
5. Benefit to the consumers:
Formation of trading blocs enables transfer of technologies across borders resulting into 
improvement in productivity and quality of goods and services ultimately benefiting the 
consumers to a greater extent. 
Removal of trade barriers and free transfer of resources have resulted into mass production and 
distribution. This facilitates provision of quality product in competitive prices to the consumers. 
6. Cooperative spirit: 
Trading blocs leads to economic, political and cultural integration of member -countries. This 
develops a spirit of cooperation and coordination among member nations. This helps in 
maintaining good relations among the member nations. 
7. Competition: 
Trading blocs has resulted into increase in competition between companies of entire region. It 
also facilitates to face competition effectively. Trading blocs’ gives competitive advantage not 
only to large establishes firms but also to the newly emerging firm. 
8. Development of region: 
Trading bloc plays an important role in contributing the development, industrialization and 
economic growth of whole region. Trading blocs are a sound and efficient way to create 
sustainable economic growth. Liberal policies and removal of trade barriers has resulted in the 
growth of industries in those regions. This in turn increased the production and distribution 
activities leading to economic growth of those regions. 
Types of trading bloc: 
Preferential Trade Area: 
Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to 
reduce or eliminate tariff barriers on selected goods imported from other members of the area. 
This is often the first small step towards the creation of a trading bloc. 
Free Trade Area 
Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or 
eliminate barriers to trade on all goods coming from other members. 
Customs Union
A customs union involves the removal of tariff barriers between members, plus the acceptance of 
a common (unified) external tariff against non-members. This means that members may 
negotiate as a single bloc with 3rd parties, such as with other trading blocs, or with the WTO. 
Common Market 
A ‘common market’ is the first significant step towards full economic integration, and occurs 
when member countries trade freely in all economic resources – not just tangible goods. This 
means that all barriers to trade in goods, services, capital, and labour are removed. In addition, as 
well as removing tariffs, non-tariff barriers are also reduced and eliminated. For a common 
market to be successful there must also be a significant level of harmonization of micro-economic 
policies, and common rules regarding monopoly power and other anti-competitive 
practices. There may also be common policies affecting key industries, such as the Common 
Agricultural Policy (CAP) and Common Fisheries Policy (CFP) of the European Single Market 
(ESM). 
Advantages for members of trading blocs 
Free trade within the bloc 
Knowing that they have free access to each other's markets, members are encouraged to 
specialize. This means that, at the regional level, there is a wider application of the principle of 
comparative advantage. 
Market access and trade creation 
Easier access to each other’s markets means that trade between members is likely to 
increase. Trade creation exists when free trade enables high cost domestic producers to be 
replaced by lower cost, and more efficient imports. Because low cost imports lead to lower 
priced imports, there is a 'consumption effect', with increased demand resulting from lower 
prices. 
Economies of scale 
Producers can benefit from the application of scale economies, which will lead to lower costs 
and lower prices for consumers. 
Jobs 
Jobs may be created as a consequence of increased trade between member economies.
Protection 
Firms inside the bloc are protected from cheaper imports from outside, such as the protection of 
the EU shoe industry from cheap imports from China and Vietnam. 
Disadvantages of trading blocs 
Loss of benefits 
The benefits of free trade between countries in different blocs are lost. 
Distortion of trade 
Trading blocs are likely to distort world trade, and reduce the beneficial effects of specialization 
and the exploitation of comparative advantage. 
Inefficiencies and trade diversion 
Inefficient producers within the bloc can be protected from more efficient ones outside the bloc. 
For example, inefficient European farmers may be protected from low-cost imports from 
developing countries. Trade diversion arises when trade is diverted away from efficient 
producers who are based outside the trading area. 
Retaliation 
The development of one regional trading bloc is likely to stimulate the development of others. 
This can lead to trade disputes, such as those between the EU and NAFTA, including the recent 
Boeing (US)/Airbus (EU) dispute. The EU and US have a long history of trade disputes, 
including the dispute over US steel tariffs, which were declared illegal by the WTO in 2005. In 
addition, there is the so-called beef war switch the US applying £60m tariffs on EU beef in 
response to the EU’s ban on US beef treated with hormones; and complaints to the WTO of 
each other’s generous agricultural support. 
During the 1970s many former UK colonies formed their own trading blocs in reaction to the UK 
joining the European common market. 
The European Union (EU) 
The EU is the world’s largest trading bloc, and second largest economy, after the USA. The EU 
was originally called the Economic Community (Common Market, or The Six) after its
formation following the Treaty of Rome in 1957. The original six members were Germany, 
France, Italy, Belgium, Netherlands, and Luxembourg. 
The initial aim was to create a single market for goods, services, capital, and labour by 
eliminating barriers to trade and promoting free trade between members. In terms of dealing with 
non-members, common tariff barriers were erected against cheap imports, such as those from 
Japan, whose goods prices were artificially low because of the undervalued yen. 
By 2014, following continuous enlargement, the EU had 28 members. Latvia is the latest country 
to join, in European Union 
European Union members 
AUSTRIA BELGIUM 
BULGARIA CROATIA 
CYPRUS CZECH REPUBLIC 
DENMARK ESTONIA 
FINLAND FRANCE 
GERMANY GREECE 
HUNGARY IRELAND 
ITALY LATVIA 
LITHUANIA LUXEMBOURG
PORTUGAL 
ROMANIA 
SLOVAKIA 
SLOVENIA 
SPAIN 
SWEDEN 
UNITED KINGDOM 
MALTA 
European Union 
The European Union (EU) is a politico-economic union of 28member states that are primarily 
located in Europe the EU operates through a system of supranational independent institutions 
and intergovernmental negotiated decisions by the member states. Institutions of the EU include 
the European Commission, the Council of the European Union, the European Council, the Court 
of Justice of the European Union, the European Central Bank, the Court of Auditors, and the 
European Parliament. The European Parliament is elected every five years by EU citizens. 
The EU traces its origins from the European Coal and Steel Community (ECSC) and the 
European Economic Community (EEC), formed by the Inner Six countries in 1951 and 1958, 
respectively. In the intervening years, the community and its successors have grown in size by 
the accession of new member states and in power by the addition of policy areas to its remit. The 
Maastricht Treaty established the European Union under its current name in 1993. The latest 
major amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into 
force in 2009. 
The EU has developed a single market through a standardized system of laws that apply in all 
member states. Within the Schengen Area, passport controls have been abolished policies aim to 
ensure the free movement of people, goods, services, and capital enact legislation in justice and 
home affairs, and maintain common policies on trade agriculture, fisheries, and regional 
development. 
The monetary union was established in 1999 and came into full force in 2002. It is currently 
composed of 18 member states that use the euro as their legal tender. Through the Common 
Foreign and Security Policy, the EU has developed a role in external relations and defence. The 
union maintains permanent diplomatic missions throughout the world and represents itself at the 
United Nations, the WTO, the G8, and the G-20. 
With a combined population of over 500 million inhabitants or 7.3% of the world population, the 
EU in 2012 generated a nominal gross domestic product (GDP) of 16.584 trillion US dollars, 
constituting approximately 23% of global nominal GDP and 20% when measured in terms of 
purchasing power parity, which is the largest economy by nominal GDP and the second largest 
economy by GDP (PPP) in the world. In2012, the EU was awarded the Nobel Peace Prize 
NAFTA
 The United States has linked with Canada and Mexico to form a free trade zone, the North 
American Free Trade Agreement (NAFTA). 
 It launched in1988 by us and Canada after which Mexico joined in1994 
 The NAFTA agreement covers environmental and labour issues as well as trade and 
investment, but US unions and environmental groups argue that the safeguards are too weak. 
 In terms of combined purchasing power parity GDP of its members, as of 2007 the trade bloc 
is the largest in the world and second largest by nominal GDP comparison 
 Main members of NAFTA: Canada; Mexico; United States 
SAARC 
The South Asian Association for Regional Cooperation (SAARC) is an economic 
and geopolitical organization of eight countries that are primarily located in South Asia. The 
SAARC Secretariat is based in Kathmandu, Nepal. 
The idea of regional political and economic cooperation in South Asia was first raised in 1980 
and the first summit was held in Dhaka on 8 December 1985, when the organization was 
established by the governments of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri 
Lanka.[12][13] Since then the organization has expanded by accepting one new full 
member, Afghanistan,[14]and several observer members. 
The SAARC policies aim to promote welfare economics, collective self-reliance among the 
countries of South Asia, and to accelerate socio-cultural development in the region. The SAARC 
has developed external relations by establishing permanent diplomatic relations with the EU, 
the UN (as an observer), and other multilateral entities. The official meetings of the leaders of 
each nation are held annually whilst the foreign ministers meet twice annually. The 18th SAARC 
Summit is scheduled to be held in Kathmandu in November 2014 
BRICS 
BRICS is the acronym for an association of five major emerging national economies: Brazil, 
Russia, India, China, and South Africa.[2] The grouping was originally known as "BRIC" 
before the inclusion of South Africa in 2010. The BRICS members are all developing countries, 
but they are distinguished by their large, fast-growing economies and significant influence on 
regional and global affairs; all five are G-20 members 
As of 2014, the five BRICS countries represent almost 3 billion people which are 40% of the 
world population, with a combined nominal GDP of US$16.039 trillion (20% world GDP) and 
an estimated US$4 trillion in combined foreign reserves. As of 2014, the BRICS nations 
represented 18 percent of the world economy.
Brazil held the chair of the BRICS group in 2014, having hosted the group's sixth summit in 
2014. 
The BRICS have received both praise and criticism from numerous quarters. The term, 
"BRICS", was coined by economist Jim in his publication, Building Better Global Economic 
BRICs. 
Bank 
The key development of the BRICS summit was the launch the long-awaited New Development 
Bank and a Currency Reserve Pool. With combined resources of $200 billion, they are aimed at 
fostering greater financial and development cooperation among the five emerging markets. 
With a stated capital of $100 billion, the bank - widely seen as an alternative to the World Bank 
and the International Monetary Fund – "will become one of the largest multilateral financial 
development institutions in the world," Putin said. The group has also launched a Currency 
Reserve Pool, which Putin said "creates the prerequisites for effectively protecting our countries 
from financial market crises." 
"I am confident that closer economic and financial cooperation between BRICS countries will 
allow us to implement truly large-scale joint programs with the aims of securely developing our 
nations," Putin said. BRICS is "acquiring a new quality," he said. 
The NDB is to be headquartered in Shanghai, China. Its first president will come from India, its 
inaugural chairman of the board of directors will be from Brazil and the inaugural chairman of 
the board of governors will be Russian. 
BRICS states account for more than 40% of the world's population and 21% of global GDP, 
Putin said. In the past ten years, the GDP of countries with developed economies grew by 60%, 
while that of the BRICS states increased four-fold

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Group 5 trade blocs

  • 1. International business Assignment on Trade blocs Made by Banu priya Bhavana raghavendran Santha kumara Sunitha priya
  • 2. Trade blocs operation and structure Definition of trade blocs A set of countries which engage in international trade together, and are usually related through a free trade agreement or other association. The Role and Importance of Trading Blocs are as follows: Trading blocs have played a positive role in the development of international trade. This can be explained with the help of following points: 1. Economic integration: Trading blocs have resulted in economic integration. It represents various forms of economic integration in a region like SAARC, OPEC, ASEAN, EU etc. Trading blocs unifies different independent economies and bring the nations closer. Trading blocs helps in enhancing degree of regional co-operation and interrelationship. It brings the nation closer by unifying independent economies and facilitates economic cooperation among the members of the group. 2. Free transfer of resources: Trading blocs helps in elimination of tariff, and non-tariff barriers and facilitates free transfer of resources across the border of member countries. This help in optimum utilization of available resources. This is because no country in the world is self-sufficient and they need to depend upon one another for the fulfillment of their requirement. 3. Increase in Trade: Free transfer of resources helps in increasing the productivity of member nations. They eliminate trade barriers and encourage free trade. This increase import and export activities of member nations, which results into increase in trade revenues. Trading blocs are sound and efficient to create sustainable economic growth. Trading blocs are created to encourage trading partners to buy and sell goods already made in their home countries. It also encourages economies of scale. 4. Employment opportunities: Large-scale production and distribution leads to an increase in employment opportunities directly and indirectly. These results into increase in income level of the people, which enhance the standard of living of the economy. Trading blocs tend to increase in income and employment level of the member countries. Capital is required to generate more and more employment opportunities. Trading blocs lead to free transfer of resources viz natural, human and capital resources, which are optimally utilized for creating employment opportunities. 5. Benefit to the consumers:
  • 3. Formation of trading blocs enables transfer of technologies across borders resulting into improvement in productivity and quality of goods and services ultimately benefiting the consumers to a greater extent. Removal of trade barriers and free transfer of resources have resulted into mass production and distribution. This facilitates provision of quality product in competitive prices to the consumers. 6. Cooperative spirit: Trading blocs leads to economic, political and cultural integration of member -countries. This develops a spirit of cooperation and coordination among member nations. This helps in maintaining good relations among the member nations. 7. Competition: Trading blocs has resulted into increase in competition between companies of entire region. It also facilitates to face competition effectively. Trading blocs’ gives competitive advantage not only to large establishes firms but also to the newly emerging firm. 8. Development of region: Trading bloc plays an important role in contributing the development, industrialization and economic growth of whole region. Trading blocs are a sound and efficient way to create sustainable economic growth. Liberal policies and removal of trade barriers has resulted in the growth of industries in those regions. This in turn increased the production and distribution activities leading to economic growth of those regions. Types of trading bloc: Preferential Trade Area: Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc. Free Trade Area Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or eliminate barriers to trade on all goods coming from other members. Customs Union
  • 4. A customs union involves the removal of tariff barriers between members, plus the acceptance of a common (unified) external tariff against non-members. This means that members may negotiate as a single bloc with 3rd parties, such as with other trading blocs, or with the WTO. Common Market A ‘common market’ is the first significant step towards full economic integration, and occurs when member countries trade freely in all economic resources – not just tangible goods. This means that all barriers to trade in goods, services, capital, and labour are removed. In addition, as well as removing tariffs, non-tariff barriers are also reduced and eliminated. For a common market to be successful there must also be a significant level of harmonization of micro-economic policies, and common rules regarding monopoly power and other anti-competitive practices. There may also be common policies affecting key industries, such as the Common Agricultural Policy (CAP) and Common Fisheries Policy (CFP) of the European Single Market (ESM). Advantages for members of trading blocs Free trade within the bloc Knowing that they have free access to each other's markets, members are encouraged to specialize. This means that, at the regional level, there is a wider application of the principle of comparative advantage. Market access and trade creation Easier access to each other’s markets means that trade between members is likely to increase. Trade creation exists when free trade enables high cost domestic producers to be replaced by lower cost, and more efficient imports. Because low cost imports lead to lower priced imports, there is a 'consumption effect', with increased demand resulting from lower prices. Economies of scale Producers can benefit from the application of scale economies, which will lead to lower costs and lower prices for consumers. Jobs Jobs may be created as a consequence of increased trade between member economies.
  • 5. Protection Firms inside the bloc are protected from cheaper imports from outside, such as the protection of the EU shoe industry from cheap imports from China and Vietnam. Disadvantages of trading blocs Loss of benefits The benefits of free trade between countries in different blocs are lost. Distortion of trade Trading blocs are likely to distort world trade, and reduce the beneficial effects of specialization and the exploitation of comparative advantage. Inefficiencies and trade diversion Inefficient producers within the bloc can be protected from more efficient ones outside the bloc. For example, inefficient European farmers may be protected from low-cost imports from developing countries. Trade diversion arises when trade is diverted away from efficient producers who are based outside the trading area. Retaliation The development of one regional trading bloc is likely to stimulate the development of others. This can lead to trade disputes, such as those between the EU and NAFTA, including the recent Boeing (US)/Airbus (EU) dispute. The EU and US have a long history of trade disputes, including the dispute over US steel tariffs, which were declared illegal by the WTO in 2005. In addition, there is the so-called beef war switch the US applying £60m tariffs on EU beef in response to the EU’s ban on US beef treated with hormones; and complaints to the WTO of each other’s generous agricultural support. During the 1970s many former UK colonies formed their own trading blocs in reaction to the UK joining the European common market. The European Union (EU) The EU is the world’s largest trading bloc, and second largest economy, after the USA. The EU was originally called the Economic Community (Common Market, or The Six) after its
  • 6. formation following the Treaty of Rome in 1957. The original six members were Germany, France, Italy, Belgium, Netherlands, and Luxembourg. The initial aim was to create a single market for goods, services, capital, and labour by eliminating barriers to trade and promoting free trade between members. In terms of dealing with non-members, common tariff barriers were erected against cheap imports, such as those from Japan, whose goods prices were artificially low because of the undervalued yen. By 2014, following continuous enlargement, the EU had 28 members. Latvia is the latest country to join, in European Union European Union members AUSTRIA BELGIUM BULGARIA CROATIA CYPRUS CZECH REPUBLIC DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG
  • 7. PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN UNITED KINGDOM MALTA European Union The European Union (EU) is a politico-economic union of 28member states that are primarily located in Europe the EU operates through a system of supranational independent institutions and intergovernmental negotiated decisions by the member states. Institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, the European Central Bank, the Court of Auditors, and the European Parliament. The European Parliament is elected every five years by EU citizens. The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed by the Inner Six countries in 1951 and 1958, respectively. In the intervening years, the community and its successors have grown in size by the accession of new member states and in power by the addition of policy areas to its remit. The Maastricht Treaty established the European Union under its current name in 1993. The latest major amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009. The EU has developed a single market through a standardized system of laws that apply in all member states. Within the Schengen Area, passport controls have been abolished policies aim to ensure the free movement of people, goods, services, and capital enact legislation in justice and home affairs, and maintain common policies on trade agriculture, fisheries, and regional development. The monetary union was established in 1999 and came into full force in 2002. It is currently composed of 18 member states that use the euro as their legal tender. Through the Common Foreign and Security Policy, the EU has developed a role in external relations and defence. The union maintains permanent diplomatic missions throughout the world and represents itself at the United Nations, the WTO, the G8, and the G-20. With a combined population of over 500 million inhabitants or 7.3% of the world population, the EU in 2012 generated a nominal gross domestic product (GDP) of 16.584 trillion US dollars, constituting approximately 23% of global nominal GDP and 20% when measured in terms of purchasing power parity, which is the largest economy by nominal GDP and the second largest economy by GDP (PPP) in the world. In2012, the EU was awarded the Nobel Peace Prize NAFTA
  • 8.  The United States has linked with Canada and Mexico to form a free trade zone, the North American Free Trade Agreement (NAFTA).  It launched in1988 by us and Canada after which Mexico joined in1994  The NAFTA agreement covers environmental and labour issues as well as trade and investment, but US unions and environmental groups argue that the safeguards are too weak.  In terms of combined purchasing power parity GDP of its members, as of 2007 the trade bloc is the largest in the world and second largest by nominal GDP comparison  Main members of NAFTA: Canada; Mexico; United States SAARC The South Asian Association for Regional Cooperation (SAARC) is an economic and geopolitical organization of eight countries that are primarily located in South Asia. The SAARC Secretariat is based in Kathmandu, Nepal. The idea of regional political and economic cooperation in South Asia was first raised in 1980 and the first summit was held in Dhaka on 8 December 1985, when the organization was established by the governments of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.[12][13] Since then the organization has expanded by accepting one new full member, Afghanistan,[14]and several observer members. The SAARC policies aim to promote welfare economics, collective self-reliance among the countries of South Asia, and to accelerate socio-cultural development in the region. The SAARC has developed external relations by establishing permanent diplomatic relations with the EU, the UN (as an observer), and other multilateral entities. The official meetings of the leaders of each nation are held annually whilst the foreign ministers meet twice annually. The 18th SAARC Summit is scheduled to be held in Kathmandu in November 2014 BRICS BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China, and South Africa.[2] The grouping was originally known as "BRIC" before the inclusion of South Africa in 2010. The BRICS members are all developing countries, but they are distinguished by their large, fast-growing economies and significant influence on regional and global affairs; all five are G-20 members As of 2014, the five BRICS countries represent almost 3 billion people which are 40% of the world population, with a combined nominal GDP of US$16.039 trillion (20% world GDP) and an estimated US$4 trillion in combined foreign reserves. As of 2014, the BRICS nations represented 18 percent of the world economy.
  • 9. Brazil held the chair of the BRICS group in 2014, having hosted the group's sixth summit in 2014. The BRICS have received both praise and criticism from numerous quarters. The term, "BRICS", was coined by economist Jim in his publication, Building Better Global Economic BRICs. Bank The key development of the BRICS summit was the launch the long-awaited New Development Bank and a Currency Reserve Pool. With combined resources of $200 billion, they are aimed at fostering greater financial and development cooperation among the five emerging markets. With a stated capital of $100 billion, the bank - widely seen as an alternative to the World Bank and the International Monetary Fund – "will become one of the largest multilateral financial development institutions in the world," Putin said. The group has also launched a Currency Reserve Pool, which Putin said "creates the prerequisites for effectively protecting our countries from financial market crises." "I am confident that closer economic and financial cooperation between BRICS countries will allow us to implement truly large-scale joint programs with the aims of securely developing our nations," Putin said. BRICS is "acquiring a new quality," he said. The NDB is to be headquartered in Shanghai, China. Its first president will come from India, its inaugural chairman of the board of directors will be from Brazil and the inaugural chairman of the board of governors will be Russian. BRICS states account for more than 40% of the world's population and 21% of global GDP, Putin said. In the past ten years, the GDP of countries with developed economies grew by 60%, while that of the BRICS states increased four-fold