Trade Blocs in International Marketing

Group 12Hardik Sampat - 45Nikhil Jamnare - 19Amit Maisheri - 29

European Union

Agenda

• What is a trade bloc? Why they are formed?

• Trade blocs around the world

• Types of trading bloc / Levels of economic integration

• Trade Bloc -EU

• Benefits and Challenges of EU

• Intergovernmental agreement, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states

• A regional trading bloc is a group of countries within a geographical region that protect themselves from imports from non-members. Trading blocs are a form of economic integration, and increasingly shape the pattern of world trade

• Primary objective is regional integration which enables them to take advantage of geographical proximity as well as the enlarged market formed after such mergers

• Starts with reduction of barriers to trade between the member states, but the deeper objective of many such blocs is to integrate their economies

What is a trade bloc? Why they are formed?

Trade blocs around the world

• Preferential Trade Area• Free Trade Area• Customs union• Single market• Economic union• Economic and monetary union• Complete economic integration

Types of trading bloc / Levels of economic integration

• Founded in 1951 by six neighboring states Germany, France, Italy, Belgium, Netherlands, and Luxembourg

• Initially named as European Coal and Steel Community (ECSC)

• Evolved into European Economic Community, then European Community and, in 1992, was finally transformed into European Union

• Regional block with largest number of members states (28)

• World’s largest trading bloc, and second largest economy, after USA

European Union (EU)

• 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

• European Union (EU) is a politico-economic union

• EU policies aim to ensure 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

European Union (EU)

Benefits of EU

• European harmony- Europe has managed to heal the divisions which were so painfully exposed in the World War –II. EU was awarded the Nobel Peace Prize in 2012 for helping to promote peace and international co-operation.

• Free trade within the bloc- Free trade and removal of non-tariff barriers have helped reduce costs and prices for consumers.

• Market access and trade creation- Easier access to each other’s markets & high cost domestic producers to be replaced by lower cost, and more efficient imports.

• Flexible Economy- Free movement of labour and capital have helped create a more flexible economy & the immigration of workers helped to fill labour market shortages.

• Protection- Firms inside the bloc are protected from cheaper imports from outside, such as cheap imports from China and Vietnam.

Problems/Challenges of EU

• Loss of benefits- The benefits of free trade between countries in different blocs is 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.

• Unemployment- due to prolong recession.• Prolonged Fall in GDP- Economic stagnancy • More bureaucracy less democracy- EU has created extra

layers of bureaucracy whilst taking away decision making process further from local communities.

Thank You