The role and function of regional trade
What are regional trading blocs?
Regional trade blocs are intergovernmental associations
that manage and promote trade activities for specific regions of
Trade bloc activities have political as well as economic
implications. For example, the European Union, the world’s
largest trading block, has “harbored political ambitions extending
far beyond the free trading arrangements sought by other multistage
regional economic organizations“ (Gibb and Michalak 1994:
75). Indeed, the ideological foundations that gave birth to the
EU were based on ensuring development and maintaining international
stability, i.e., the containment of communist expansion in post
World War II Europe (Hunt 1989). The Maastricht Treaty which gave
birth to the EU in 1992 included considerations for joint policies
in regard to military defense and citizenship.
The decisions reached by development policy makers
on whether regionalism or globalized trade should be pursued may
influence a country’s earnings from trade.
Regionalism differs from globalization in the size
and area of markets. From the perspective of developing countries
skeptical of free trade, regional trade blocs offer some form of
protection against an aggressive global market.
Four major trade blocs
Some well known trading blocs include the EU (European
Union; see Map 1), NAFTA (North American Free Trade Agreement; see
Map 2), MERCOSUR (Mercado Comun del Cono Sur, also known as Southern
Common Markets (SCCM); see Map 3), and ASEAN (Association of Southeast
Asian Nations; see Map 4). The following maps show trade data for
2001 (UNCTAD 2002). The series of pie charts display the export
composition of trade from each country in the bloc.
General debates on trade blocs
The debates surrounding the feasibility of regionalism
contain sharp disagreements. Gibb and Michalak note, “the
multilateral trading system is in decline and regionalism is on
the ascendancy” (Gibb and Michalak 1994: 1). Although scholars
such as O’Brien (1992) and Hopkinson (1992) argue that globalization
may usher in the “end of geography”, regionalism has
emerged as an alternative form of trade that attempts to counter
more aggressive policies of free trade, especially as espoused by
Some analysts such as Preeg (1989) argue that trade
blocs are desirable because they complement globalized trade. Others
view regionalism as a threat to free trade because trade blocs advocate
and install protectionist policies that shield bloc members from
the effects of free trade (Schott 1989). However, Gibb and Michalak
remind us that “theoretical analysis based on liberal economic
principles is…inconclusive in evaluating the impact of trading
blocs on living standards, redistribution of income and welfare”
(1994: 32). Furthermore, they note, “no overall consensus
is likely to be reached in the foreseeable future…[and] preferential
trading arrangements may or may not bring welfare gains for participating
counties” (1994: 33).
Regardless of the position taken on regionalism, the
fact is very few countries develop and reduce inequality via regional
trade alone. This is primarily due to the size of the market: globalization
taps into a world market whereas trade blocs emphasize into regional
markets, which are larger than the domestic market of a given country,
but still smaller than the world market.
Trade blocs have a range of reasons to “protect”
the trade interests of their region:
(1) To establish some form of regional control regarding trade that
fulfills the interests of nations within that region;
(2) To establish tariffs that protect intra-regional trade from
(3) To promote regional security and political concerns or to develop
trade in such as way as to enhance the security in the region;
(4) To promote South-to-South trade, e.g., between Africa and Asia,
and between Latin American countries;
(5) To promote economic and technical cooperation among developing
They also use several measures to restrain global
(1) import quotas (limiting the amount of imports into the country
so that domestic consumers buy products made by their countries
in their region);
(2) customs delays (establishing bureaucratic formalities that slow
down the ability for the imported product from abroad to enter the
(3) subsidies (government financial assistances toward sectors of
the home economy so that they have an influx of capital);
(4) boycotts and technical barriers;
(5) bribes and voluntary restraints.
Although the notion that the world is fragmenting
into trade blocks is popular, what must be remembered is that there
is not a clear definition of what a trade bloc is (Bliss 1994).
Similarly, development and reduction in inequality has not been
reduced by regionalism. Myanmar (formerly Burma) is a classic example:
although a member of ASEAN since 1967, members of ASEAN--especially
Thailand--have continued to conduct business with the oppressive
military junta due to Myanmar’s abundant natural resources
of teak, gems, and oil. Bliss appropriately cautions us on giving
too much credit to trade blocs for development, noting that the
efficacy of trade blocs “depends upon the definition of a
trade bloc” which must also include an assessment of current
political conditions of the region (1994:1).
Bliss, C. J. (1994). Economic Theory and Policy
for Trading Blocks. Manchester: Manchester University Press
Brohman, J. (1995a). Universalism, eurocentrism,
and ideological bias in development studies: from modernization
to neoliberalism. Third World Quarterly 16(1), pp. 121-140.
Gibb, R. and W. Michalak (eds). (1994). Continental
trading blocs: the growth of regionalism in the world economy.
New York: John Wiley & Sons.
Hopkinson, N. (ed). (1992). Completing the Gatt
Uraguay Round: renewed multilateralism or a world of regional trading
blocs? Wilton Park Paper No. 61, HMSO, London.
Hunt, D. (1989). Economic theories of development:
an analysis of competing paradigms. New York: Harvester Wheatsheaf.
O’Brien, R. (1992). Global financial integration:
the end of geography. London: Pinter.
Preeg, E. M. (1989). The GATT trading system in
transition: an analytic survey of recent literature. The Washington
Quarterly 12, 201-213.
Schott, J.J., ed. (1989). Free trade areas and
U.S. trade policy, Institute for International Economics, Washington,
D.C., 1 - 59.
United Nations Conference on Trade and Development
(UNCTAD). (1999). Handbook of Trade and Development Statistics
1996/1997. Geneva: United Nations.