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Trading Blocs

Introduction

Modern world economy is characterized by the processes of increasing of the interdependence and cooperation between the nations, known as globalization. At the same time, there is also increased occurrence of the regionalization. The first examples of globalization were known at the ancient times. In particular, people have always exchanged goods and services. Similarly, currency flows and factors of production have been transferred within national borders of the countries. However, during the second half of the 20th century, globalization has gained new dimensions. For instance, the pace of globalization has accelerated. The world economy has also experienced the increasing number of new actors, such as international organizations, transnational corporations and private actors. At the same time, the Impact of the national governments on the economic processes has decreased. While the process of globalization represents great number of benefits, it imposes harm to the world’s economy as well. For instance, scholars consider globalization to be responsible for the economic recession in 2008 (Cline, 2010). Thus, the process of regionalization and the forming of trading blocs is considered to be an effective response to the increasing of the interdependence of the world economy.

Trading blocs as an alternative for globalization

Along with the process of globalization, world economy experiences the development of regional unions, known as trading blocks. Trading blocs are defined as the union of countries that encourage the increasing of the trade flows among them. According to the provisions of trading bloc agreements, nations agree to establish control over trade operation or remove barriers in order to manage the flows of goods and capital. Trading bloc can be represented by the customs union or economic union (Chase, 2005).

Global market integration cannot represent the single model for the world’s economies. It is determined by the fact that countries have different economic development and different levels of integration. In addition, industries can also vary within the countries’ economies. At the same time, regional integration is often resulted by the natural causes, including geographic proximity and similar policy mechanisms. Thus, in order to address the problems of globalization, enterprises and firms consciously adopt the strategy of regionalization that can have a form of trading blocs or common regional policies.

Regionalization has two components. The first component is represented by the economic regionalism. It is determined by the efforts of the trading blocs’ members to enhance the welfare. The second component is a regional “mind-set”. The component is created by the sharing of common values and beliefs concerning the economic development (Hart & Aseem, 2002). At the same time, the majority of scholars consider the second component to be the most important, as it connects the corporate strategies of the several countries. For instance, the Latin American nations rapidly exploited new technologies and cost-saving techniques. As a result, they have become capable to compete with the global actors.

Trading bloc agreements provide a number of advantages for its members. For instance, the members of the trading blocs can experience the increasing of foreign direct investments. In particular, trading blocs create larger markets that contribute the lower costs for manufacturing products. The second benefit is represented by economies of scale. The phenomenon is known as the lowering of the average production cost through the mechanism of mass production. Trading blocs also contribute the increasing of the competition that results in greater economic efficiency of the enterprises. The cost of the import can also be lowered within the trading bloc. It is achieved with the help of the eliminating of the tariffs. Finally, regionalization increases market efficiency. With the changes in demand and facilitating of the product manufacturing, contributes the market efficiency (Yeung, Perdikis, & Kerr, 1999). However, one of the most important benefits is the influence of the trading bloc and its agreements on the world economy.

Thus, trading bloc represents a bargaining association that possesses power and authority on the international stage.

However, trading blocs vary greatly. For instance, regionalism in Latin America coincides the political and structural structure in the countries. Indeed, the transition from import-substitution economies to an export-led growth model took place simultaneously with the changing of the political regimes. At the same time, the members of the European trading blocs, such as the European Union, did not experience the same challenges. The exception is the economies of the former Soviet Union.

Traditionally, globalization is defined as the growing integration of the economies of the countries, political views, cultural achievements, and technology advancements (Sparke, 2012). Despite the fact, that globalization received its development in the middle of 1980s, the roots of globalization processes dates back to the 16th century and the age of discoveries. However, there is a view among the scholars that the first examples of globalization appeared in the third century BCE (Gunder, 1998). According to the International Monetary Fund, globalization consists of four main aspects. They include trading operations between nations, capital and investment flows, labor movement, and integration of knowledge and technology (International Monetary Fund, 2000).

Globalization remains an inevitable process of the historical development. However, the controversial issues, created by the increased globalization, can be addressed with the emergence of trading blocks. Trade operations are being increasingly conducted between the regional blocs, as well as between trans-national corporations. As a result, the associations and agreements on regional trade will represent a response to competitive pressure posed by globalization processes. Indeed, customs unions and common markets are capable of creating the conditions for the elimination of globalization shocks (Ogbor, 2009).

The fact that the trading blocs continue to emerge proves that the regionalism remains a strategic response to the pace of globalization. Regional state integration is more effective than the multilateral efforts to facilitate trade and investment flows. It represents a viable way to eliminate the negative consequences of import-substitution economic model that protects domestic economic interests from the competitive pressure imposed by globalization.

 

Regionalism can become an effective alternative to the processes of globalization. The success of the trading blocs has been proved by the experience of Latin American countries. In 1980s, the countries of the region underwent economic changes. In particular, there was the decline of the import substitution efficacy. After that, the economies of the countries were integrated into the world economy. In order to become competitive in the world economy, Latin American enterprises applied regional integration concept. The countries joined the regional economies of scale (Hart & Aseem, 2002). Thus, the countries of Latin America repeated the experience of the European integration.

Another example of the successful response to globalization is represented by the establishment of the European Union. The precursors of the European Economic Community, the European Iron and Steel Community, was created in 1952. Since then, the regional integration in Europe has developed. For instance, the adoption of Single European Act introduced the issues of trade impediments and facilitated access to the national markets of the member-states. It also addressed the governance rules within the trading bloc. Later, the Maastricht Treaty established monetary and political union. As a result, a single currency was adopted within the organization. This proved the ability of the member-states of the European Union to response the challenges of globalization in the monetary fund. In particular, the euro does not have the connection with the world economy. The euro can also prevent the members of the trading block from exchange rate fluctuation (Hart & Aseem, 2002). The euro can also address the issues of “currency substitution”, also known as dollarization, and “currency internationalization” (Cohen, 1996). Thus, smaller European economies have joined the monetary fund in order to compete with dollar. Thus, European countries have achieved a success in developing a regional structure of the integration, similar to the economic schemes proposed by globalization.

Nations can resist the process of globalization by establishing trading blocs. For instance, trading blocs have demonstrated the possibility of the increasing of trading activities through the means of the movement of sources, goods, services, capital and labor.

The European Union and the North Atlantic Free Trade Association have demonstrated an example of the increasing of trading activities. The harmful effects of the globalization can be eliminated with the help of the conducting of the trade negotiations that take place between the members of the trading bloc. In particular, the European Union succeeded in the establishment of the Common Agricultural Policy that does not fall under the general pace of globalization. Indeed, the policy contradicts the principles of globalization, but protects the agricultural market of the European Union. The member-states have introduced the preferential treatment of imports. This eliminates the possibility of cheap subsidies that can harm the economy of the EU. Unless the European nations established a trading bloc, it would be impossible to introduce the Common Agricultural Policy. Thus, this proves that trading bloc represents an alternative to globalization.

The North Atlantic Free Trade Association has also demonstrated an effective response to globalization. In particular, the globalization process has resulted in conflict between the US employees and enterprises. At the same time, the situation was improved with the reorganization of the goods’ manufacturing and enhancing of foreign production within the NAFTA (Laursen, 2010).

However, while the establishment of trading blocs represents an alternative to globalization processes, it imposes several threats that have to be addressed. For instance, there are the protectionist policies imposed by the Western countries in order to stop the flows of goods from Asian markets. As a result, there is a threat to the free trade processes. Thus, the establishment of trading blocs, such as ASEAN, will not have any influence on the global economy unless the goods and services enter the western markets.

At the same time, regionalization relates with globalization processes. In particular, trading bloc represents a union that repeats the tendencies of global integration (Ohmae, 1995). Moreover, trading blocs contribute the development of free trade that remains the one way for the economic growth. For instance, the establishment of the European Union has facilitated the process of globalization. Incorporation between the member-states is supposed to be an example of globalization. As a result, the amount of trade operation between the countries of the EU has significantly increased during the last decades. This factor motivates other countries of the Eastern Europe to join the trading bloc. Regionalization processes took place in Asia as well. In particular, the establishment of the ASEAN – China Free Trade Area (ACFTA) is considered to be step on the way to globalization. It is determined by the fact that China, one of the most influential economies in the region, joined a free trade area (Huang & Patman, 2013). As a result, members of the trading bloc are obliged to abolish tariffs over 7 000 items. The ACFTA is considered to become an effective way of the relieving of the Asian counties form the financial crisis. Thus, regional cooperation and establishment of trading blocs can help to eliminate negative consequences of globalization. However, the agreement between the members of the Association of Southeast Asian Nations and China is not going to become a total-integration, similar to the European Union.

Conclusion

The economic concept of the trading blocs foresees the development of a particular kind of unification of independent economies or sovereign nations. At the same time, globalization refers to the increasing of the incorporation between nations’ economies and enhancing of inter-reliance. The main purpose of globalization is to eliminate trade and industry obstacles between sovereign states. The removal of obstacles facilitates the economic growth among the nations. It also creates favorable conditions for free movement of goods, services, capital, and labor. However, globalization has created a number of controversial issues. In particular, the process of globalization has resulted in increasing of the economic hegemony among the world’s superpowers. Thus, the development of free trade cooperation and establishment of trading blocs can be an effective response to globalization. For instance, regional economic integration and participation in trading blocs provides better economic opportunities for the middle-income countries. Trading blocs provide a possibility to take advantage of geographic proximity to expanded markets. In addition, economies can increase significantly the scales of production and move up the value chain. This can be achieved with the appliance of import substitution industrialization. At the same time, economies do not have to open their markets to the immediate competition with the biggest world’s exporters. The example of the economic concept of regionalization is represented by the economies of the member-states of the European Union, North Atlantic Free Trade Association, and cooperation between China and Southeast Asian Nations.

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