International trading blocks Essay Example | Topics and Well Written Essays - 1750 words

International trading blocks - Essay Example TRIAD refers to three regional free-trade blocs which include NAFTA (USA, Mexico and Canada), EU (27 nations primarily located in Europe) and ASEAN (10 Asian countries). These are also grouped around some common currencies (the euro, the yen and the dollar) According to Fan Zhai (2006) by 2005 in Asia, there were 18 bilateral trade agreements and at least 30 new preferential trade agreements. The graph below is a glimpse of different regional trade agreements in Asia. Recent trends Trade diplomacy is now a part of the relationship that a country shares with another. After the establishment of WTO, 20 PTAs are formed on average on yearly basis. However one can notice the decline in regional cooperation, as cross-regional agreements are increasing in number. According to Heydon Ken (2010) over half of the world’s trade is through preferential trade agreements. Countries that get involved in these trade agreements have preference for speed and responsiveness. Bilateral agreements are preferred over multilateral agreements due to ease of enforcement and require less negotiation. Zhai (2006) reports that the new PTAs in Asia agree on more that tariff and non-tariff policies, rather they include provisions on nvestment liberalization, services, assistance in trade and technical and economic collaboration. The graph below shows the drastic rate at which the number of PTAs are increasing. Benefits of PTAs The foremost reason for creating a PTA is to gain concessions in trade with member countries. Being in a PTA implies that the member countries will get preference over other non-member countries. This removal of barriers of trade has a number of inherent benefits. These can be in several forms, such as: Economies of scale In countries that are located nearby each other, having preference can also benefit through lower transportation costs. Japan-Singapore Economic Partnership Agreement (JESPA) is an agreement in which both the nations have promised coordination in technology, regulatory, e-commerce, media and broadcasting, and human resources. This will benefit the multinational companies in both the countries because they can take benefit of economies of scale at regional level. Tax benefits Countries in PTA agree to trade with member countries at low tariffs, but do not abolish them; this reduces the cost of trade. The loss of tax revenue from import duties can be made up by more trade and more taxes from increased activity in the country. More trade Integration of international markets through reduction in tariffs and other barriers have led to reduction in the cost of trade. Thus countries can now concentrate on their production facilities only and produce those goods in larger quantities in which they have absolute or comparative advantage. More trade is expected to raise the standard of living of people in countries. Hub and Spoke structure The hub and spoke structure works in a way that several smaller vehicles (spoke), remain indi vidually managed but pool their assets to contribute to a central investment vehicle (hub). So the well established businesses become the hub and can give a few countries preferential treatment to a few