Trade blocs: Economics and politics

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30 December 2015

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Trading BlocsThe key term in this essay is “Trading bloc” and my interest in this term has been as a result of the major economic changes that have taken place across the world. I have been able to note that there have been great developments in international trading and business (Haftel, 2004). Economic integration is considered as the new form of reality in carrying out international business (Macho-Stadler, & Xue, 2007). Business institutions as well as governments have formulated various institutions, agreements and treaties which help in dealing with trade differences, allow and boost the movement of goods, services and trade across boundaries of countries involved (Chase, 2005). Furthermore, my interest is as a result of the business relationships that I have noted between my country and that of the other nations.

A “Trading bloc” can be defined as countries that have come together to form a set that is closely involved in business and international trade with each other. The countries that form the trading blocs are often related to each other through a mutual agreement known as “free trade agreement or even other form of association which promotes trade within those countries and among the countries involved (Macho-Stadler, & Xue, 2007). The trading blocs often have rules and regulations which have been set to govern how the member countries relate with each other on business and international trade matters while separate rules and regulations set for non-members that want to trade with the member countries (Egger, 2004). The purpose of the trading blocs’ formation is to help eliminate trade barriers as well as help improve coordination and cooperation among member countries in terms of international trade. The different types include Free Trade Areas, Common Market, Customs Union, Economic Union and Political Union (Krishna, 2005).

Article Summary

        The article “From the Outside Looking In: The Effect of Trading Blocs on Trade Disputes in the GATT/WTO”, written by Haftel, Y. Z. (2004) is a journal that discusses the effect of trading blocs on resolution of trade disputes between member countries. There have been major expansion and increase in the number of trading blocs in international trade, which have become part of the economies across the world (Haftel, 2004). Trading blocs have negative effects on third parties whereby there is multilateral trade taking place between countries and non-member countries. Non-member countries are often affected negatively as a result of the trading blocs as compared to the way the member countries are affected. The non-member states often tend to take political action against the trading blocs, which in turn results in to negative effects and fails to assist in the resolution of trade disputes (Haftel, 2004).

From this article, the author notes that WTO (World Trade Organization) has become one of the major organizations that help in enhancing international or multilateral trade between countries across the world. The WTO has a system through which disputes can be settled between countries that are in disagreement on trade issues (Haftel, 2004). Furthermore, the author notes that there has been a lot of concentration by scholars on the effects that trading blocs have on the members and on the other hand they have paid very little, if any, attention to the effects that those trading blocs have on third parties or the non-member states. Trading blocs affect the prices of products from non-member states whereby the member states enjoy better prices for their produce as compared to the non-members, despite producing similar products (Haftel, 2004).

The third parties often suffer since the members of the trading blocs change trade the products of the member countries, which in some cases are often cheap (Haftel, 2004). This in turn affects their production since the market share that their products command is overtaken by the trading blocs’ members. Formation of trading blocs has been part of international trade and nearly every country across the world has engaged in trading blocs (Haftel, 2004). However, despite the fact that trading blocs attract a lot of attention, scholars as well as policymakers have failed to fully define and appreciate the fact that these trading blocs have negative impacts on third parties and other multilateral institutions. Non-Member states often feel short-changed hence resulting in a lot of disputes brought by the non-member states (Haftel, 2004).


        The primary reason that brought about the formation of trading blocs by countries across the world was to help improve on international trade between members by eliminating trade barriers (Macho-Stadler, & Xue, 2007). The members of a trading bloc enjoy several benefits which include free movement of goods and services between member states, reduction of trade tariffs on their products, and improvement of economic standards of the member countries. Furthermore, trading blocs also help in the improvement of cooperation and collaboration between member states hence political and economic stability in the member states (Krishna, 2005). Furthermore, trading blocs helps improve on competition, increase in productivity as well as affordability in price of products. In addition, it has also been seen that trading blocs helps in creation of employment in the member countries as a result of the increase in trade within the region hence better living standards for the citizens of the member countries.

However, as noted by Haftel, (2004), trading bloc benefits the members while on the other hand, causes a lot of negative economic impacts on the non-member states. The formation of trading blocs often endangers firms that are less efficient in the non-member states since they lack the market for their products (Haftel, 2004). There is also the danger of over-exploitation of the countries that are less efficient by countries that are efficient, hence causing an increase the wealth-gap whereby the advanced countries continue to become richer while countries that are less developed become poorer. Therefore, it is important to strike a balance on how member states and the non-member countries can continue to trade (Egger, 2004). Despite trading blocs being important in international trade, disputes will continue to arise from the non-member countries since there is no uniformity in trade regulations.


Chase, K. A. (2005). Trading blocs: States, firms, and regions in the world economy. Ann Arbor: University of Michigan Press.

Egger, P. (2004). Estimating Regional Trading Bloc Effects with Panel Data. Review Of World Economics, 140(1), 151-166.

Haftel, Y. Z. (2004). From the Outside Looking In: The Effect of Trading Blocs on Trade Disputes in the GATT/WTO. International Studies Quarterly, 48(1), 121-142. doi:10.1111/j.0020-8833.2004.00294.x

Krishna, P. (2005). Trade blocs: Economics and politics. Cambridge: Cambridge University Press.

Macho-Stadler, I., & Xue, L. (2007). Winners and Losers from the Gradual Formation of Trading Blocs. Economica, 74(296), 664-681. doi:10.1111/j.1468-0335.2007.00589.x

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