Global Economic Blocks – Geography – UGC NET – Notes

Introduction

• Trading blocs are usually groups of countries in specific regions that manage and promote trade activities. Trading blocs lead to trade liberalisation (the freeing of trade from protectionist measures) and trade creation between members, since they are treated favourably in comparison to non-members.
• The World Trade Organisation (WTO) permits the existence of trading blocs, provided that they result in lower protection against outside countries than existed before the creation of the trading bloc.
• A regional trading bloc (RTB) is a co-operative union or group of countries within a specific geographical boundary. RTB protects its member nations within that region from imports from the non-members. Trading blocs are a special type of economic integration. There are four types of trading blocs –
  • Preferential Trade Area: Preferential Trade Areas (PTAs), the first step towards making a full-fledged RTB, exist when countries of a particular geographical region agree to decrease or eliminate tariffs on selected goods and services imported from other members of the area.
  • Free Trade Area: Free Trade Areas (FTAs) are like PTAs but in FTAs, the participating countries agree to remove or reduce barriers to trade on all goods coming from the participating members.
  • Customs Union: A customs union has no tariff barriers between members, plus they agree to a common (unified) external tariff against non-members. Effectively, the members are allowed to negotiate as a single bloc with third parties, including other trading blocs, or with the WTO.
  • Common Market: A ‘common market is an exclusive economic integration. The member countries trade freely all types of economic resources – not just tangible goods. All barriers to trade in goods, services, capital, and labor are removed in common markets. In addition to tariffs, non-tariff barriers are also diminished or removed in common markets.

Significant Trading Blocs

• European Union (EU) – a customs union, a single market and now with a single currency
• European Free Trade Area (EFTA)
• North American Free Trade Agreement (NAFTA) between the USA, Canada and Mexico
• Mercosur: a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela
• Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA)
• Common Market of Eastern and Southern Africa (COMESA)
• South Asian Free Trade Area (SAFTA) created in 2006 with countries such as India and Pakistan
• Pacific Alliance: 2013-a regional trade agreement between Chile, Colombia, Mexico and Peru

Trading Blocs and Trade Creation

• Trade creation is the movement from a higher cost source of output to a lower cost source of supply as a result of joining a trade agreement.
• Trade creation occurs when a country enters a free trade area / agreement or becomes involved in a customs union in which there is free trade between members but also a common external tariff.

Trading Blocs and Trade Diversion

• Trade diversion is a switch from a lower-cost foreign source/supplier outside of a customs union towards a higher-cost supplier located inside the customs union.
• Trade diversion is a feature of a country deciding to join a customs union i.e. an area where there is free trade within the customs union but also a common external tariff.
• When a country joins a customs union it might initially be trading freely with a low cost supplier in a 3rd party nation.
• Once inside a customs union, the country must now adopt a common external tariff which will then increase the cost of importing from the 3rd party nation.
• These higher prices might affect consumers directly e.g. higher prices for food.
• Or they might affect consumers indirectly because producers now have to pay more for their imports from the 3rd party.

Major Trade Blocs

There are four major trade blocs in current times that have the reputation and will to make a significant impact on international business process.

ASEAN

• In 1967, the governments of Malaysia, Indonesia, the Philippines, Thailand, and Singapore founded the Association of Southeast Asian Nations (ASEAN) to promote economic growth, peace, security, social progress, and cultural development in the Southeast Asian region.
• The founding fathers of the countries of Indonesia, Malaysia, Thailand, Singapore, and the Philippines signed the Bangkok Declaration (also known as the ASEAN Declaration) on August 8, 1967, in Bangkok, Thailand.
• The members of ASEAN are

1. Thailand (founding member)
2. The Philippines (founding member)
3. Malaysia (founding member)
4. Singapore (founding member)
5. Indonesia (founding member)
6. Brunei (joined in 1984)
7. Vietnam (joined in 1995)
8. Lao PDR (joined in 1997)
9. Myanmar (joined in 1997)
10. Cambodia (joined in 1999)

• The headquarters of the organisation is in Jakarta, Indonesia.
• Dato Lim Jock Hoi is Secretary-General of ASEAN
• Three pillars make up the ASEAN Community:
• Political-Security Community of ASEAN
• Economic Community of ASEAN
• ASEAN Socio-Cultural Community (ASEAN Socio-Cultural Community)

ASEAN’s Timeline:

• 1967 – The founding fathers of ASEAN sign the ASEAN Declaration (Bangkok Declaration) to formalise the organisation.
  • Indonesia, Malaysia, the Philippines, Singapore, and Thailand are the founding fathers of ASEAN.
• 1990 – Following the conclusion of the Vietnam War in 1975 and the end of the Cold War in 1991, membership in the organisation increased.
  • Brunei (1984), Vietnam (1995), Laos and Myanmar (1997), and Cambodia were all included (1999).
• 1995 – Members agree to establish a nuclear-free zone in Southeast Asia.
• 1997 – The ASEAN Vision 2020 is adopted.
• 2003 – Bali Concord II, signed in 2003, calls for the formation of an ASEAN Community.
• 2007 – Cebu Declaration, aiming to hasten the formation of the ASEAN Community by 2015.
• 2008 – The ASEAN Charter enters into force, making it a legally enforceable pact.
• 2015 – The ASEAN Community was established.

ASEAN Purpose:

• To create the foundation for a prosperous and peaceful community of Southeast Asian nations by accelerating economic growth, social progress, and cultural development in the area via cooperative efforts in the spirit of equality and partnership.
• To promote regional peace and stability by upholding justice and the rule of law in regional interactions and adhering to the United Nations Charter’s ideals.
• To encourage active collaboration and mutual support in the economic, social, cultural, technological, scientific, and administrative spheres on subjects of common interest.
• To support one another in the educational, professional, technical, and administrative domains by providing training and research facilities.
• Southeast Asian studies should be promoted
• Maintaining close and beneficial cooperation with existing international and regional organisations with comparable goals and objectives, as well as exploring all options for even closer cooperation among themselves.

Significance of ASEAN for India:

Economic Significance:

• India’s ASEAN relations will be shaped by the three Cs: culture, connectivity, and commerce.
• Establishing a link between India’s north-eastern states and ASEAN.
• India is a member of the ASEAN-led Regional Comprehensive Economic Partnership (RCEP), which aims to build the world’s largest free trade area with more than a third of global GDP and trade.
• Bilateral trade between ASEAN and India has surpassed US$ 80 billion for the first time.
• In the East, Singapore has become India’s investment and commerce powerhouse.

Security Significance:

• ASEAN is a key component of the Indo-Pacific region’s security architecture.
• Maritime cooperation has received a lot of attention in terms of connection, safety, and security.
• India and ASEAN can work together to address terrorism financing, cyber security risks, and tax evasion, among other things.
• India requires ASEAN assistance in establishing a regional security architecture based on rules.

Geo-Strategic Significance:

• A partnership with ASEAN states could help India offset Beijing’s rising influence.
• Next to the EU, ASEAN is regarded as the most successful regional organisation.
• ASEAN and India are collaborating on the Kaladan MultiModal Transit Transport Project to improve water connectivity.
• Maritime cooperation between ASEAN and India is a critical priority area for the Indo-Pacific region’s growth and development.

The transition from Look East Policy to Act East Policy:

• The fall of the Soviet Union left India isolated on the international stage. The Gulf crisis, the rise in oil prices, and the failure of the Rupee-Rubal deal left India alone on the international stage. India needed new partners to survive.
• Payments crisis– Due to the Balance of Payments crisis and IMF loan terms, India opened its market to the globe by lowering tariffs. Hence a ready market for commodities.
• Look East Policy’s II phase three guiding principles were:
• Enhanced economic engagements
• Creating institutional links between India and ASEAN. In 2010, India signed a commodities FTA with ASEAN
• Security and Strategic Component
• Many ASEAN countries are concerned about China’s rise. China’s rise has been accompanied by an increase in its assertiveness in its own backyard, as witnessed in its frequent claims in the South and East China Seas.
• These countries see India as a prospective partner in maintaining regional power balance and peace. India sees ASEAN as a vital part of its vision of a stable, secure, and affluent Asia.
• Domestic dimension– North East to East.
• Trade and connection with Southeast Asian countries via the North East have been a priority. The India-Myanmar-Thailand Trilateral Highway is one example along with these:
• Kaladan Multimodal Transport
• Mekong Ganga Corridor
• The BCIMM Corridor.
• IMT Highway

Forums led by ASEAN:

• ASEAN Regional Forum (ARF): The twenty-seven-member multinational body, which was founded in 1993, was created to enhance cooperation on political and security concerns in order to contribute to regional confidence-building and preventive diplomacy.
• ASEAN Plus Three (ASEAN+3) The consultative group, which was established in 1997, brings together the 10 nations of ASEAN, as well as China, Japan, and South Korea.
• The East Asia Summit (EAS) is a prominent platform for strategic communication in the area.
• It is made up of 18 members, including the ten ASEAN countries, Australia, China, India, Japan, New Zealand, South Korea, the United States, and Russia.
• Terrorism and violent extremism, the South China Sea, the Korean Peninsula, the situation in Rakhine, cyber security, women’s economic empowerment, regional economic integration, and other topics were discussed at the 2018 meeting in Manila.
• They also get together for the ASEAN Defense Ministers Meeting (ADMM) Plus.

Challenges:

• Chinese aggression: China’s territorial claims in the oil- and the gas-rich South China Sea, as well as the construction of artificial islands, could pose a danger to regional freedom of navigation.
  • As a result of the South China Sea dispute, many ASEAN countries have aligned with China.
• Terrorism: The Islamic State is posing a growing threat in Southeast Asia.
• Refugees: The Rohingya refugee crisis has been substantially contained by ASEAN.
• Cross border crime: ASEAN was unable to contain cross-border organised crime such as drug trafficking between Myanmar, Thailand, and Laos, forming the Golden Triangle.
• Trade and Investment Inequity: Although commerce between the two regions has increased, it is biassed against India. The ASEAN Free Trade Agreement (FTA) has resulted in a flood of inexpensive imported products into India.
  • Aside from the trade imbalance, India’s indigenous producers are hurting. For example, cheaper ASEAN palm oil hurts local Kerala growers. India too lags behind in investment.
  • India’s share of net inflows into ASEAN was just 0.3% in 2015. Also, compared to the US, EU, and Japan, India’s FDI into ASEAN countries is only 22% of its overall outbound FDI.
• China’s rising power: Contrary to the concerns of India, China is aiming to expand its presence in the region through the One Belt One Road plan. For example, high-speed rail links have been built between Laos, Thailand, and southern China.
• Connectivity: India-ASEAN ties need better transport connectivity. But both sides fall short here. No railways, poor road infrastructure. The completion of infrastructure projects such as the India-Myanmar-Thailand trilateral expressway, the Kaladan Multimodal Transit and Transport Project, and the Moreh-Mandalay Bus Services has slowed economic cooperation.
• Moreover, North East India communication has been impeded. Because Myanmar shares a long border with NE states and can act as a bridge between India and Southeast Asian markets, stalled projects must be expedited.

ASEAN Community:

• The ASEAN Leaders agreed on a shared vision of ASEAN as a concert of Southeast Asian nations, outward-looking, living in peace, stability, and prosperity, bonded together in partnership in dynamic development, and in a community of caring societies in the ASEAN Vision 2020, which was adopted on the 30th Anniversary of ASEAN.
• The ASEAN Leaders decided to form an ASEAN Community at the 9th ASEAN Summit in 2003.
• The ASEAN Political-Security Community, ASEAN Economic Community, and ASEAN Socio-Cultural Community are the three pillars that make up the ASEAN Community. Each pillar has its own Blueprint, which, when combined with the IAI Strategic Framework and IAI Work Plan Phase II (2009-2015), comprise the Roadmap for an ASEAN Community 2009-2015.