trade bloc in economic jskadndndlaks.pptx

Trade Bloc

1. Trade Blocs Created By : Ms Endang

2. Trade blocs Regional groupings of countries that have preferential trade agreements between member countries 1. Free trade Areas . A trade bloc where member governments agree to remove trade restictions among themselves E.g NAFTA 2. Customs Unions A trade bloc where there is free trade between member countries and a common external tariff on imports from non members . E.g SACU Southern Africa customs Union The countries share tariff trading revenues and coordinate some trading policies

3. 3. Economics Unions A trade bloc where there is free trade between member countries, a common external tarrifs and some common economic policies, which may include a common currency e.g Mercosur is a south american trading blocs which has argentina, brazil, paraguay, uruguay and venezuela as a full members . In effect the different economies become one economy

4. Trade Creation and Trade Diversion Trade Creation Where high cost domestic production is replaced by more efficiently produced imports from within the customs union Trade creation takes place when domestic consumers in member countries import more goods from other members as import prices fall due to a removal of tariff and quotas; production will shift to lower cost producer.

5. In the diagram beside , when Thailand and Malaysia form a trading bloc, Thailand will remove tariffs from Malaysian imports. Trade will go to more efficient Malaysian producers. The blue shaded regions shows that world efficiency wil l be regained as now more efficient producer is producing the good and there are lower prices which lead to regaining of consumer surplus. Increased income resulting from specialization & benefits of scale can further this by creating increased demand for imports from non-member countries.  

6. Trade Difersion Where trade with a low cost country outside a customs union is influenced by higher cost product supplied from within . When a customs union is created and tariffs differentials between members and non-member result in trade flows being diverted toward higher cost producers.

7. In the upper image, once the UK joined the EU, it had to place tariffs on the Palm Oil that it used to import from Malaysia at lower prices. The trade now is diverted to EU nations inspite of the fact that they are inefficient in producing palm oil.  The blue shaded regions show a loss in efficiency due production by inefficienty Europeon producers. Morever , the prices for consumers have increased from from Pm to Peu  which results in loss of consumer surplus. In other words, lower cost imports from outside the union have been replaced by high cost imports from within the union.

8. Thankyou 