13Sep

The 10 major regional trading blocs in the world economy

September 13, 2020 Listing 0

The list below comprises ten major regional trading blocs in the world economy. These blocs consist of countries within a specific geographical boundary, which chose to cooperate with each other toward the goal of securing regional economic growth. This list of the world’s most prominent regional trading blocs contains information about the blocs’ significance in the global economy, foundations, objectives, member states, and key trade partners.

When creating this list, we intended to display here those ten regional trading blocs with trade arrangements that have the biggest impact in world trade and the economic development of the region. The list does not reflect any political opinion of the authors.

 

  1. The European Economic Area (EEA)

The European Union (EU) is the world’s largest trading bloc and the second largest economy in the world. It is also the European Free Trade Association (EFTA)’s largest trading partner, as 70% of imported merchandise in EFTA countries comes from the EU. In order to further strengthen trade and economic relations with its neighboring non-EU countries, the EEA was entered into force on 1 January 1994 through the European Economic Area Agreement. This agreement creates the Internal Market, which integrates the 27 EU member states and three of the EFTA states–namely Iceland, Liechtenstein, and Norway–into one single market. This bloc is therefore primarily concerned with upholding the four fundamental pillars of the single market which are, the free movement of goods, people, services, and capital. By cooperating and signing the EEA agreement, these three EFTA states are able to be part of the EU’s single market and benefit from free trade with the EU without having to apply for EU membership. They can also attain equal rights and obligations within the Internal Market without having to adopt certain EU policies–such as common agriculture and fisheries policies; customs union; common trade policy; common foreign and security policy; justice and home affairs; harmonized taxation; and the economic and monetary union. However, they are required to abide by certain horizonal and flanking policies. Together, the EEA has 30 member states. The 27 EU member states are: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden. Switzerland, an EFTA member state, is not a member of EEA, but has bilateral agreements with the EU.

 

  1. The North American Free Trade Agreement (NAFTA)

The NAFTA is the world’s largest free trade area and has a combined population and GNP greater than 15 EU member states. It was initially a bilateral trade agreement between Canada and the United States, but Mexico joined on 1 January 1994; thereby creating a trilateral trade bloc in North America. This agreement aims to eliminate trade and investment barriers among its member countries, promote a free trade environment, increase investment opportunities, and protect intellectual property rights. This agreement further provides coverage to services, excluding aviation transport, maritime, and basic telecommunication. The NAFTA also has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC); these supplemental agreements aim to handle labor and environmental issues in the member states. Among the three members, the US is the largest trading country. As of 1 January 2008, all tariffs and quotas were removed on US exports to Mexico and Canada; thereby making Canada and Mexico as the first and third largest merchandise trading partners for the US from 2008 to 2014.

 

  1. The Mercado Comun del Cono Sur or Southern Common Market (MERCOSUR)

The MERCOSUR is one of the world’s fastest growing trading blocs with its four founding members generating 70% of South America’s GNP. It is also one of the world’s leading economic blocs and the fifth largest economy. It was established on 26 March 1991 with the Treaty of Assunción by Brazil, Argentina, Paraguay, and Uruguay. This bloc aims to accelerate sustained economic development based on social justice, environmental protection, and poverty reduction. Aside from its four founding countries, Venezuela and Bolivia have also joined this tariff union in 2006 and 2015, respectively. However, Venezuela’s membership was suspended since 2016 due to its failure to comply with MERCOSUR’s democratic principles. This bloc also has Chile, Colombia, Ecuador, Guyana, Peru, and Surinam as associate members who can only do preferential trade; they are not allowed to have tariff benefits. As of 2019, MERCOSUR’s top external trading partners are China, the EU, the US, Chile, and Mexico.

 

  1. The ASEAN Economic Community (AEC)

The AEC plays a central role in Asian economic integration, as it was the third largest economy in Asia and the world’s sixth largest economy in 2019. It was formally established as part of the Association of Southeast Asian Nations (ASEAN) Community on 31 December 2015, in order to further integrate ASEAN economies into a single market and production base. For this aim, this economic community strives to achieve its Blueprint 2025, which envisions to make the region highly competitive and fully integrated into the global economy with equitable economic development. The AEC’s member states include Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. Singapore is the most outstanding member state due to its strong economy. In regards to trade, 25% of ASEAN trade is intra-regional; thereby constituting the largest share of this bloc’s total trade. Its external key partners in 2019 were China, the US, EU, Japan, and South Korea.

 

  1. The Common Market of Eastern and Southern Africa (COMESA)

The COMESA is the largest regional economic organization in Africa. It was formed on 8 December 1994 as a replacement of the former Preferential Trade Area (PTA) which was established in 1981. In this trading bloc, the member states cooperate in developing regional or global trade, as well as their natural and human resources. This economic cooperation among the COMESA member states is aimed to promote peace and security for the people in the region. In light of this objective, the COMESA promotes regional integration; consequently establishing a free trade area and launching a customs union in 2009. This economic union consists of 21 countries in southern and eastern Africa–namely Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Swaziland, Tunisia, Uganda, Zambia, and Zimbabwe. Due to this number of member states and its population of over 540 million people, the COMESA forms a major market for internal and external trade with a global trade in goods worth USD 235 billion. Egypt is the largest trading country in this bloc.

 

  1. The Asia Pacific Economic Cooperation (APEC)

As of 2018, the APEC accounts for approximately 60% of the world’s GDP and 48% of world trade.  It is one of the most important regional economic forums in the Asia-Pacific Rim, as it has spurred growth, increased its member states’ real GDP, and lifted millions of residents out of poverty in less than three decades. The APEC was established in November 1989 to leverage the growing interdependence of the Asia-Pacific. This forum aims to secure growth and accelerate regional economic integration for the greater prosperity of the region’s population. It has 21 member states, which are Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Taipei, Thailand, the US, and Vietnam. China and the US are the biggest trading countries within this bloc, although its Secretariat is permanently based in Singapore.

 

  1. The South Asian Association for Regional Cooperation (SAARC)

As the South Asian region is the most densely populated region and one of the most fertile areas in the world, the SAARC plays an important role in helping South Asian countries work together in reaching their potential for prosperity. The SAARC, an organization of South Asian countries, was founded on 8 December 1985 by Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. Afghanistan later joined in 2007. The member countries cooperate in the areas of human resource development and tourism; agriculture and rural development; environment, natural disasters and biotechnology; economics, trade, and finance; social affairs; information and poverty alleviation; energy, transport, science and technology; and education, security and culture and others. In short, this regional organization is dedicated to developing economically, technologically, socially, and culturally with an emphasis on collective self-reliance. With this objective, the SAARC has established the South Asia Preferential Trading Agreement (SAPTA) in 1995 and the South Asia Free Trade Agreement (SAFTA) in 2016. The SAPTA aims to promote trade among the member countries, while the latter aims to encourage free trade of goods–excluding all services such as information technology–between the SAARC countries. Among the member states of this bloc, India is the largest trader.

 

  1. The Indian Ocean Rim Association (IORA)

Due to its rich natural resources, central location at the crossroads of global oil trade, and fast-growing economies, the Indian Ocean region plays a significant role in the global economy and international trade. The IORA was established on 6 March 1997 as a forum to enhance cooperation within the Indian Ocean region. Currently, its priority areas are: maritime safety and security; trade and investment facilitation; fisheries management; disaster risk management; academic, science and technology cooperation; and tourism and cultural exchange. IORA also has two focus areas, which are Blue Economy and women’s economic empowerment. Blue Economy refers to the bloc’s initiative to promote sustainable growth and employment opportunities within the region’s maritime economic activities, as the bloc regards marine and coastal environments as a key resource for economic development. With the aim to promote sustainable growth and development within the region, the IORA expanded to comprise 22 member countries and ten dialogue partners. These member states are Australia, Bangladesh, Comoros, India, Indonesia, Iran, Kenya, Madagascar, Malaysia, Maldives, Mauritius, Mozambique, Oman, Seychelles, Singapore, Somalia, South Africa, Sri Lanka, Tanzania, Thailand, United Arab Emirates, and Yemen. Its dialogue partners, on the other hand, are China, Egypt, France, Germany, Italy, Japan, Republic of Korea, Turkey, the UK, and the US.

 

  1. The Latin American Integration Association (ALADI or LAIA)

The ALADI or LAIA is the largest trade and economic integration bloc in Latin America; it consists of 20 million square kilometers and a population of over 570 million people. It was entered into force on 18 March 1981 after the signing of the Montevideo Treaty on 12 August 1980 by Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela. The headquarters is thus located in Montevideo, Uruguay. ALADI was basically created to replace the Latin American Free Trade Association (LAFTA), which garnered limited success due to its overambition and inflexibility. The LAFTA was formed in 1960 to establish a common market for its member states by 1973. Due to its limited success in attaining its goal, the ALADI was created to continue its policies but with greater allowance for differences between members and without the fixed schedule in regards to the introduction of measures. This bloc aims to promote the creation of a preferential trading area in the region toward a Latin American Common Market through regional tariff preference granted to products from member countries, regional scope free trade agreements, and partial scope trade agreements. This agreement between the ALADI member states, therefore, gives preferential treatment to less developed member states in an attempt to make them more competitive in the global economy. Aside from the aforementioned signatories of the Montevideo Treaty, Cuba and Panama also joined this association in 1999 and 2011, respectively. As for ALADI’s trade partners, it has bilateral trade agreements mainly with North America and Asia.

 

  1. The Southern African Development Community (SADC)

The SADC is one of the eight recognized building blocks for African continental integration. Compared with other African economic organizations, intra-SADC trade has a relatively higher share in the region’s total trade. The SADC was established on 17 August 1992 after the signing of the Declaration and Treaty of the South African Development Community. This bloc was preceded by the development coordinating conference, Southern African Development Co-ordination Conference (SADCC), which was formed in 1980 in Lusaka, Zambia. After transforming into a development community, the SADC started to focus particularly on the integration of economic development. It now aims to achieve socio-economic development and promote sustainable and equitable economic growth. In light of this objective, the SADC established a free trade area in 2008 which has led to more than 80% of intra-regional trade being free of import tariffs. The 16 states that benefit from SADC membership include: Angola, Botswana, Comoros, Democratic Republic of the Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe. Between 2000 and 2011, total SADC trade almost quadrupled with the APEC and the EU being SADC’s key export partners.

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