Regional Trade Agreements. Are they Building Blocks or Stumbling Blocks?

Essay by benficaUniversity, Bachelor's February 2006

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Regional economic integration means agreements between countries in a geographic region to reduce / remove barriers to trade. Rationale is consistent with comparative advantages.

Building Blocks:

1. Provides impetus for trade talks. Regionalism can even help to promote liberalization in small or developing countries that may hold doubts about freer trade and the benefits it holds for them.

2. Free trade in regions is better than none at all. At least those countries in R.T.A.'s are moving towards free trade between them. So at least free trade is an achievable goal and this is better than nothing.

3. Trade Creation. The removal of barriers within a bloc allows production to shift to more efficient producers. This allows consumers access to more goods at a lower price - General free trade argument. Certainly evidence that trade within EU is far greater than it would have been without the removal of barriers

4. Easier to negotiate globally with few players. Multilateral talks are slow and take time. This is getting more difficult as new members join. Getting agreement from 143 members is clearly a difficult task. The growth of trade blocs provides impetus for multilateral talks as it raises the fear of protectionism and trade wars and therefore makes success in multilateral talks or the more important.

5. The background of both regionalism and multilateralism operating in coexistence has generally increased trade liberalization which has thus reduced trade diversion. Therefore regionalism is not to the detriment of multilateral liberalization but in its favour, supplementing the process. The scope of new R.T.A.'s goes beyond just trade and such agreements are increasingly being used to lock-in reforms thus encouraging integration and aiding the liberalization process.

6. Developing countries start in autarchy, and as the world grows and liberalizes they start to think about...