International Trading Blocs
Preferential Trade Agreements (PTAs)
Preferential Trade Agreements or trading blocs are a form of economic integration in which countries agree to create a free trade area or some form of common market to facilitate trade. This agreement can be in different forms and depths, for instance there is Free Trade Area is a trading bloc that has no tariff, then Custom Union is where there is common level of trade barriers, in Economic unions such as European Union, the member countries have open national policies and a common currency (Euro).
There are several forms of regional trade areas, varying according to the extent to which countries extend cooperation and provide concessions to their member countries. For instance Free Trade Agreements eliminate all tariffs for countries in the agreement; PTA provides preferential treatment to its trading allies.
TRIAD refers to three regional free-trade blocs which include NAFTA (USA, Mexico and Canada), EU (27 nations primarily located in Europe) and ASEAN (10 Asian countries). These are also grouped around some common currencies (the euro, the yen and the dollar)
According to Fan Zhai (2006) by 2005 in Asia, there were 18 bilateral trade agreements and at least 30 new preferential trade agreements. The graph below is a glimpse of different regional trade agreements in Asia.
Trade diplomacy is now a part of the relationship that a country shares with another. After the establishment of WTO, 20 PTAs are formed on average on yearly basis. However one can notice the decline in regional cooperation, as cross-regional agreements are increasing in number. According to Heydon Ken (2010) over half of the world’s trade is through preferential trade agreements. Countries that get involved in these trade agreements have preference for speed and responsiveness.
Bilateral agreements are preferred over multilateral agreements due to ease of enforcement and require less negotiation.
Zhai (2006) reports that the new PTAs in Asia agree on more that tariff and non-tariff policies, rather they include provisions on nvestment liberalization, services, assistance in trade and technical and economic collaboration. The graph below shows the drastic rate at which the number of PTAs are increasing.
Benefits of PTAs
The foremost reason for creating a PTA is to gain concessions in trade with member countries. Being in a PTA implies that the member countries will get preference over other non-member countries. This removal of barriers of trade has a number of inherent benefits. These can be in several forms, such as:
• Economies of scale
In countries that are located nearby each other, having preference can also benefit through lower transportation costs. Japan-Singapore Economic Partnership Agreement (JESPA) is an agreement in which both the nations have promised coordination in technology, regulatory, e-commerce, media and broadcasting, and human resources. This will benefit...