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Trade is a method of exchange of goods and services, or both. Trade is also called commerce. A mechanism that allows trade is called a market.

Trade refers to the export and import of goods and services across international boundaries. Although trade exists throughout the history, it's economic, social, and political importance has been on the rise in recent centuries. The original form of trade was called barter, which directly involves the exchange of goods and services. But modern trade generally negotiates through a medium of exchange, such as money. International trade plays a very important role in persistence of globalization and is a major source of revenue for any nation. Without international trade, nations would be limited to the goods and services produced within their own borders.

Regulation of International Trade

Traditionally trade was regulated through bilateral treaties between two nations. However, after the Second World War, organisations GATT like and WTO came into existence with main objective to create a globally regulated trade structure.

Trading Blocs

Trading Blocs are the associations of countries formed by one or more tax, tariff and trade agreements. Such blocs have liberal rules for member countries while adopting a separate set of rules for non-members countries. For example, European Union (EU), Association of South East Asian Nations (ASEAN) and South Asian Association for Regional Cooperation (SAARC). Trading Blocks are also referred as Regional Blocks.

Types of Trading Blocs

Trading Blocs can be classified on the basis of the degree of integration among different economies;

  • Free Trade Areas
  • Customs Unions
  • Common Market
  • Political Unions
  • Economic Union

Free Trade Area: - This is the simplest form of economic integration which provides for internal free trade between member countries. Each member is allowed to determine its own commercial policy with respect to nonmembers. For example, Latin American Free Trade Association (LAFTA), North American Free Trade Area (NAFTA) between the USA, Canada and Mexico; Asia Pacific Economic Cooperation (APEC) and COMESA.
Customs Union:- A customs union is a more advanced form of economic integration which not only provides for internal free trade between the member countries but also adopts a uniform commercial policy against the non-members. The countries will be represented at trade negotiations with organisations such as the World Trade Organisation by supra-national organisations e.g. the European Union. For example, European Economic Community (EEC).
Common Market: - A common market allows free movement of labour and capital within the common market in addition to having free movement of goods between the member countries and having common commercial policy is respect to non-members.
Economic' Union: - This is a common market where the level of integration is more developed. The member states may adopt common economic policies e.g. the Common Agricultural Policy (CAP) of the European Union. They may have a fixed exchange rate regime such as the ERM of the EMU. Indeed, they may have integrated further and have a single common currency. This will involve common monetary policy. The ultimate act of integration is likely to be some form of political integration where the national sovereignty is replaced by some form of over-arching political authority. For example, the European Union (EU) has introduced a common currency Euro 2000.
Political Union: - Political union is the ultimate type of economic integration whereby member countries achieve not only monetary and fiscal integration but also political integration. For example, the Europe Union (EU) is moving towards a political union similar to one created by 52 states of America.

Advantages of Joining a Trading Blocs

A country enjoys the following benefits after joining the trading blocs-

  • Access to larger markets leads to internal economies of scale.
  • External economies of scale due to improved infrastructure (e.g. transport and telecoms links).
  • Greater international bargaining power.
  • Increased competition between members.
  • More rapid spread of technology

Disadvantages of Joining a Trading Blocs


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Following risks are associated while joining a trading blocks-

  • Country may lose resources to more efficient members, or to geographical centre, and become depressed region.
  • Firms may co-operate, collude and merge, leading to greater monopoly power.
  • Diseconomies of scale if firms become very large.
  • High administrative costs of trading bloc.

List of Trading Blocs: European Economic Area (EEA)

Member Countries: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom
European Free Trade Association (EFTA)
Member Countries: Iceland, Norway, Switzerland, Liechtenstein Central European Free Trade Agreement (CEFTA)
Member Countries: Albania, Bosnia and Herzegovina, Croatia, Republic of Macedonia, Montenegro, Serbia
Caribbean Community (CARICOM)
Member Countries: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago
Economic Community of West African States (ECOWAS)
Member Countries: Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo
Economic and Monetary Community of Central Africa (CEMAC)
Member Countries: Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, Gabon
East African Community (EAC)
Member Countries: Burundi, Kenya, Rwanda, Tanzania, Uganda
Southern African Customs Union (SACU)
Member Countries: Botswana, Lesotho, Namibia, South Africa, Swaziland
Common Market for Eastern and Southern Africa (COMESA)
Member Countries: Sudan, Ethiopia, Eritrea, Djibouti, Comoros
Greater Arab Free Trade Area (GAFTA)
Member Countries: Egypt, Jordan, Morocco, Tunisia
North American Free Trade Agreement (NAFTA)
Member Countries: Canada, Mexico, United States of America
Association of Southeast Asian Nations (ASEAN)
Member Countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam
South Asian Association for Regional Cooperation (SAARC)
Member Countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka
Eurasian Economic Community (EEC)
Member Countries: Belarus, Kazakhstan, Kyrgystan, Russia, Tajikistan, Uzbekistan
Pacific Regional Trade Agreement (PARTA or PIF)
Member Countries: Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu
Bilateral Trade: Bilateral trade refers to the trade between two countries; that is, the value or quantity of one country's exports to the other, or the sum of exports and imports.

Risks in International trade

The risks that exist in international trade can be divided into two major groups:

Economic risks

  • Risk of insolvency of the buyer,
  • Risk of protracted default - the failure of the buyer to pay the amount due within six months after the due date
  • Risk of non-acceptance
  • Surrendering economic sovereignty
  • Risk of Exchange rate

Political risks

  • Risk of cancellation or non-renewal of export or import licences
  • War risks
  • Risk of expropriation or confiscation of the importer's company
  • Risk of the imposition of an import ban after the shipment of the goods
  • Transfer risk - imposition of exchange controls by the importer's country or foreign currency shortages
  • Surrendering political sovereignty
  • Influence of political parties in importer's company

Contact Information

Delhi Office

Mr. Prashant Kumar
Tel: Direct : 91-11-40703045
Tel: Board : 91-11-40703000
Fax: 91-11-26422756
Email: tradebits@infodriveindia.com


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