Benefits from Trade Blocs and Trade Trap and the Fall of Markets

ASEAN

This was established in 1967. This is an organisation of the southeast Asian countries. The fast growing countries such as Indonesia, Malaysia, Thailand, Philippines and Singapore are the members of this organisation.

Trade tariff among these countries have been reduced. As a result, the trade between this bloc and other regions of the world is rapidly increasing. With the exception of Singapore, all other countries export agricultural products and natural resources to Japan and the western countries .

Benefits from Trade Blocs

1.  There are tariff reduction among the member countries and trade restrictions with other countries. Hence, trade between the member countries develop fast.

2.  As the members are treated as one single bloc of countries, they all gain economic strength. They also achieve bargaining power.

3. When trade restrictions are relaxed, there is easy flow of commodities from one country to another. The producers have the benefit of a larger market and just not the internal market alone. So, they produce more and export to countries other than those of the bloc as well.

4.    Where geographical and cultural conditions favour a certain commodity, there is preference given to such a commodity in production. As such, such commodities are produced at low costs and more efficiently.

5.    Political unity can be achieved through establishing trading blocs. Avoiding wars, economic cooperation will prevail.

Trade Trap and the Fall of Markets

We have already seen that in the trade between the developed and the less developed countries, there is no equality. The less developed countries are dependent on resources and agricultural products for their trade. The proceeds from the sale of these are used in the purchase of manufactured products and developemnet technologies. In these circumstances, the value of imported commodities and products is far higher than the value of the exported products. There is thus no demand- supply equilibrium. Trade balance, therefore, is favourable to the developed countries and unfavourable to the developing countries. This pushes the developing countries into a deprivation which acts as a trap. This trap is commonly referred to as the ' Trade Trap'. The intensity of its effects depends upon the level of development of these countries.

Market Tremors

No country can achieve a stable position in the world trade. The economic change and the policy change that occur in a country may destabilise its position in the world trade. Therefore, there are changes in trade in the global market. Japan and the newly industrialising countries are in competition with the developed countries. Sudden changes in the market result in the protective and restrictive actions. Therefore, there is a belief that the world trade is gradually sliding. In consequence, there are difficulties. The economic gap between countries is widening. Japan and Germany have grown considerably, particularly in world trade. They do not spend much on the national defence. Economic development is therefore the reason behind the market tremors.

To make the procedural changes in order to make world trade simple, an agreement known as GATT (General Agreement on Trade and Tariff) has been established. Under the auspices of GATT, several rounds of talks were held between the developed and the developing countries to develop free trade between them. The Uruguay round of talks which began in 1986 ended in 1994. The 100 odd countries which participated in these talks signed an agreement. This agreement is named after the head of the GATT by the name Dunkel - the Dunkel Agreement. As per the directions of the agreement, GATT was dissolved and the World Trade Organisation (WTO) was started in its place in January 1995. This organisation would act as an organisation controlling the world trade.

According to the Dunkel Agreement, the signatories must remove the restrictions and barriers on the foreign imports. Subsidies given to decrease the production costs in agriculture must be stopped. The organisations that have developed hybrid varieties through research will have the patent rights on the varieties they so developed. The farmers should not use the grains grown from such hybrids as seeds; rather they must buy the seeds from these organisations. Likewise, the petent rights have to be respected by all signatories in the case of medicines and medical discoveries.

When this agreement is fully implemented in all the countries that signed the agreement, these countries which were acting as individual economies would become an integrated economy. As such all the world would act as one economy. There are several ideas about the consequences of the Dunkel Agreement. There is good as well as bad. The Dunkel Agreement is considered as a restrictive agreement. But by Dunkel's statement, the goods produced in one country could be sold anywhere in the world freely and without restrictions; and the world will be an integrated market, causing global management possible.