Present and Describe the Five Types of Regional Trading Agreements

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and common barriers to trade with other countries outside the group,” customs union entails a more significant commitment compared to free trade area agreements (Daniels & VanHoose, p. 126). Essentially, in a Customs Union, all participating nations must also adopt a common external trade policy. Customs Union provide deeper economic integration than Free Trade Area’s because unlike FTA’s where participating nations are free to retain their own trade barriers with non-member countries, in a CU, participating nations must also apply a common external trade policy for non-member nations. As a result, members of CU’s must establish elaborate coordination schemes in order to ensure that trade policies are equivalent among the member nations.

One of the largest Regional Trade Agreement in the world, MERCOSUR is an example of a Customs Union in today’s economy. Argentina, Brazil, Paraguay, Uruguay and Venezuela are all current full-members of MERCOSUR. In looking towards the future, it is likely that we will see the addition of a new member to MERCOSUR within the next few years. Bolivia began the process to become a full member of the Customs Union in 2012 (Klonsky). Recently the union signed the protocol for Bolivia’s accession which is one of the final steps to adding a new nation to the union. Therefore it is highly likely that Bolivia will be integrated as a full member of MERCOSUR in the near future.

While MERCOSUR played a critical role regional economic integration in previous decades, recent political disagreements and decreasing inter-union trade have stunted progress and trade liberalization which substantiated by MERCOSUR’s slowed growth rate in the past few years. Despite having ambitions of becoming a common market like the European Union, the group still struggles to achieve this goal more than twenty years after its founding and the likelihood of achieving this goal in near future does not look promising.

In recent years, MERCOSUR has also taken a turn toward protectionism which can be seen by the nation’s agreement to raise the maximum common external tariff on imports (Klonsky). Overall, MERCOSUR’s internal disputes, increased protectionism and slowed growth increases speculation that the future of the Customs Union is far from bright. It is quite possible that MERCOSUR will meets it demise within the next decade. While the end of MERCOSUR would be incredibly disruptive in the short-term, some observers speculate that the end of MERCOSUR could be beneficial in the long run if it were to drive its members to open trade with the rest of the world (Klonsky).

A Regional Trade Agreement that requires a higher level of economic integration is a Common Market. Defined as, “a trading agreement under which members nations remove all barriers to trade among their group, erect common barriers to trade with other countries outside the group, and permit unhindered movements of factors of production within the group,” Common Markets a more significant commitments compared to customs unions (Daniels & VanHoose, p. 126). In forming a Common Market, a nation commits and agrees to open cross-border flows of final outputs of goods/services as well as inputs used in the production of goods and services. Like PTA’s, FTA’s and CU’s, Common Markets establish rules that break down cross-border trade barriers for goods/services however common markets take it a step further and also agree to remove barriers freeing movement of factors of production between other members within the Common Market (Daniels & VanHoose, p. 126). In summary, Common Markets remove barriers to cross-border flows or labor, capital and other various resources between participating nations and are viewed as an agreement that is serious in its commitment to breaking down economic barriers.

The most economically integrated regional trade agreement is Economic Union. Defined as, “a trading arrangement that commits participating nations to remove all barriers to trade among their group, to abide by common restrictions on trade with other countries outside the group, to allow unhindered movements of factors of production within the group, and to closely coordinate all economic policies with other participants,” economic unions are the highest commitment based regional trade agreement (Daniels & VanHoose, p. 126). Essentially, economic unions build upon common markets in that they also coordinate uniform national economic policies among participating nations while also removing barriers to cross-border flows of goods, services and factors of production. Due the inherent nature of economic unions, there is often significant political coordination between participating nations. While political alignment is not required, it tends to be a quality displayed in successful economic unions.

Sources:

Akbar, Mohammad et al. South Asian Free Trade Area: Opportunities and Challenges. Nathan Associates Inc, 2005. Web. 19 Aug. 2015.

Daniels, J., & VanHoose, D. (2004). Global economic issues and policies. Mason, Ohio: Thomson/South-Western.

Klonsky, J. (2012, July 31). Mercosur: South America’s Fractious Trade Bloc. Retrieved August 19, 2015, from http://www.cfr.org/trade/mercosur-south-americas-fractious-trade- bloc/p12762