Readers Question: ‘Trading blocs are the most significant factor contributing to globalisation’ To what extent do you agree with this view?
Trading blocs are groups of nations who form an economic union or area of free trade. For example:
- The European Union aims at not just a customs union but also economic and monetary union – harmonisation of taxes / single currency and common monetary policy.
- NAFTA is the North Atlantic Free Trade Association.(US, Mexico and Canada)
- South Asian Free Trade Area (SAFTA) A free trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
- ASEAN Free Trade Area (AFTA Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Vietnam joined in 1995, Laos and Myanmar in 1997 and Cambodia
Globalisation refers to the phenomena of increased integration and interdependence of the national economies. Globalisation refers to how the economic barriers between countries are being removed enabling more trade and free movement of labour and capital.
Trading blocs like the EU do speed up this process. The EU has expanded to over 26 countries and has a combined population of 356 million. Within the EU, there has been a marked integration of the national economies. Trade amongst members has increased. There has also been a greater movement of capital and labour. (e.g. the immigration from Poland of many workers to UK and Ireland). Within the EU, there has also been a single currency and single monetary policy adopted by 11 members.
As well as increased integration amongst members of a trading bloc. It is argued trading blocks help globalisation through making global negotiations easier. For example, in the case of trade negotiations. The EU will negotiate as a single trading block making it easier to push through practices which increase free trade.
However, trading blocks often don’t help the process of globalisation. For example, the EU’s CAP involved high tariffs on food imports and the dumping of surplus food items onto world markets.
Rather than lead to greater globalisation, it is argued trading blocks create conflicting parties fighting for regional interests.
Also, there are many other factors more influential in contributing to globalisation that have nothing to do with trading blocks. The most important factors contributing to globalisation include:
- The growth of multinational companies.
- Better technology which makes global communication and transport easier.
- Improved transport and communication which helps reduce barriers of distance.
- Tariff reductions and the promotion of free trade.
Also, trading blocks can break down and have disputes themselves. For example, the US under Trump is trying to renegotiate NAFTA agreement as they feel it damages US trade.