Essay on Trade Blocs: Benefits & Examples of International Trade Agreements

Introduction

A trading bloc refers to a form of intergovernmental agreement where trade barriers are either eliminated or reduced among the participating states. Trade blocs can be formed either as stand-alone agreements between various states or as a part of regional organization. Trade blocs help improve efficiency through competition, creates economies of scale, leads to increased foreign direct investment, and improves the efficiency of the market. Owing to these benefits, various trade blocs exist such as Mercosur and the European Union exist around the world today. Mercosur is a South American trade bloc formed in 1991. The European Union (EU) on the other side is a political and economic bloc consisting of 28 European countries that was established in 1999. This paper seeks to compare the EU with Mercosur.

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Similarities and Differences

Both the EU and Mercosur are trading blocs. They were formed to protect the economic interests of their members. The two blocs also implement a Regional Policy meant to finance the least developed countries in the regions and enhance cohesion among the member states. Both organizations feature a popularly elected parliament in their structure. Location is the most visible difference between the two. While the EU is located in Europe, Mercosur is located in South America (Campos, 2016). Also, while Mercosur is only an economic regional bloc, the EU is both an economic and political regional bloc (Baun, 2018). The EU is more supranational and less intergovernmental as compared to Mercosur. This means that the EU members have given prerogative to institutions that are not necessarily under their direct control. The European Commission, which makes binding decisions, is an example of such an institution. On the other hand, institutions in Mercosur function in a completely different manner. The decisions made by the Common Market Council must be unanimous to be implemented.

Formation

The formation of the Council of Europe in 1949 was the first effort targeted at bringing together the nations of Europe. However, the body was mostly concerned with human rights rather than economic interests. The Treaty of Rome signed in 1957 brought together Italy, France, Belgium, the Netherlands, West Germany and Luxembourg in what was called the European Economic Community. Other countries joined the organization over the years. The Maastricht Treaty formally established the European Union, and it came into effect in 1993 (Baun, 2018). Former Communist States were also allowed to join the bloc. The Lisbon Treaty of 2009 reformed several aspects of the EU, such as the legal structure. The United Kingdom voted to withdraw from the EU in 2016 (Hobolt, 2016). The organization, therefore, has 28 members.

Mercosur, which is also known as Southern Common Market, was formed in 1991 by the Treaty of Asuncion, which was amended and updated in 1994 by the Protocol of Ouro Preto. The idea of formation of the bloc originated in 1988 when the presidents of Brazil and Argentina signed the Argentina-Brazil Integration and Economics Cooperation Program (Campos, 2016). The full members of the organization include Brazil, Argentina, Uruguay, and Paraguay. Venezuela was also a full member but was suspended in 2016. Peru, Guyana, Chile, Bolivia, Ecuador, Colombia, and Suriname are associate members. New Zealand and Mexico are observer countries. The organization is headquartered in Montevideo. The main purpose of forming the organization was to promote free trade as well as encourage free movement of people, goods, and currency.

How they Work

The EU is run by different institutions such as the European Council and the European Parliament. It consists of an executive, legislature, a central bank, as well as an independent judiciary. The powers exercised by the various bodies and institutions are derived from the founding Treaties. Moreover, the powers keep evolving with time. For instance, the Lisbon Treaty gave the Parliament equal powers to the Council on decisions regarding the budget and financial framework. The Euro is the official currency and is managed by the European Central Bank (BBC, 2018). Due to its unique nature, the politics of the EU are different from other blocs since some policies such as foreign and defense policies are controlled by states. The culture in the EU mirrors the cultural diversity of its member states. Abolishment of trade tariffs and use of a common currency encourages both internal and international trade in the bloc. EU is among the biggest traders, for both imports and exports in the world.

The Common Market Council is the highest decision-making body in Mercosur. The Common Market Group coordinates the macroeconomic policies while the parliament offers advisory services (Felter and Renwick, 2018). Though Gaucho was meant to be the official currency, different currencies including Peso, Real, and Guarani are used today. The culture of the bloc reflects the diversity of the member states. Political differences and power struggles between the member states have always been a threat to the organization (Gomez-Mera, 2013). Though internal and international trade agreements resulted into trade worth over $40 billion in 2000, trade wars between Brazil and Argentina as well as lack of coordination on trade policies has led to decline in trade (Gomez-Mera, 2013).

The Future of the Blocs

Despite the withdrawal of the United Kingdom, the remaining members look more united than ever. The EU, therefore, is bound to weather the storms it faces along the way and live to achieve its objectives. The same cannot be said about Mercosur, which has been plagued by internal wrangles for several years. Unless these challenges are addressed, and policies to enhance cooperation formulated, the likelihood of disintegration is high (Campos, 2016).

Conclusion

This discussion has showed that though the EU and Mercosur were formed to boost the economic status of their members, there exists differences between them, especially on organization and operations. Moreover, while EU looks strong moving into the future, Mercosur is headed for disintegration if policies to enhance cooperation and prevent power struggles are not formulated.

References

Baun, M. J. (2018). An imperfect Union: The Maastricht Treaty and the new politics of European integration. New York: Routledge. doi:https://doi.org/10.4324/9780429494185

BBC. (2018, November 28). How does the EU work? Retrieved from BCC: https://www.bbc.co.uk/newsround/21168839

Campos, G. L. (2016). From Success to Failure: Under What Conditions Did Mercosur Integrate? Journal of Economic Integration, 855-897. Retrieved from https://www.jstor.org/stable/44028249

Felter, C., & Renwick, D. (2018, September 10). Mercosur: South America's Fractious Trade Bloc. Retrieved from Council on Foreign Relations: https://www.cfr.org/backgrounder/mercosur-south-americas-fractious-trade-bloc

Gomez-Mera, M. L. (2013). Power and regionalism in Latin America: the politics of Mercosur. University of Notre Dame Press. Retrieved from https://miami.pure.elsevier.com/en/publications/power-and-regionalism-in-latin-america-the-politics-of-mercosur

Hobolt, S. B. (2016). The Brexit vote: a divided nation, a divided continent. Journal of European Public Policy, 23(9), 1259-1277. Retrieved from https://www.tandfonline.com/doi/abs/10.1080/13501763.2016.1225785