MEIKTILA UNIVERSITY OF ECONOMICS

Master of Public Administration – MPA (19th Batch)

MPA-134
Political Economy of Public Administration

“Trading Bloc”
Presented by
“MPA (19th Batch) MEUE”
Date: 16.2.2025
 Presentation Outline
Topic Presenter

Mg Yan Naing Win

Theory, Definition
MPA(I)-53

Ma Thandar Oo
Advantage and Disadvantage
MPA(I)-40

Case Study Ma Mai Ei Phyu Sin Aung

MPA(I)-3
 Introduction
 In the realm of economics and international trade, the concept of a
trading bloc is pivotal.
 A trading bloc refers to a type of intergovernmental agreement
where barriers to trade are reduced or eliminated among the
participating nations.
 These agreements are designed to enhance economic integration
and cooperation, fostering a more seamless flow of goods,
services, and investments across borders.
 The theory behind trading bloc is rooted in the principles of
comparative advantage, economies of scale, and the desire to
strengthen political and economic ties among member countries.
 This presentation delves into the definition, types, theoretical
underpinnings, advantages, and challenges associated with trading
blocks.
 Definition of a Trading Bloc
 A trading bloc is a group of countries that have entered into a formal agreement to
reduce or eliminate trade barriers such as tariffs, quotas, and other restrictions on the
movement of goods, services, and factors of production between them.
 The primary objective of a trading bloc is to promote economic integration and
cooperation among member nations, thereby enhancing their collective economic
welfare.
 Trading bloc can take various forms, ranging from preferential trade agreements to
more comprehensive economic unions.
 Types of Trading Bloc

1. Preferential Trade Area (PTA): This is the most basic form of a trading bloc, where member
countries agree to reduce tariffs on certain goods traded among themselves. However, each
member retains its own external trade policies with non-member countries.
2. Free Trade Area (FTA): In an FTA, member countries eliminate tariffs and other trade
barriers on most goods and services traded among themselves. However, each member
maintains its own trade policies with non-member countries. Examples include the North
American Free Trade Agreement (NAFTA), now replaced by the United States-Mexico-
Canada Agreement (USMCA).
3. Customs Union: A customs union goes a step further than an FTA by not only eliminating
internal trade barriers but also establishing a common external tariff (CET) on imports from
non-member countries. The Southern African Customs Union (SACU) is an example.
 Types of Trading Bloc (Cont’d)

4. Common Market: A common market extends the principles of a customs union by allowing
the free movement of goods, services, capital, and labor among member countries. The
European Economic Area (EEA) is an example of a common market.
5. Economic Union: An economic union represents a deeper level of integration, where
member countries harmonize their economic policies, including monetary and fiscal policies,
and often adopt a common currency. The European Union (EU) is the most prominent
example of an economic union.
6. Political Union: This is the most advanced form of integration, where member countries not
only integrate economically but also politically, often leading to the formation of a single
state. The United States is an example of a political union.
 Theoretical Underpinnings of Trading Bloc

1. Comparative Advantage: Developed by David Ricardo, the theory of comparative

advantage posits that countries should specialize in producing goods and services in
which they have a lower opportunity cost and trade with others to maximize overall
economic welfare. Trading bloc facilitate this by reducing trade barriers, allowing
countries to exploit their comparative advantages more effectively.
2. Economies of Scale: Trading bloc enable firms to access larger markets, leading to
economies of scale. Larger production volumes can reduce per-unit costs, making
firms more competitive both within the block and in global markets.
 Theoretical Underpinnings of Trading Bloc (Cont’d)
3. Trade Creation and Trade Diversion: Jacob Viner's theory of trade creation and trade diversion is
central to understanding the effects of trading blocks. Trade creation occurs when a trading bloc
leads to the replacement of higher-cost domestic production with lower-cost imports from member
countries, resulting in a net welfare gain. Trade diversion, on the other hand, occurs when lower-cost
imports from non-member countries are replaced by higher-cost imports from member countries,
leading to a net welfare loss.
4. Market Access and Competition: Trading bloc enhance market access for member countries,
leading to increased competition. This can drive innovation, improve product quality, and lower
prices for consumers.
5. Political and Economic Stability: By fostering closer economic ties, trading bloc can contribute to
political and economic stability among member countries. This can lead to increased foreign direct
investment (FDI) and economic growth.
 Example of Trading Bloc

Several trading blocs have played a significant role in shaping the global economy. Some of

the most prominent examples include:

a) European Union (EU)

b) North American Free Trade Agreement (NAFTA) / USMCA

c) Association of Southeast Asian Nations (ASEAN)

d) Mercosur

e) African Continental Free Trade Area (AfCFTA)

 Impact of Trading Blocs on Global Trade

Trading blocs have a profound impact on global trade and the world economy:

a) Shaping Global Trade Patterns

b) Promoting Regional Integration

c) Challenges to Multilateralism

d) Influence on Global Supply Chains

 Future of Trading Blocs

The future of trading blocs will likely be shaped by several trends:

a) Expansion of Existing Blocs

b) Emergence of New Blocs

c) Digital Trade and E-Commerce

d) Sustainability and Climate Change

 Summary
 Trading blocs play a crucial role in the global economy by promoting

economic integration, enhancing trade, and fostering cooperation among

member countries.

 While they offer significant benefits, such as increased trade and economies

of scale, they also present challenges, including trade diversion and loss of

sovereignty.

 As the global economy continues to evolve, trading blocs will remain a key

feature of international trade, shaping the future of globalization and

regional integration.
 Advantage and Disadvantage
Advantage: Increased Trade and Growth

Trading blocs can boost trade. This occurs by lowering tariffs. They also reduce other
trade barriers. This leads to economic growth. Member countries benefit the most.

Reduced Trade Barriers

By reducing barriers such as tariffs and quotas, Lower costs for businesses.
Greater Market Access
Easier entry into member countries' markets.

Economies of Scale
Firms can expand production. This lowers average costs.
 Advantage: Enhanced Bargaining Power

Trading blocs have more influence. They can negotiate better trade deals. They also have more
power in world trade talks. This strength helps protect their interests.

Unified Front
Negotiate as a single entity.
lower prices,
increased export
potential, Greater Leverage
higher growth, Influence international trade rules.

economies of scale
and greater
competition Protect Interests
Secure favorable trade conditions.
 Advantages of Trade Bloc:

Increased increased
Catch-up Effects
Competition Specialization

• Countries joining • The removal of • Increased

a rich trading bloc tariffs creates specialization,
can benefit from greater choice for where countries
inward investment consumers and focus on
and increased provides domestic producing goods
trade firms a greater and services,
opportunities incentive to cut which further
costs to remain increase
competitive efficiency and
competitiveness
 Advantage: Regional Integration

Trading blocs encourage cooperation. This expands beyond trade. They also
promote political ties. This leads to regional stability.

1 Political Cooperation
Closer ties among member governments.

2 Cultural Exchange
Increased interaction and understanding.

3 Infrastructure Development
Joint projects to improve connectivity.
 Disadvantages of Trade Bloc
1.Potential Trade Diversion

Reduced Global Efficiency

Shift from External

Trade Diversion

Trade diversion is a complex issue in trade blocs. This can hinder optimal resource allocation.
 Disadvantages of Trade Bloc
• Non-member countries may become overly dependent on member countries for imports and exports, making them
vulnerable to economic and political shocks within the bloc.
Increased Dependency

• A trading block needs to make decisions for the whole area. This may go counter to the particular wishes of a
country.
Loss of National Sovereignty

• If Eurozone goes into recession, it will affect all countries in the

Increased interdependence on economic performance in Eurozone. However, this is almost inevitable even if countries are not
other countries in trading block. formally in a trading block due to a close relationship between trade
cycles in different countries.
• Importing and exporting to countries outside the trading bloc can be expensive
Expensive trade outside the bloc

• Because many countries are involved in such treaties, negotiating is difficult, as every country has different
wishes.
Challenge to multilateral trading negotiations

Weighing the Pros and Cons

Trading blocs have benefits and drawbacks. Increased trade and power are good. Trade
diversion and competition pose risks. Careful policy is needed to maximize gains. Minimizing
negative effects is crucial.
Case Study: The EU Single Market-
A Catalyst for Regional Integration

Presentation
 Table Of Contents
1 2 3 4

Introduction Key Features and Economic Impact Challenges and

Evolution of the Limitations
Single Market

5 6 7 8

“Further elaboration”
Global Influence Lessons for Other Conclusion
Shanghai Cooperation
Regions
Organization (SCO)
and BRICS
 1

Introduction
 The European Union (EU) Single Market, launched in 1993,
represents one of the most ambitious projects in regional
economic integration. By eliminating barriers to trade,
harmonizing regulations, and enabling the free movement of
goods, services, capital, and people, the Single Market has
significantly boosted economic growth and innovation across
Europe.
 This case study delves into the historical evolution, key
features, economic impact, challenges, and lessons of the EU
Single Market, supported by concrete data and examples.
 2
Key Features and Evolution of the Single Market
1. Historical Milestones:
 1957: The Treaty of Rome established the European Economic Community (EEC), laying the groundwork for customs union and shared economic policies.
 1986: The Single European Act formalized the goal of removing internal barriers.
 1993: The Maastricht Treaty officially launched the Single Market.

2. The Four Freedoms in Action:

Goods:
 Example: An automobile produced in Germany can be sold in France without tariffs or regulatory hurdles.
 Impact: Intra-EU trade of goods accounted for 67% of total EU trade in 2021.
Services:
 Example: A Spanish engineering firm can offer consulting services in Italy without needing local licensing.
 Impact: Services now contribute over 70% of EU GDP.
Capital:
 Example: EU investors can move capital freely to invest in businesses or real estate across member states.
 Impact: By 2019, cross-border investments within the EU reached €9 trillion.
People:
 Example: An Italian student studying in the Netherlands benefits from the Erasmus program, and professionals enjoy mutual
recognition of qualifications.
 Impact: Around 17 million EU citizens live and work outside their home countries.
 3
Economic Impact
1. Boost to Intra-EU Trade:
 Data Point: Intra-EU trade quadrupled between 1993 and 2020, reaching approximately €3.5 trillion annually.
 Example: Trade in agricultural products surged due to the Common Agricultural Policy (CAP), which ensures subsidies and common
standards.

2. Enhanced Productivity and Innovation:

 The scale of the Single Market incentivized R&D investment, particularly in the pharmaceutical and automotive industries.
 Example: Germany, leveraging access to the EU market, became the world's leading exporter of cars, with over 50% of its exports
destined for the EU.

3. Consumer Benefits:
 Increased competition has lowered prices for goods and services.
 Example: Mobile phone roaming charges were abolished in 2017, saving EU citizens an estimated €9 billion annually.

4. Employment Growth:
 Data Point: Jobs linked to the Single Market increased to 56 million in 2019, supporting industries ranging from manufacturing to
financial services.
 Example: Ireland saw a significant boost in employment as global tech giants like Google and Apple established EU headquarters in
Dublin.
4
Challenges and Limitations

1. Economic Disparities:
 Wealthier countries like Germany and the Netherlands benefited more than poorer
members like Bulgaria and Romania.
 Response: Structural and cohesion funds of over €50 billion annually have been
allocated to support less-developed regions.

2. Brexit’s Impact:
 Data Point: UK exports to the EU fell by 14% in the year following Brexit.
 Example: Small British businesses, such as fisheries, faced hurdles like increased
paperwork and tariffs.

3. Regulatory Fragmentation:
 Certain sectors, such as taxation and labor policies, still lack complete harmonization.
5 Global Influence
1. Setting Global Standards:
 The EU’s General Data Protection
Regulation (GDPR) has become a
global benchmark for data privacy
laws.
 Example: Companies worldwide
must comply with GDPR to trade or
operate within the EU.

2. Trade Negotiations:
 The EU’s size and cohesion give it
leverage in global trade talks.
 Example: The EU negotiated
 Here's the chart illustrating the growth of intra-EU trade from 1993 to 2020. It highlights key
landmark trade agreements with
milestones, including the launch of the Single Market, EU expansion, post-crisis recovery, and the
Japan (2018) and Canada (CETA,
impact of the COVID-19 era.
2017).
 The chart could visualize the steady rise in trade volume, highlighting key milestones (e.g.,
expansion of EU membership in 2004 and 2007).
 6

Lessons for Other Regions

1. Adaptability to Local Conditions:
 While the Single Market offers a blueprint, its success depends on member states’ willingness to
cooperate and harmonize regulations.

2. Institutional Strength:
 The EU’s robust institutions (e.g., European Commission, European Court of Justice) ensured
consistent enforcement of policies.

3. Balancing Sovereignty:
 A lesson from Brexit is the need to address concerns over national sovereignty to sustain long-
term cooperation.
 7
Conclusion
The EU Single Market exemplifies how regional integration
can drive economic growth, innovation, and global
influence.
Its successes offer valuable lessons for other trade blocs,
while its challenges highlight the complexities of
maintaining unity in diversity.
 As regions like ASEAN and Africa pursue deeper
integration, the EU remains a benchmark for what is
possible when nations work together.
 8 “Further elaboration”

Shanghai Cooperation Organization (SCO) and

BRICS: A Shift Towards Political Influence

 In the contemporary global landscape, two prominent organizations, the Shanghai

Cooperation Organization (SCO) and BRICS, are increasingly positioned as
noteworthy counterparts to the European Union.
 A close examination of their operational dynamics reveals a discernible evolution,
characterized by a transition from predominantly economic objectives to a more
pronounced emphasis on political engagement.
 This shift signifies a broadening of their scope and influence within international
affairs."
 (a) Shanghai Cooperation Organization (SCO)
 The Shanghai Cooperation Organization has transcended its initial mandate, evolving from a
regional security consortium into a multifaceted geopolitical entity.
 Its genesis as the 'Shanghai Five, established in 1996 by China, Russia, Kazakhstan,
Kyrgyzstan, and Tajikistan, underscores its foundational preoccupation with border
demarcation and security protocols.
 This original framework was specifically designed to address regional stability concerns
following the dissolution of the Soviet Union.
 However, a discernible metamorphosis has occurred, wherein the SCO has augmented its
purview to encompass a broader spectrum of strategic objectives, including economic
cooperation and counterterrorism.
 This strategic pivot is characterized by a heightened emphasis on political orchestration and
the cultivation of multilateral diplomatic engagements, thereby augmenting its influence within
the global strategic calculus.
 The 2001 inclusion of Uzbekistan, which solidified the transformation into the SCO, marked a
pivotal moment in this evolution.
 (b) BRICS
 The BRICS coalition, conceived as a paradigm of emergent economic puissance, has
undergone a significant recalibration of its operational framework.
 Initially predicated upon the principles of economic collaboration and the aspiration to
reformulate the architecture of global financial governance, as envisioned by Goldman Sachs
economist Jim O'Neill in 2001 with the coinage of the 'BRIC' acronym, BRICS has
progressively expanded its strategic ambit.
 The inaugural BRIC leaders' summit in 2009 signaled the group's intent to move beyond
theoretical constructs and engage in concrete policy coordination.
 The subsequent inclusion of South Africa in 2010, transforming the group into BRICS, further
broadened its geographical and strategic footprint.
 This expansion is manifested in its amplified engagement in geopolitical discourse and its
endeavors to assert a more influential role in shaping the contours of the international order.
 Such a strategic trajectory signifies a departure from a purely economic agenda, towards a
more comprehensive and assertive geopolitical posture.
 Conclusion (SCO and BRICS)
 "The parallel trajectories of the SCO and BRICS delineate a compelling narrative
of evolving global power dynamics.
 Both entities, originating from distinct yet complementary mandates—security-
focused for the SCO and economically driven for BRICS—have demonstrated a
remarkable capacity for strategic adaptation, transitioning from specialized
frameworks to comprehensive geopolitical platforms.
 Their convergence towards heightened political engagement underscores a shared
aspiration to reshape the multilateral landscape and challenge the established
paradigms of international governance.
 This convergence portends a potential reconfiguration of global power
distribution, as these organizations increasingly assert their collective influence in
the contemporary epoch.
 Notably, both organizations have expanded significantly from their initial,
narrowly defined goals, showcasing a dynamic evolution in response to the
changing global environment.
Thank You!
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