I (Meaning and importance of Exports) Unit Structure

4.9 IMPLICATION OF TRADING BLOCS 
Trade blocs and free international trade do not go together. 
In 
fact, 
trade 
blocs 
are 
against 
the 
growth 
of 
free 

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global/international trade. They adversely affect the process of 
trade liberalization at the global level. However, trade blocs are also 
useful for integration of economies of member countries. EU is one 
popular and successful trade blocs which has brought the 
integration of economies of member countries. All member 
countries are getting benefits from this trade bloc. In brief trade 
blocs have positive and negative aspect. It is a mixed blessing. Let 
us, now briefly note the implication of trade blocs. 
4.9.1 Positive Implications 
1. Trade Creation 
Economists argue that economic integration leads to trade 
creation. This is because, a trading bloc may remove tariff on 
member nations. As a result, a high cost producing country of the 
bloc can import goods from law cost producing member nation. Due 
to formation of a free trade area, there is proper allocation of 
resources, and the nations can take advantage of comparative 
cost. Due to the comparative cost advantage, trade creation takes 
place. 
2. Competition 
The formation of a trading bloc leads to intense competition 
between firms of the entire bloc. Due to intense competition, the 
efficiency of the firms improves. This leads to reduction in prices 
and improvement in quality. 
 
3. Economies of large scale 
Due to economic integration, there can be economies of 
large scale production and distribution. Firms in the region will try to 
specialize in those goods and services which they are more 
capable of producing. This leads to large scale production and 
distribution, which in turn brings economies of large scale. The 
economies of large scale are partly passed on to the consumers in 
form of lower prices.