CONTENTS
REASON OF
TRADE
FREE TRADE
AREA
INDIA`S FREE
TRADE AREA
ADVANTAGE OR
DISADVANTAGE
WHY NATIONS TRADE?
 Differences in factor endowments
 Countries differ in endowments in natural resources,
infrastructure, capital availability, human capital
accumulation

Benefits from economies of scale
 By specializing, countries can produce on a large scale
Introduction OF Trading Blocs
Definition:

A free-trade area is the region
encompassing a trade bloc whose member
countries have signed a free trade agreement
(FTA).
Such agreements involve cooperation
between at least two countries to reduce trade
barriers import quotas and tariffs and to
increase trade of goods and services with
each other.
Barriers:
Fiscal Barriers: Eliminates or reduces
taxes on partner goods and subsidies
to native goods

Quantitative Barriers: Quotas on
Imports of partner goods eliminated
Lists of free-trade areas






Economic and Monetary Union (CSME/EC$, EU/€)
Economic Union (CSME, EU, EEU/EAEU)
Customs and Monetary Union (CEMAC/franc,
UEMOA/franc)
Common Market (EEA, EFTA, CES)
Customs union (CAN, CUBKR, EAC, EUCU,
MERCOSUR, SACU)
Multilateral Free Trade Area (AFTA, CEFTA, CISFTA,
COMESA, GAFTA, GCC, NAFTA, SAFTA, SICA)
CONTINUE
Every customs union, trade common
market, economic union, customs and
monetary union OR economic and
monetary union also has a free-trade
area.
Snapshot of Free-Trade Areas
Characteristics of Integration Schemes
FREE
TRADE AREA
Free Trade
Among
Member
CUSTOMS
UNION
Free Trade
Among
Member
COMMON
Free Trade
Among
Member
MARKET
ECONOMIC
UNION
ECONOMIC
INTEGRATION
Free Trade
Among
Member
Free Trade
Among
Member
Common
External
Commercial
Policy
Common
External
Commercial
Policy
Common
External
Commercial
Policy
Free Factor
Mobility
Within the
Market
Free Factor
Mobility
Within the
Market
Common
External
Commercial
Policy
Free Factor
Mobility
Within the
Market
Harmonised
Economic
Policy
Harmonised
Economic
Policy
Supernational
Organisation
Structure
ASEAN-INDIA FREE TRADE AREA (AIFTA)
Value of trade
Exports from ASEAN 43,346,530.85
Imports by ASEAN
24,381,927.77
Total trade
67,728,458.61
Share to total
Exports from ASEAN
Imports from ASEAN
Total trade
3.4%
2.0%
2.7
The Advantage of Free Trade

Trade Creation: Members import goods they
previously did not import
 Efficiency enhancing: Specializing production according to
comparative advantage
 Lower product prices for consumers in bloc
 Efficiency enhancing

Economies of Scale
 Larger markets allow producers to enjoy economies of scale
-> lower production costs
 Efficiency enhancing
EXAMPLE
Turkey





Population: 78M
Age 15-65: 66%
GDP(PPP): $19,610
Imports:-$229 billion (2012)
Machinery, Chemicals,
Semi-finished goods, fuels, transport
equipment
FTAs:
EU, Macedonia, Croatia, Bosnia-Herzegovina,
Tunisia, Morocco, the Palestinian Authority,
Syria, Egypt, Georgia and Albania
EXAMPLE:--
Price=
Sale Price +Tariff
Price=Sale Price
The Disadvantage of Free Trade

Trade Diversion:Members now import goods from other
members that were previously imported from
outside of bloc
Assumed that switch is from more efficiently
produced to less efficiently produced goods
Not efficiency enhancing
Features of Trading Blocs





One or more small countries linked to larger
country
Small countries often trying to make internal
reform
Ultimate goal of deeper integration
Degree of liberalization relatively modest
Smaller countries usually making greater
concessions
Criticism
The agreement will have several negative impacts
on the economy. As previously stated, the two
regions aim to reduce their tariffs on a majority of
their traded goods. This will allow them to increase
the market access of their products. The
economies of the ASEAN countries are largely
export-driven, maintaining high export-to-GDP
ratios (in 2007, Malaysia had a ratio of over
100%).Considering this, as well as the global
financial crisis and India's expansive domestic
market, the ASEAN countries will look eagerly
towards India as a home for its exports.
Vaibhav Verma
M.A. (f) Economics
Roll. Num:-37
THANKYOU