Afro – Eurasian economic & trade blocs accelerate business activities

The existing economic blocs in the world have proved significantly in promotion of regional as well as inter-continental trade and economic activities. Even during as well as after the end of cold war era, the international community took a new shift towards liberalization of economies as well as trade facilities for benefiting to the maximum level from the available potential of each other resources and reserves. In result of these developments, different regional and international trade and economic blocs emerged on the scene of world economy.

The EU and other emerging trade blocs have had a major impact on trade and investment worldwide. In fact, they are responsible for shaping business relationships among companies across the globe.

Through bilateral and multilateral accords, some countries have established free trade agreements, like NAFTA, while others have established customs unions and common markets. A free trade area is formed when two or more nations establish preferential trade liberalization policies by eliminating or substantially reducing trade barriers among themselves. A customs union surpasses free trade liberalization policies by establishing a common external tariff for nonmembers.

For the purpose of creation of a common market members eliminate restrictions on the movement of labor and capital among each other. Additionally, members may harmonize national policies to some degree, including monetary, fiscal and social policies, and concede a degree of political and legal control to a single ruling authority.

Trade among East Asian nations increased at a much faster pace than trade outside the region. And through the development of several trade agreements such as the Association of Southeast Asian Nations (ASEAN), the region appeared to be on its way to establishing a cohesive bloc.

Asian economic integration was primarily influenced by Japanese investment and severe economic difficulties in Japan, political turmoil in Indonesia, and religious strife in the Philippines, among other things, have slowed the process of regional integration. Consequently, an Asian trade bloc appears to have lost its momentum. However, with the increase of Chinese economic strength in recent years, a new Asian leader is emerging. During a regional summit, leaders of Asean and China agreed to consider establishing a free trade area that would represent a combined market of 1.7 billion people.

As an Asian trade bloc emerges and the EU continues to expand, members of each group will obtain preferential access to each others’ markets. But, while duties are reduced or eliminated for members, non-members’ goods and services will continue to be assessed tariffs, making them less competitive.

Due to preferential access, members of trade blocs tend to purchase more goods and services from each other. For an example close to home, consider the impact of NAFTA. Canadian and Mexican merchandise imports from the United States more than doubled, while South American imports from the U.S. rose by 56%. The reduction, and in many cases the elimination of Canadian and Mexican duties on U.S. goods has made American products more attractive compared to non-NAFTA goods.

The risks to non-members, however, are sometimes minimized. For example, trade blocs are designed to produce more economically viable partners and regions. If successful, higher trade bloc demand is likely to boost imports from members as well as non-members, reducing some of their losses.

Over the last 25 years, the global supply chain has shifted from its manufacturing bases in the United States and Europe to an Asian base dominated by China. China’s rapid development over this period has not been purely due to government policies, per se. Instead, the country’s large and inexpensive supply labor has been the main driver in this phenomenon.

However, this is changing as the Chinese population ages and the country transitions from being the world’s largest manufacturing base to becoming the world’s largest consumer market. As a result, China is becoming more expensive for manufacturing, moving its production line further into high tech, and Chinese consumers are becoming wealthier.

This development coincides with the emergence of India, the only country that has the potential to match China. Indian workers today work for the same cost that Chinese workers did 15 years ago, and while their numbers are not as large, their availability certainly is significant enough to impact the global supply chain.

Asia must now; more than ever, be aware of and conversant with the details of Asia’s numerous double tax and free trade agreements, including those that do not directly involve the United States and Europe. Meanwhile, tax advisers must keep abreast of potential agreements such as the RCEP and TPP proposals. Investing in Asia is now far more tax sophisticated than it was previously, and as a result, the continent offers more options and interesting solutions than ever before.

According to the World Bank China may become the largest economy in the world sometime between 2020 and 2030, while India may become the second largest economy in the world sometime between 2030 and 2035.

The countries/regions with the largest foreign reserves are mostly in Asia – China (Mainland – $2,454 billion & Hong Kong – $245 billion, June 2010), Japan ($1,019 billion, June 2009), Russia ($456 billion, April 2010), India ($345 billion, April 2015), Taiwan ($372 billion, September 2010), South Korea ($286 billion, July 2010), and Singapore ($206 billion, July 2010). This increasingly means that the interchangeability of the Euro, USD, and GBP are heavily influenced by Asian central banks

Presently, there are a number of major trade blocs that have the reputation and will to make a significant impact on international business process. These blocs include Association of Southeast Asian Nations (ASEAN), ASEAN Economic Community (AEC), The European Union (EU), Mercado Comun del Cono Sur (MERCOSUR) and The North American Free Trade Agreement (NAFTA).

ASEAN was established with goals to accelerate economic growth, social progress, and cultural development in the region and promote regional peace and stability and adhere to United Nations Charter. ASEAN Economic Community (AEC) is aiming to transform ASEAN into a single entity and a production powerhouse that is highly competitive and fully compatible with the global economy.

The Asia-Pacific Trade Agreement (APTA), formerly called the Bangkok Agreement, is the only trade agreement bringing together China and India, in addition to Bangladesh and the Republic of Korea, among others. The Secretariat of the agreement is provided by the United Nations Economic and Social Commission for Asia and Pacific (ESCAP). While the agreement covers only a limited number of products, to implement a Trade Facilitation Framework Agreement aimed at streamlining trade procedures between members.

The Asia-Pacific Economic Cooperation (APEC) is a group of Pacific Rim countries who meet with the purpose of improving economic and political ties. The initial intention was to create a free trade area covering all membership (which includes China, the United States and Australia, among others) this has failed to materialize, yet the members committed taking concrete steps towards greater regional economic integration by endorsing a roadmap for the Free Trade Area of the Asia-Pacific (FTAAP) to translate this vision into a reality.

Therefore, APEC is implementing a strategic study on issues related to the realization of a Free Trade Area of the Asia-Pacific. The study will provide an analysis of potential economic and social benefits and costs analyze the various pathways towards a Free Trade Area and identify challenges economies may face in realizing this goal The Asian Currency Unit (ACU) is a proposed currency unit for the ASEAN “10+3” economic circle (ASEAN, the mainland of the People’s Republic of China, India, Japan, and South Korea).

The Closer Economic Partnership Arrangement (CEPA) is an economic agreement between the People’s Republic of China, the Hong Kong SAR government, and the Macan SAR government in order to promote trade and investment facilitation.

The main aims of CEPA are to eliminate tariffs and non-tariff barrier on substantially all the trade in goods between the three, and achieve liberalization of trade in services through reduction or elimination of substantially all discriminatory measures.

The South Asian Association for Regional Cooperation (SAARC) is an association of eight countries of South Asia, comprising a fifth of the population of the world. SAARC encourages cooperation in agriculture, rural development, science and technology, culture, health, population control, narcotics control and anti-terrorism.

The Arab League is an association of Arab countries in Africa and Asia and it facilitates political, economic, cultural, scientific and social programs designed to promote the interests of its member states.

The Commonwealth of Independent States (CIS) is a confederation consisting of 12 of the 15 states of the former Soviet Union, both Asian and European (the exceptions being the three Baltic States. Although the CIS has few supranational powers, it is more than a purely symbolic organization and possesses coordinating powers in the realm of trade, finance, lawmaking and security. The most significant issue for the CIS is the establishment of a full-fledged free trade zone / economic union between the member states, to be launched in 2005. It has also promoted cooperation on democratization and cross-border crime prevention.

EU was founded by six neighboring states as the European Coal and Steel Community (ECSC). Over time, it became the European Economic Community (EEC), then the European Community (EC), and was ultimately transformed into the European Union (EU). EU is the single regional bloc with the largest number of member states. EU was formed to construct a regional free-trade association of states through the union of political, economic, and executive connections.

Mercado Comun del Cono Sur (MERCOSUR) was established with the Treaty of Assunción. The major languages spoken in this region are Spanish and Portugese. There are associate members who can do preferential trade but not allowed to have tariff benefits like the registered members. Mexico has an observer status. Objective of MERCOSUR is to accelerate sustained economic development based on social justice, environmental protection, and reduction of poverty.

The North American Free Trade Agreement (NAFTA) was signed with goals to eliminate trade barriers among its member states, promote an environment for free trade, increase investment opportunities, and protect intellectual property rights.

There are essentially 6 key trading blocs in Africa: The Southern African Development Community (SADC), Southern African Customs Union (SACU) and Common Monetary Area (CMA), Preferential Trade Area for Eastern and Southern African States (PTA) and Common Market for Eastern and Southern Africa (COMESA), Economic Community of West African States (ECOWAS), Union Douaniere et Economique de l’Afrique Centrale (UDEAC) (Customs and Economic Union of Central Africa), and the East African Community.

The Southern African Development Co-ordination Conference (SADCC), was launched with the original objectives of reducing dependence on apartheid South Africa and creating a channel for donor aid to the region. The SADCC region represents a vast market with a total population of 186 million people and a combined GNP of US$178 billion. The combined imports of the SADC region excluding South Africa amount to an estimated US$20 billion. Economic conditions vary markedly within the region and there exists a huge dichotomy between member states.

Southern African Customs Union is a customs union comprising Botswana, Lesotho, Namibia, Swaziland (the BLNS states) and South Africa and it includes, among other things, the levying of uniform customs and excise duties, free interchange of duty-paid goods imported from outside member countries, imposition of additional protective duties by BLNS states and regulation of the marketing of agricultural produce.

The Common Monetary Area (CMA) links South Africa, Lesotho and Swaziland into a Monetary Agreement, essentially the Southern African equivalent of the Franc Zone in West Africa. Foreign exchange regulations and monetary policy throughout the CMA continue to reflect the influence of the South African Reserve Bank.

Common Market for Eastern and Southern Africa (COMESA) was established for a gradual reduction and eventual elimination of customs duties and non-tariff barriers. Overall COMESA is a relatively efficient organisation that has gone far in liberalising trade within the region. The benefits to trade are significant. Although South Africa is not a member of COMESA and cannot therefore benefit directly from these tariff preferences, South African companies working on projects within the region would be well served to learn a little more about COMESA and suppliers within COMESA.

Economic Community of West African States (ECOWAS) was formed by 15 West African states in order to promote trade co-operation and self-reliance in West Africa and it aims to create a common external tariff with the elimination of all tariff and non-tariff barriers between member states. Despite this, certain tariff preferences are in place and although South African companies cannot benefit directly from ECOWAS preferences when exporting to West Africa, the same comment to companies involved in projects in the region applies.

The Customs and Economic Union of Central Africa was established by the Brazzaville Treaty forms a customs union with free trade between members and a common external tariff for imports from other countries. The members of UDEAC are Cameroon, Central Africa Republic, Chad, Congo, Equatorial Guinea and Gabon. UDEAC has signed a treaty for the establishment of an Economic and Monetary Community in Central Africa to promote the entire process of sub-regional integration.

East African Community (EAC) aims to create a free trade zone in East Africa and to allow freedom of movement across borders for the nationals of the three countries. By the terms of the treaty the three countries will negotiate the framework of a customs union over the next four years and thereafter, move towards the establishment of a common market. The East African community is still in its infancy with very few tangible benefits to members or exporters to the region. Given the enormous quantity of cheap labor in the region, particularly in China and India, where large workforces provide an economic advantage over other countries, the rising standard of living will eventually lead to a slow-down. Most of these economies have traditionally been over-dependent on oil and have had difficulty establishing another pillar in their economies.

 

Arshad Chaudhary

Author is an editor of Melange International.

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