Macroeconomics Case Study

Trade Blocs, Free Trade Agreements and Preferential Trade Agreements: The New Drivers of World Trade

OR

Abstract: World War II left devastated a lot many industrialised economies. One way to recoup was to mutually trade with those closer to home. Regional Trade Agreements (RTAs) were the normin Europe, leading theway in 1950s with the initiation of European Coal and Steel Community (ECSC). Since then, the increasing number of regional trade blocs reflected an urge to integrate economies – for the potential benefits of scale, competition and location, offered by free trade. Though criticised – asmotivated by political intentions rather than business objectives – the RTAs helped in increasing global trade. However, as globalisation ushered in the new global trade order,which is believed to be based on business acumen, RTAs are said to have lost their relevance. This case helps debate if RTAs have outlived their purpose and to discuss the factors that guide international trade in the 21st century. The case can be used to analyse the importance of new trends in cross-border trade for Multinational Companies (MNCs) andTransnational Companies (TNCs).

Pedagogical Objectives:

• To understand the comparative advantage theory and the importance of international trade
• To analyse the need and relevance of trade blocs
• To study the drivers of world trade in 21st century.

Keywords : Trade Blocs, Free Trade Agreements, Preferential Trade Agreements, Absolute cost advantage, Comparative Cost Advantage, Foreign trade and trade barriers, Trade pacts and trade blocs, Globalisation, Phases of Globalisation, Regional Trade Agreements