Trading blocs and agreements and evaluation of trading agreements in Japan

Trading blocs are usually groups of countries in specific regions that manage and promote trading activities. Trading blocs lead to trade liberalisation and trade creation between members. (tutor2u, 2019)

Examples of trading blocs include:

• The EU
• Asia-Pacific Economic Corporation (APEC)
• European Free Trade Area (EFTA)
• North American Free Trade Agreement (NAFTA)
• Association of Southeast Asian Nations (ASAN)

With regards to APEC, it is one of the biggest trading blocs in the world with 21 member countries (Slideshare, 2018). Japan themselves also belong to APEC. More recently, Japan and the EU have made an agreement in relation to trade. As of July 2017, Japan had entered into economic partnership agreements with 14 countries and ASEAN. On the 11th July 2018, Japan and the European Union (EU) signed an economic partnership agreement, taking a step closer to creating an economic bloc that would account for nearly a third of all global trade. (Export.gov, June 2019) The agreement would enter into force after ratification by the EU and Japan, and would remove tariffs on more than 95% of goods traded between Japan and the EU member states.

Image from: blographyvarndeancollege (2019)

Free trade can be defined as the ability to allow for the movement of goods, services and people freely from country to country. The EU and Japan have an Economic Partnership Agreement which emerged on the 1st February 2019. (European Commission, 2019)

Difference between free trade area and customs union 

A customs union has a common external tariff on imports. This means that it doesn’t matter which country the imports enter – because all countries have the same import tariff. This means there doesn’t need to be internal checking on ‘Rules of origin’. For example, if imports from Africa enter Spain then if goods travel across the border from Spain to France, there is no need to check whether goods are paying the correct import tariff – because the import tariffs are all the same.

A disadvantage of joining a customs union is that a country is not able to pursue its own independent trade deals. However, since trade deals are complicated and take several years, there is an advantage to negotiating trade deals as part of a regional trade block – rather than separate individual countries.

(EconomicsHelp, 15th December 2018)

image from: EconomicsHelp

EU firms export nearly €70bn in goods and €28bn in services to Japan every year. The trade agreement the EU has with Japan removes tariffs and other trade barriers and creates a platform to cooperate in order to prevent obstacles to trade. As well as this, due to the partnership between two of the world's biggest economies, it sends out the message that they both reject protectionism. (European Commission, 2019)

There are many opportunities and benefits which can be drawn from this agreement, some of which include:

• gives a boost to trade in goods and services as well as the creation of opportunities for investment in Japan
• the agreement improves the position of EU exporters and investors on Japan's large market 
• the agreement with Japan, the EU and free trade provides opportunities for those habitants to travel with their work and provide more job opportunities to the populations with increased imports and exports of goods and services

In relation to the EU, the Maastricht treaty was formed in 1922 to enable improvements in trade and make things easier for global growth.

This treaty plays a significant part in providing opportunities for global growth and development. It is also known as the Treaty on European Union and it marked the beginning of a new stage in the process of creating a closer union among the people of Europe. It provided the countries involved to use one single currency, it being the euro to make it easier for free trade with the use of a single currency and it significantly expanded cooperation between European countries in terms of:

• creating European citizenship (citizens can reside and move freely between member countries)
• a common currency and security policy was established 
• closer cooperation between the police and judiciary system established

(European central bank, 2019) 

It is not only this agreement that brings great benefits to a country, trade bloc agreements can also increase foreign direct investment which means it benefits the economies of participating nations. Larger markets are created which means costs of manufacturing in that country are lower to produce locally. (eHow, 13th May 2017)

Advantages and disadvantages of trading blocs and agreements 

image from SlideShare.net

The most obvious advantage of trading blocs is the  easy access to each other's markets, protection of individual markets from cheap imports and increased trade between member countries. This means there are higher product offerings available to consumers in member countries and countries in that trading bloc will have higher imports and exports which boosts trade as well as giving consumers more choice. (Reference, 2019) Increased trade also leads to specialisation which can aid a country to benefit from economies of scale which can help lower average costs. (EconomicsHelp, 2018)

A significant advantage of a free trade bloc, such as NAFTA, is that consumers in all member countries benefit from higher quality goods and services at lower prices. This happens because of the elimination of barriers to trade, such as tariffs and quotas, which allows companies from different countries to compete equally with local companies. These companies benefit from increased access to resources, which lowers the cost of production of goods and services significantly. (Reference 2019)

There can also be disadvantages to being in a trade bloc. Disadvantages of free trade blocs include the displacement of jobs because of increased competition from companies in member countries. Workers are usually displaced as companies are closed and they may remain unemployed for extended periods of time; workers usually get jobs later, but at a lower wage. National economies within a free trade bloc are susceptible to events such as recessions in other member countries, which affect them directly. This is because free trade blocs encourage specialization among member countries, which increases their dependency on each other. (Reference, 2019)

Trade blocs can lead to increased dependence on other countries in that same trading bloc and this can have a knock on affect for countries in the same bloc if they are experiencing difficulty. For example, if the Eurozone goes into recession, it will affect all countries in that zone. (EconomicsHelp, 2018)