Regional Trade Blocks
The regional trade blocks encourage trade between countries with geographical proximity, similarity and complementarities in trading items and curb restrictions on trade in the developing world.
Today, 120 regional trade blocs generate 52% of the world trade. These trading blocs developed as a response to the failure of global organisations to speed up intra-regional trade.
Some of India’s largest trading partner nations are the United Arab Emirates, China, the United States, Saudi Arabia, Switzerland, Singapore, Germany, Hong Kong, Indonesia, Iraq and Japan.
Types of Regional Trade Blocs:
There can be various varieties of Trade blocs depending on the trade pact which established them.
- Preferential Trading Area (PTA): In PTA, the member countries agree to reduce tariffs and other trade barriers on certain goods and services traded among them, while maintaining higher tariffs for goods from non-member countries.
- Free Trade Area (FTA): Member countries remove tariffs on each other’s goods (e.g., NAFTA/USMCA).
- Customs Union: An FTA with a common external tariff policy for non-members (e.g., Mercosur). It means that the custom duty on the outer boundary of the grouping would be the same. For example, if France imposes a 10% custom duty on a product, then Germany would be doing the same, as both are a part of the same grouping.
- Common Market: Free movement of goods, services, capital, and labour among member states (e.g., EU single market).
- Economic Union: Common market with unified economic policies and often a single currency (e.g., European Union).
- Monetary Union: When the grouping agrees to have a shared currency, for example in the case of the EU which has a common currency for all members, namely the EURO.
- Complete Economic integration: When the economies form an Economic Union as well as a Monetary Union, the economies are said to be completely integrated.
Regional Trade agreements
Regional trade blocs focus on economic cooperation within specific geographic regions. These blocs often form preferential agreements, reducing or eliminating tariffs among member countries while maintaining external trade barriers for non-members. For example, the European Union (EU), NAFTA/USMCA, ASEAN, MERCOSUR, and RCEP.
Why Regional trade blocks are successful?
In contrast, Regional trade blocs have a different focus:
- Regional agreements may include deeper integration measures, such as common markets, customs unions, or currency unions. We have seen this in the case of the EU.
- Supply Chain Integration: Mega agreements streamline cross-border trade, supporting global supply chains with standardized rules.
- Easier to Execute and Monitor: Trade agreements under the WTO are complex, and it is very difficult for the countries to agree, as we have seen in the previous chapter. Bilateral and Multilateral trade agreements are very easy to forge.
The WTO, through its principles of non-discrimination (MFN) and national treatment, seeks to mitigate such effects by encouraging regional agreements to align with global trade rules.
Together, both systems contribute to the evolving landscape of international trade.
Major Regional Trade Blocs
| Regional Blocs | Head-quarters | Member Nations | Commodities | Cooperation Areas |
| ASEAN (Association of Southeast Asian Nations) – 1967 | Jakarta, Indonesia | Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam | Agro products: rubber, palm oil, rice, copra, Minerals: copper, coal, nickel, tungsten, Energy: petroleum, natural gas | Accelerate growth, Cultural development, and Regional Stability |
| CIS (Commonwealth of Independent States) – 1991 | Minsk, Belarus | Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Uzbekistan | Crude oil, natural gas, gold, cotton, fibre, aluminium | Economic Integration, defence, and foreign policy matters |
| EU (European Union) EEC was formed in March 1957, & upgraded into the EU in 1993 | Brussels, Belgium | Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden | Minerals, chemicals, wood, paper, transport vehicles, optical instruments, clocks, works of art, antiques | Single market with a single currency |
| LAIA (Latin American Integration Association) –1980 | Montevideo, Uruguay | Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela | Various commodities | Economic cooperation and integration |
| USMCA (US-Mexico-Canada Agreement) – Earlier known as NAFTA (1994-2020) | — | United States, Mexico, Canada | Agro products, motor vehicles, automotive parts, computers, textiles | Trade liberalization and economic integration |
| OPEC (Organization of the Petroleum Exporting Countries) – 1960 | Vienna, Austria | Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, Venezuela | Crude petroleum | Coordinate and unify petroleum policies |
| GCC (Gulf Cooperation Council) – 1981 | Riyadh, Saudi Arabia | Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates | Crude oil, natural gas, petrochemicals | Economic, security, and cultural cooperation, unified economic policies |
| SAFTA (South Asian Free Trade Area) – 2006 | Kathmandu, Nepal | Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka | Various commodities | Reduce tariffs on inter-regional trade |
Please Note:
- ASEAN: Myanmar (Burma) joined in 1997, and Cambodia in 1999.
- CIS: Georgia withdrew in 2008; Turkmenistan is an associate member.
- EU: The United Kingdom left the EU on January 31, 2020 (Brexit). It is India’s second-largest trading bloc, accounting for around 20% of Indian trade.
- LAIA: Established in 1980, replacing the Latin American Free Trade Association (LAFTA) of 1960.
- USMCA: Replaced the North American Free Trade Agreement (NAFTA) in July 2020.
- OPEC: Indonesia suspended its membership in 2016; Qatar withdrew in 2019.
- SAFTA: Afghanistan became the 8th member in 2011.
Gulf Cooperation Council (GCC)
The GCC was established in an agreement concluded in 1981.
- All its members are monarchies: Saudi Arabia, UAE, Bahrain, Kuwait, Oman and Qatar. It notably excludes Iran and Iraq due to the Gulf rivalry.
- GCC is a regional intergovernmental Organization:
- Political Union: Defence Planning Council
- Economic Integration: Aims to becomea Common Market and a Customs Union. It also has plans for a common Currency.
- It pursues unprecedented structural reforms to reduce dependence on Oil.
- As a single trading partner, GCC is our largest partner, with almost $160 billion in trade. If we consider our trade with two other countries in the Gulf region, Iraq ($21.5 billion) and Iran ($15 billion) the trade with the region becomes $195 billion. Additionally, we get $30 billion annually as remittances from the GCC countries.
- Add all this up and our economic relationship with the region becomes $225 billion. This is more than the combined trade with ASEAN and China; or the entire EU and US.
Organization of Petroleum Exporting Countries (OPEC)
The Organization of the Petroleum Exporting Countries (OPEC) is an international cartel of oil-exporting countries formed in 1965. It is headquartered in Vienna, Austria.
As of 2025, OPEC comprises 12 member countries:
- Founding Members (1960): Iran, Iraq, Kuwait, Saudi Arabia, Venezuela
- Subsequent Members: Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria.
Notably, around 2-3rd of OPEC’s reserves are located in the Middle East, encompassing six member countries.
Importance of OPEC
- These nations collectively represent approximately 38% of global oil production.
- They hold about 79.5% of the world’s proven oil reserves.
- Controlling the Supply of Crude: Since the 1980s, OPEC has been setting production targets for its member nations to manage oil prices and supply. This way, it influences the international crude price.
Notably, OPEC has not been involved in any disputes regarding competition rules within the World Trade Organization (WTO), despite such anti-competitive practices.
| Crude Oil Benchmarks |
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The world generally follows major Crude oil benchmarks as a reference for buyers and sellers. The most followed benchmarks around the world are:
These benchmarks play a crucial role in the global oil market, influencing pricing and trading decisions. |
USMCA – United States-Mexico-Canada Agreement:
It is a trade agreement that replaced the North American Free Trade Agreement (NAFTA) in 2020, aiming to modernize trade relations among the three countries by addressing issues like digital trade, labour standards, environmental protection, and automotive manufacturing.
Caribbean Community (CARICOM):
Anguilla, Bermuda, British Virgin Islands, Cayman Islands and Turks and Caicos Islands are Associate Members of the Community. The British Virgin Islands and the Cayman Islands are often in the news for their status as tax havens (Panama leaks).
Community of Latin American and Caribbean States (CELAC):
It is a regional bloc of 33 sovereign countries in the Latin American and Caribbean with a total of about 600 million people, a land area 6 times bigger than India with a GDP of US$ 3 trillion.
- CELAC is the successor of the Rio Group and the Latin American and Caribbean Summit on Integration and Development (CALC).
- Some of the other members are Mexico, Bahamas, Brazil, Chile, Peru etc.
Limitations of Regional Trade Blocs
Despite their importance in International trade, the regional trade agreement has several limitations. While regional blocs can promote economic growth within their regions, they may also create several new issues:
- Segmentation of World Economy: These divide the world economy into several pockets, and there is very little integration between the two blocks. This makes business between the countries of two different blocks very difficult.
- This also creates Cartelisation and monopolistic practices, as in the case of OPEC.
- Exclusion of Developing Countries: As a result, it excludes developing countries such as in Africa from the larger world economy. Thus, such countries perpetually lag behind in development from the developed countries.
- Trade Diversion: Shifting trade from more efficient non-members to less efficient member countries. For example, Before RCEP, India exported significant amounts of machinery and textiles to Southeast Asian countries. However, with lower tariffs on Chinese products under RCEP, these countries began importing more from China instead of India.
- Modern Trade Issues: They are unable to address emerging trade concerns like digital commerce, intellectual property rights, and environmental protection.
Therefore, the need for WTO was felt and eventually, negotiations started under GATT.
WTO versus the Regional Trade Blocks
The World Trade Organization (WTO) and regional trade blocs share the common goal of promoting trade but operate on different scales and frameworks.
Since the 1950s, several regional trade blocks emerged in order to boost economic linkages in the various regions of the world. However, these blocks have certain disadvantages, as seen above, and therefore a need was felt to create a single trade block for the whole world.
Thus, WTO was established in 1995, as a global organization with 164 member countries. It provides a multilateral platform to regulate and facilitate international trade by reducing trade barriers, establishing dispute settlement procedures, and enforcing agreements on goods, services, and intellectual property.
The WTO aims to promote free trade worldwide under a single set of rules, fostering global economic integration and stability. Despite this, the Regional trade agreements thrive.
Related FAQs of Regional Trade Blocks
A regional trade bloc is a group of nearby countries that agree to reduce or eliminate trade barriers like tariffs and quotas among themselves. It helps boost trade, improve regional cooperation, and strengthen supply chains by making it easier to do business within the group.
The WTO is a global platform with 164 countries promoting free trade under one rulebook, while regional trade blocs focus on specific regions. Unlike the WTO, blocs may form deeper ties like customs unions or shared currencies, but they can also lead to economic fragmentation.
Sure! A Free Trade Area like USMCA removes tariffs between members. A Customs Union like Mercosur adds a common external tariff. The EU is a full Economic Union, sharing a single currency and economic policy. Each type shows deeper integration.
India is part of SAFTA and engages with ASEAN, EU, and GCC. The Gulf region is India’s top trade partner, contributing $225 billion in trade and remittances. India also benefits from proximity to Southeast Asia and ties with Africa and Latin America.
While they boost intra-regional trade, they can also divide the global economy, exclude developing nations, create monopolies (like OPEC), and divert trade from more efficient non-members. They also struggle with modern issues like digital trade and climate policies.
