Since the fall of the Berlin Wall, former communist East European countries have slowly been transforming their centrally planned systems into market-based economies. As part of the process, many view European Union (EU) accession as the next step — which will further expand the European free trade area.

But the EU is not the only trade bloc with plans to grow larger. Currently, there are an estimated 130 bilateral and multilateral free trade agreements in force around the world. And most of these have been negotiated since just 1990.

Over time, many of these accords have evolved into trade blocs, such as the North American Free Trade Agreement (NAFTA), the Association of Southeast Asian Nations (Asean), the South Asian Association for Regional Cooperation, Mercosur, the Australia-New Zealand Closer Economic Relations Agreement, etc. As the number of accords rise — creating larger free trade areas — your business will be impacted, requiring you to develop new strategies to seize opportunities and minimize risks.

European Union Soon To Expand

The 15-member EU is comprised of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

Yet, its member states and population of 375 million consumers soon will increase, because the EU currently is negotiating with 13 additional countries to join the trade bloc. Accession negotiations for the Czech Republic, Hungary, Poland, Slovenia, Estonia, and Cyprus began on March 31, 1998, and on February 15, 2000 for Latvia, Lithuania, Slovakia, Bulgaria, Malta, and Romania. Accession discussions are also underway with Turkey. These countries represent 170 million consumers. If all accession candidates become members, the EU population will swell to 545 million, a number twice as big as the U.S.’s population. And this number is likely to get even bigger.

In April of this year, the EU backed a proposal by the U.K. and Sweden to consider admitting Ukraine, Belarus and Moldova. Although their membership is unlikely over the next decade, over the long-term, all Eastern European countries could become members. This will not only increase the EU’s number of consumers to 850-900 million, but will result in a much stronger and more economically powerful EU.

The European Union Has Come a Long Way

In April 1951, the European Coal and Steel Community was formed. Its success prompted the March 1957 signing of the Treaties of Rome, creating the European Economic Community (EEC) and the European Atomic Energy Community. In April 1965, the three organizations merged into the European Communities, referred to as the European Community (EC). In July 1968, the EC formally established a customs union.

In an attempt to become more globally competitive, in 1982 the EC agreed to further unify its market. In June 1985, the EC released a White Paper that detailed a timetable ending December 31, 1992 for the implementation of some 300 directives intended to eliminate all physical, technical and fiscal barriers to intra-EC trade. This body, now known as the EU, has matured into a common market.

The Trade Bloc Effect

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.

A common market, like the EU, goes even further. 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.

The Emerging Asian Trade Bloc Has Faltered

During the 1990s, 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), comprised of Malaysia, the Philippines, Singapore, Thailand, Brunei Darussalam, Indonesia, Myanmar, Cambodia, Laos, and Vietnam — the region appeared to be on its way to establishing a cohesive bloc.

Asian economic integration was primarily influenced by Japanese investment. But the Asian financial crisis of the late 1990s, 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. In November 2001, 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.

What This May Mean to Your Business

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. From 1993 through 2000, 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.

Reevaluate Your Global Strategy

In order to succeed in this dynamic international environment, exporters, importers and investors need to be aware of new and evolving trade agreements, the impact they may have on your business, and the steps to take to secure foreign marketshare.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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