Negative impact of regional block on export marketing
Negative Impact of Regional Blocks
These are as follows
1. Regionalism versus Multinationalism: Trading blocks bear an inherent bias in favour of their participating countries. For example, NAFTA, a free trade agreement between the United States, Canada and Mexico, has contributed towards an increased flow of trade among these three countries.
2. Concessions: No country wants to let foreign firms to gain domestic market share at the expense of local companies without getting something in return of it. Any country that wants to join a trading block must be prepared to make concessions.
3. Common External Barriers: The member countries of the trading block may impose common external barriers over their non-members. These common external barriers may be in the form of tariff and non-tariff barriers. 4. Collective Bargaining by Member Nations: The members of the trading block collectively bargain with non-members in relation to trade related matters. Because of their collective bargaining power, the non-member nations stand at a disadvantage.
5. Distortion of Trade: Trading blocks are very likely to distort world trade, and reduce the beneficial effects of specialisation and the exploitation of comparative advantage.
6. Loss of Sovereignty: A trading block which is coupled with a political union, is likely to lead to atleast partial loss of sovereignty for its participants. For example, the European Union that was started as a trading block in 1957 by the Treaty of Rome, has transformed itself into a far reaching political organisation which deals not only with trade matters, but also with human rights, consumer protection, greenhouse gas emissions and the other issues which are unrelated or only marginally related to trade.
7. Loss to Developing National: The resources of the less efficient country in the region will get exploited by the firms of the advanced country of the region. The less developed countries of the region will become mostly a consumption centre whereas the advanced countries of the region will become the production centres. The less developed countries will become still poorer countries while advanced countries of the region will become still richer countries.
8. Interdependence: As trading blocks increase trade among the participating countries, they become increasingly dependent on each other. Any disruption of trade within a trading block because of natural disaster, conflict or revolution may have severe consequences over the economies of all participating countries.
9. Inefficiencies and Trade Diversion: Inefficient producers present within the block can be protected from more efficient ones which are outside the block. For example, inefficient European farmers may be protected from low-cost imports from developing countries.
