No need to be fazed by economic blocs

Although the Doha Round of negotiations on trade flows is practically stalled, due to deep differences between the West and the BRICS nations, the liberalisation of international trade is indirectly — and rapidly — moving ahead through free trade agreements (FTA) between countries and economic blocs.

With the exclusion of the EU — which has been driven by the financial crisis to change and relinquish its policies related to the so-called national sovereignty and strengthen its competitiveness — there are several approaches being embraced by countries and economic blocs to establish free trade areas. It indicates radical shifts in the nature of international trade, which may lead to significant trade liberalisation.

There is the Nafta group — encompassing the US, Canada and Mexico as well as the Association of Southeast Asian Nations (Asean) in addition to the ongoing negotiations between China and India, to establish a free trade zone, putting aside their regional disputes and political differences.

Yet, the most exciting development in this respect with significant repercussions on international trade is the agreement between 16 countries from Asia and the Pacific Ocean, — including the world’s second and third largest economies China and Japan — to create the world’s largest free trade area.

The bloc of 16 countries seeks to reach by 2015 an agreement that provides for the creation of a free trade zone covering 3 billion people — equal to half the size of the global market — and accounts for a third of the global GDP.

Competition

Among other consequences, this means the competition will heat up, putting small countries and economic groups in an awkward and unenviable situation, because of potential difficulties regarding developing their exports to big markets. They will suffer the imposition of customs duties at a time when FTZ products are exempted from such fees.

It seems that the issue of national sovereignty for economic decision-making has become less sensitive for most countries, which do not mind abandoning this right in favour of the big gains that they will earn from being part of economic alliances.

Meanwhile, Arab states are still sensitive to this issue a regional free trade area still faces difficulties since it was agreed in principle 2002.

This is at a time when small economies are most in need of free trade zones, as the size of their economies does not allow for the development of productive sectors without export outlets that allow them to expand production, reduce costs and raise competitiveness. But this would require them to reconsider their sovereign economic rights.

It is clear the approach towards liberalisation of international trade — which will grow by 3.3 per cent this year to $19 trillion (Dh70 trillion) according to the WTO — will expand further. Apparently, major economic blocs are supporting this approach through practical steps.

The financial crisis has created momentum in this direction, with China taking the initiative to provide support to EU countries and help them get out of the financial crisis.

Responding positively to this global approach is a priority for small countries, whether by creating economic blocs or the unification of economic policies as is the case in the GCC, or by entering regional blocs, as is the case with Luxembourg or Brunei. Luxembourg is a member of the EU, while Brunei is part of Asean.

Rapid developments do not offer many options. With the passage of time, the competition becomes fiercer, leading to changes in many constant principles in international economic and trade relations, which in turn requires to rapidly coping with these developments and utilising them in enhancing growth and improving the conditions of competition.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.