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Step 1: Considering exporting

You are here:Step 1: Considering exporting >The various environments you will encounter abroad >The economic environment > Trading Blocs


 

 

Trading Blocs

 

An alternative to liberalising trade through out the world generally by removing tariffs and other barriers between countries, is for a group of countries to develop closer links by reducing trade restrictions amongst themselves, but at the same time leaving restrictions in place against the rest of the world. These groups of countries which pursue closer links with one another are referred to as trading blocs.

A trading bloc is a group of countries bound by a specific agreement which determines some or all of their international trade practices and which usually provides for common import tariffs on certain, if not all, goods.


There are different forms of economic links or integration, depending on the closeness of the ties adopted by the countries concerned:

  • A free trade area is the simplest kind of trading bloc. Tariffs and other barriers to trade are eliminated between member countries, but individually each country retains its own tariffs on imports from countries not included in the agreement. An example of a free trade area is the North American Free Trade Area (NAFTA) comprising the United States, Canada and Mexico.
  • A customs union goes one stage further. Besides abolishing tariffs amongst themselves, the countries concerned establish a common external tariff on goods imported from outside the union, and divide the customs revenue amongst the members according to a specific formula. South Africa has had a customs union, the Southern African Customs Union (SACU) agreement, in place with Botswana, Lesotho and Swaziland since 1910. Namibia joined this union in 1990.
  • In a common market, a common tariff is placed on imports from other countries. Within the common market, there is freedom of movement of labour and capital. In other words, restrictions on immigration, emigration and cross-border investment are abolished. The Common Market for Eastern and Southern Africa (COMESA), for example, has replaced the Preferential Trade Area (PTA).
  • In a monetary union, the countries concerned use the same currency or the rate of exchange for their currencies is fixed, and there is a common monetary policy. South Africa has a monetary union with Lesotho and Swaziland, and most of the countries of the European Union (except for Britain) have also formed a monetary union and use a common currency, namely the euro.
  • The creation of an economic union requires - in addition to the free movement of goods, services and factors of production across borders - integration of economic policies, such as the harmonisation of monetary policies and taxation, and the introduction of a common currency for all members. The European Union (EU) has made significant progress towards becoming an economic union. The EU comprises the following countries : Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, Sweden, The Netherlands and the United Kingdom.

Economic integration has the effect of stimulating efficient utilisation of capital, manpower and resources in the particular region because the capital tends to move to labour-rich or resource-rich locations. This arguably results in a more even development of the economy and a better distribution of income in the region. In addition, a manufacturer in a member country has access to a larger market. Increased production and competition result in more competitive markets both inside and outside the trading bloc.

On the other hand, it can be said that the creation of artificial barriers around a trading bloc constitutes an obstacle to the efficient growth of international trade in general.

 
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Step 1: more information

Step 1: Considering exporting
      The various benefits of exporting
      The various drawbacks to exporting
      The difference between domestic and export marketing
      The various environments you may encounter
            The sociocultural environment
            The legal environment
            The economic environment
                  Gross Domestic Product (GDP)
                  Disposable income
                  Demographic factors
                 Competitive and complementary products
                  Industrialised vs developing countries
                  Degree of government intervention
                  International trade agreements
            The political environment
            The technological environment
            The physical environment
      The various barriers you may face

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Learning to export...
The export process in 21 easy steps
Step 1: Considering exporting
Step 2:Current business viability
Step 3:Export readiness
Step 4:Broad mission statement and initial budget
Step 5:Confirming management's commitment to exports
Step 6: Undertaking an initial SWOT analysis of the firm
Step 7:Selecting and researching potential countries abroad
Step 8: Preparing and implementing your export plan
Step 9: Obtaining financing for your exports
Step 10: Managing your export risk
Step 11: Promoting the firm and its products abroad
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Step 14: Obtaining the export order
Step 15: Producing the goods
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Step 17: Export documentation
Step 18: Providing follow-up support
Step 19: Getting paid
Step 20: Reviewing and improving the export process
Step 21: Export Management
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