Economy /
Why Trade Blocs in Emerging Regions Lack Political Power
The second part of the 20th century was marked with the creation of many of today’s most powerful trade blocs. Emerging regions also have them, but their political posturing has made these trade blocs lack political power.
These blocs have not only acted as tools for economic growth, but also as effective platforms for the solution of political problems.
The steps taken by trade blocs in emerging regions can shape the future of these regions and its neighbours. One of them, a recent ASEAN (Association of Southeast Asian Nations) report “ASEAN Outlook on the Indo-Pacific” will have long lasting consequences.
Increasing intra-region trade is the most visible impact of trade blocs in emerging regions. Conventional wisdom suggests that trade with geographically close neighbours should take up a significant share of the total exports. In the 21st century, with some shipping routes seeing as much as 400 ships sailing every day, close distance is no longer a reliable indicator of close trade relations.
Just after Vietnam entered the ASEAN trade bloc, the intra-regional trade of Thailand (a founding member) and Vietnam was very low, at $797.6M in 2001. After a few years of the entry of Vietnam into ASEAN, in 2005, the exports from Thailand to Vietnam grew to $2.4B. That’s a very large growth in trade (almost three times increase), for a relatively short period of time.
Although it is not always the case, worsening foreign relations between neighbours close in distance tend to ihave a very large impact. Countries which are separated by large distances, even if they are going through a dispute, are more likely to solve it through diplomatic tools.
In countries that share borders, the citizens are far more likely to bear the impact of any disputes. Difficulties with crossing the borders (or even complete closures), discouragement of travel and trade tend to have a larger impact on day-to-day problems than diplomatic condemnations.
It is not a secret that trade promotes closer relations between different countries. These closer relations can manifest themselves politically (the EU) or by simple human curiosity (the Western fascination with China). This means that increasing intra regional trade, brought on by the creation of trade blocs, can create better relations between neighbours. Since chilly relations of countries close in distance tend to have a large impact on all spheres of the daily life of citizens, trade blocs of emerging regions bring a hidden positive impact for regions that really need it.
Being a member of trade bloc has facilitated the intra-bloc trade of countries in emerging regions. Not only have memberships for Thailand and Vietnam in ASEAN helped to increase their export numbers (Vietnam’s exports to Thailand grew by $4.3B from 2001 to 2017). Better foreign relations and higher degree of inter-governmental cooperation (e.g. in the tourism industry) have been some of the consequences.
There’s power in numbers. And for developing countries in trade blocs, this power shows itself through stronger bargaining power with larger partners. ASEAN countries separately wield low to moderate geopolitical power relative to other countries. Together, ASEAN is able to bring strong and unyielding position to negotiations with United States and China.
The membership of emerging countries in the same trade bloc gives them one more place to solve cross border issues. Another place for politicians and diplomats to meet and negotiate means a lower probability of prolonged disputes.
A strong case for trade blocs for emerging regions is made by their ability to increase the speed of specialization. Trade blocs tend to contain countries with similar climatic conditions, and often terrains. Because of similar climatic conditions, countries belonging to the same trade bloc tend to export similar goods.
Just after entering the ASEAN trade bloc (in 2001), Vietnam’s oil seeds and oleaginous fruit exports stood at $71M. In 2018, after trading with bloc members with more vast oil seed and oleaginous fruit reserves (Indonesia and Myanmar), Vietnam’s exports of these products were at stagnant $70M.
Without entering the ASEAN, this quick process of specialization wouldn’t have been possible.
Quickly crystallizing main strengths is essential for successful development for countries in emerging regions. Giving money to hardly competitive industries like oil seed in Vietnam, or betting everything on a turnaround in exports, isn’t the most efficient way of improving the lives of people in emerging regions.
Memberships in blocs with similar exports helps to avoid unneeded government spending to less competitive industries. Moreover, it helps to focus on the truly competitive exports, and to orient the governmental attention to them.
Benefits wouldn’t exist without drawbacks. Disputes between bloc partners and throwing away members because of political posturing is a common occurrence in trade blocs of emerging regions.
Trade blocs in emerging regions have been used as tools for political posturing, and for gaining the support of important partners. The famous exclusions of Venezuela and Paraguay from Mercosur has shown that zero sum games in foreign relations prevail in emerging countries. The animosity and allegations of these countries against each other have destabilized the rather successful functioning of Mercosur, and harmed both of these two states.
Trade blocs in emerging economies can also act as mediums for gaining the support of richer or more developed partners. The earlier mentioned “ASEAN Outlook on the Indo-Pacific”, a document which asserts ASEAN’s power related to region’s maritime issues, has already been met with positive response from USA. Without ASEAN, gaining the support and attention from more developed partners would have been far harder for the member countries.
SAARC (South Asian Association for Regional Cooperation) has shown how trade blocs can fail as tools for closer cooperation. The ability to solve cross border issues easily helps to develop the economies of emerging regions, and avoid prolonged disputes, which are rather costly. SAARC, because of a lack of will of the member countries, and pre-existing animosities, has now largely been labelled as a defunct organisation.
For countries in emerging regions, regional trade blocs can offer better help during fragile times than other international organisations.
Regional trade blocs of emerging economies are more likely to focus on region-appropriate solutions. What works for countries in Europe may not be appropriate for countries in Latin America.
Moreover, solving an issue for regional trade blocs is a high stakes game, compared to international organisations. An unsolved issue, such as the recent economic collapse of Venezuela, directly affects other members of Mercosur. If the issue goes unsolved any longer, the impacts on the members of the bloc will be far more severe than to members of other international organisations.
Export specialization, stronger geopolitical power, and growing trade benefits members of trade blocs in emerging regions. Without political will and willingness to compromise, these blocs will lack the political power necessary for development.
