Disadvantages of Joining Trading Blocs

Trading blocs appear to only bring countries closer through economic integration. Trade blocs may increase cross-border trade between participating countries, but sometimes they present obstacles to a more comprehensive international trade regime that would involve most of the world's countries, not just a select few.

Trading blocs 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 to an increased flow of trade among these three countries. Trade among NAFTA partners has risen to more than 80 per cent of Mexican and Canadian trade and more than a third of U.S. trade, according to a 2009 report by the Council on Foreign Relations. However, regional trading blocs achieve relatively high integration of regional economies by establishing tariffs and quotas that protect intra-regional trade from outside forces, according to the University of California Atlas of Global Inequality. Rather than pursuing a global trading regime within the World Trade Organization, which includes the majority of the world's countries, regional trade bloc countries contribute to regionalism rather than global integration.

A trading bloc, particularly when it is coupled with a political union, is likely to lead to at least partial loss of sovereignty for its participants. For example, the European Union, started as a trading bloc in 1957 by the Treaty of Rome, has transformed itself into a far-reaching political organisation that deals not only with trade matters, but also with human rights, consumer protection, greenhouse gas emissions and other issues unrelated or only marginally related to trade.

No country wants to let foreign firms gain domestic market share at the expense of local companies without getting something in return. Any country that wants to join a trading bloc must be prepared to make concessions. For example, in trading blocs that involve developed and developing countries, such as bilateral agreements between the U.S. or the EU and relatively poor Asian, Latin American or African countries, the poor countries may have to allow multinational corporations to enter their home markets, making some local firms uncompetitive.

Because trading blocs increase trade among participating countries, the countries become increasingly dependent on each other. A disruption of trade within a trading bloc as a result of a natural disaster, conflict or revolution may have severe consequences for the economies of all participating countries.