Regional Trade Blocs as an Approach for DevelopmentInternational trade is recognized as a powerful instrument for development. It can be used as a tool to stimulate economic progress and to alleviate poverty through the opening of markets between countries. In theory, the reduction or removal of barriers for the movement of goods across national borders can help improve the efficiency in the allocation of scarce resources, enhances economic welfare and contributes to long-term economic growth. However, while there might well be long-term gains from the opening of markets, these participating economies are likely to face some adjustment costs as well. This paper explores the advantages and disadvantages of trade agreements within a region of developing countries and whether these agreements are ultimately beneficial for them.In general terms, international trade is beneficial in that it allows for profit from expanded markets without the limits of their own borders, it allows for specialized markets, and it solves the issue of lack or surplus of natural resources . For developing countries in particular, trade can be beneficial in many ways: It can help boost development and reduce poverty by generating growth through increased commercial opportunities and investment; it facilitates export diversification by allowing developing countries to access new markets and materials which open up new production possibilities; it expands business opportunities for local companies by removing border barriers and making it easier for them to export; it expands choice and lowers prices for consumers by expanding supply sources of goods and services and strengthens competition; and it creates employment opportunities by boosting economic sectors that create stable jobs and usually higher incomes, thus improving livelihoods .Regional trade agreements or trade blocs are agreements to reduce or remove barriers for trade among the participant countries. It is a means of taking advantage of the geographical proximity between countries to enlarged markets. It offers an alternative approach to increase trade, spur stronger economic growth, and lower unemployment rates among them . Five South American countries for example, have signed an agreement called The Common Market of the South (Mercosur) with the main purpose of promoting free trade and the fluid of movement of goods. These five member countries include Argentina, Brazil, Paraguay, Uruguay and Venezuela, which together encompass more than 260 million people, with a collective GDP of nearly $3 trillion dollars, making it the world’s fourth largest trading bloc after the European Union (EU), the North American Free Trade Agreement (NAFTA), and the Association of South-East Asian Nations (ASEAN) . Mercosur’s primary interest has been eliminating obstacles to regional trade, such as high tariffs and income inequalities. It has also stimulated cooperation among its members for greater opportunity for development. With the common objective of increasing socio-economic development in Latin America, Mercosur ensures its member countries secure a proper place in the international economy through its integration policies. Member countries can achieve the development goals they seek since international trade increases choice and lowers prices for consumers by expanding business opportunities as trade barriers are removed, making it easier for local companies to export their products. Furthermore, trading blocs offer an alternative approach to participating countries to lower unemployment rates . Member countries have preferential access to each other’s markets, therefore encouraging the purchase of goods and services from one another, instead of purchasing them from non-member states. An additional advantage for members of trading blocs is that they are encouraged to specialize. Specialization generates efficiency and productivity since countries have the opportunity to produce at a lower cost, thus creating a comparative advantage for member states . While Mercosur is not a perfect example of trading blocs, the tangible benefits it has brought on its member states can be seen through the overall growth since its inception. For example, Argentina’s 2013 exports to Mercosur members represented 26 percent of the country’s total exports compared to 2.2 percent in 1991, prior to the formation of Mercosur. Through this figure, it is visible how the country’s trade is highly integrated to its neighboring countries and how cooperation between Mercosur members is critical for the Argentinian economy . Moreover, the Latin American trade bloc allows for increased South-South assistance as opposed to North-South aid. The Canadian government for example, diverts foreign aid to developing countries where it holds trade and investment opportunities; it has become too evident that trade interests are increasingly winning over development oriented values for Canadian aid. Countries such as Colombia and Peru, are top receivers of foreign aid because Canada has signed free trade agreements them. Although, initially this seems to benefit those countries receiving aid, it is in fact the Canadian government and its multinational companies that end up benefiting from these deals. It would seem as if the implication for members of Mercosur who are left out from receiving assistance from Canada would be negative but it has actually increased south-south development in the region. An example of this is Brazil who has become a major donor by lending around 3.3 billion to neighbouring countries for social and agricultural programmes . In contrast, while it cannot be denied that the removal of tariff barriers between Mercosur countries has led to a noticeable expansion in trade between member states, it clearly came at the expense of non-Mercosur countries . Given Mercosur offers preferential treatment of goods originating in member countries, the treaty leaves non-member states at a disadvantage given that they continue to pay tariffs and therefore become less competitive. Trade diversion comes with the imposition of a common tariff on the goods produced by non-member states. This diversion of trade occurs when member countries import products from a high-cost member country instead of from a low-cost non-member. It severely affects neighbouring developing countries that are not part of Mercosur and gives benefits to less efficient producers . Non-member countries might produce these goods at a more effective cost than member countries, but the imposition of tariffs raises their overall costs leaving them “out of the game”. Another important point is that high-technology products, which are usually provided from developed countries, are key to help accelerate growth and innovation in developing countries. The problem being, is that Mercosur is composed exclusively of developing countries that do not necessarily produce these type of goods. Members tend to import goods from each other, which are not fully competitive in independent markets. Exports of machinery and transportation equipment to non-member countries are very low. This suggests that Mercosur countries actually lack a comparative advantage in many key areas when it comes to free trade, and its success is –mostly- dependant on intra-zone trade. Mercosur reduces access to high-technology imports from industrialized nations, limiting the opportunities for technical diffusion and the potential for faster growth which are crucial for the development of a nation. Trade with developed countries enhances domestic growth, but the imposition of trade barriers is clearly an obstacle for growth. In addition, the promotion of a common market where imported and exported goods are tax exempt also affects participant nations as they suffer from a reduction of tariff revenues. Tax revenues are important so that this money can be eventually re-invested in the country, promoting further growth and development. Further to this, local industries also suffer by the consequences of the “over-promotion” of international trade. By lifting tax barriers within Mercosur, economic giants like Brazil are likely to flood other member countries with their products harming local industries. This can result in an increase in unemployment rates leading to further increase poverty indices. The promotion of free trade agreements should always contemplate local industries, which ultimately provide employment opportunities, economic growth and increased stability for a nation. Mercosur started as a small block with an impending idea for future growth within commercial, economic and political development. It is now supposed to be a model bloc for the rest of Latin America through its success and promotion of a united trading bloc. Although there may have been advantages to this bloc, there have been more disadvantages. These include the constant tensions between the member countries. Relentless disagreement on policies, regulations and new signing members continues to undermine the authority and power the bloc has within Latin America. The idea of Mercosur is to promote cohesion within the bloc, however constant rule-breaking and illegal voting within only weakens their ability to grow as a global trading bloc . All five member countries are opting to further unite the countries by using a common currency in a similar way that Europe did. Mercosur is attempting to follow the European Union model in order to achieve economic success. Using one currency for these countries while indoctrinating the model of the E.U spells catastrophe. It can be argued that there have been many failures within Europe with the example of the economic crash in Greece, Spain and Ireland . The euro has dragged other countries into the economic downfall and caused detriment to the development of many. Mercosur following in pursuit would only cause grief. A common currency would isolate those countries further from the rest of South and Central America and it would constrain every country member involved within the bloc. Trading with other countries outside of Latin America takes away from producers and products within the region only strengthening the unequal power relationship within the North-South. After much debate about whether or not Mercosur promotes development in the South, it is still clear that the very existence of this bloc is contested terrain. It is agreed that Brazil is a major player within the bloc facilitating import/export development, however as previously mentioned, Brazil alongside Argentina hold the most economic power over the other 3 countries creating an unequal power balance .In essence, the benefits of regional trade blocs can be dubious. It can eliminate obstacles to trade such as high tariffs and income inequalities, stimulate economic growth, and promote cooperation among its member countries. On the downside, a bloc may well reduce the welfare of its members. Therefore, there should be considerations regarding the level of openness of trade blocs such as Mercosur to other markets. Bloc-isolation is not necessarily the best solution for trade. It essentially forces bloc members to trade with each other by discouraging trade with non-members (including other poor neighboring countries) and thus delaying development.If we take the case of Chile for example: In the past 25 years it has been growing at a fast and steady pace being considered by many a developed nation today.Chile is not a full member of Mercosur: Its’ free market policies are simply incompatible with Mercosur’s ideas. However, Chile participates as an associate member, having economic preferences with Mercosur members, but also being able to establish economic agreements with other countries (i.e. free trade agreement Chile-USA). Technology, investments, entrepreneurship and innovation along with solid economic policies and a strong government, has helped Chile to grow and build the solid economy they have today, while the rest of Latin-America is still trying to figure out what is the best way to achieve real development. Maybe Chile’s example is a good one to follow. An important positive effect is improved product variety. This makes the adjustment of the production structure less painful than is commonly assumed. If a trade bloc is set up for political reasons (e.g. to improve security) then it is desirable that it unilaterally lowers external tariffs so as to reduce trade diversion and income divergence. Mercosur is not good nor bad for development within the Global South, it needs to function as an integrated system involving economic as well as social interests for the people and their governments. It is a double-edged sword encompassing both advantages and disadvantages for the future to come. Social integration alongside economic prosperity will reaps benefits for Mercosur’s future as a sustainable driving force within global markets. With Chile as a leading example, Latin America as a whole can prosper.