against eachother, whilemaintaining theirindividual protection regimes forother trade. TheEuropean FreeTradeAssociation (EFTA)isaleading exponent, except forag~iculture. TheUnited States/Canada andUnitedStates/Israel FT~sandthe ~ustralia/New Zealand Closer Economic Relations TradeAgreement (CER)arerecent examples. LAFTAisoneoftheoldestfreetradeareas; (c)Customs unions, whicharelikeFTAsbuthaveacommon external tariff. TheEuropean Community (EC)isacustoms union, butalsogoesbeyond; (d)Common markets. TheEuropean Community hopestoseethecompletion ofa process in1992wherebyitistransformed fromacustoms unionintoacommon market inwhichmembers eliminate barriers totradeingoodsandservices aswellasto movements ofcapital andlabour; (e)Economic unions, withcomplete economic integration tothepointof commonfiscal, monetary (currency) andsocio-economic policies. Examples of complete integration ofthiskindare"federations" suchastheUnited States, the USSRandIndia. 78. The~e vario~s a~r~ngements aresometimes giventhegeneric titleof geograph~cally d1scr~m~natory trading arrangements (GDAs). 79.Th?anal~t~cal difficulty posedbysucharrangements isthattheyareatonce trade 11beral~z~ng (forthoseinside) andtraderestricting forthoseleftout. 80.Economics isnotverygood t .aanswer~n9 movesfromonedistorted policy toanother _ of.the':second best". Theveryconsiderable un10ns ~llustrates thisclearly. 81.Thecontribution ofthisextensive th. literature canbesummarized inthreeraer~nconclusive propositions: (a)Acountry canbebetter orworsdiscriminatory trading arrangem t d e,offfromparticipating ina andthatofitstrading partneren:te~e?d~ng onitssize,thenature ofitstrades,1s1n1t1al (reIt') hscopeforeconomies ofscalea dth a1veprotection levels, ten°erfactors; (b)Tariff reductions within a . arrangement mayor maynotb ' geogr~Ph~cally discriminatory trading thr~nglarger ga~n t droughnon-discriminatory reductions; s°acountry thancouldbeobtair:e (c)Theextent towhichglobal If arrangements issimilarly dependent o:eareisworsened bydiscriminatory trade thecircumstances ofthecaseinhand, -25-Afourthresult -andtheonlyconclusive one-isthatglobalwelfare willalways beincreased morethrough non-discriminatory reductions inprotection thanthrough discriminatory ones. yadecreation anddiversion 82.Themostbasictheoretical analysis oftheeffects oftrading blocsonthe welfareoftheirmembers hasbeenconducted. sinceJacobViner's (1950)seminal contribution. intermsoftheconcepts of"tradecreation anddiversion". 83.Tradecreation occurs whenpartner-country imports displace higher-cost domestic production and.through lowerprices. allowgreater domestic consumption oftheproducts concerned. generating additional tradeandraising realnational incomeintheprocess. 84.Tradediversion occurs whenincreased tradeamongtheregional partners exists merelyattheexpense oflower-cost imports fromoutside theblockwithout any increase intotaltradeorconsumption. thuslowering realnational income. 85.Trading blocsusually giverisetobothtradecreation andtradediversion. ~ethermembers gainoverall depends onwhichofthetwopredominates andwhether thefactorsdescribed belowapply. Economies ofscaleandspecialization 86.Aregional tradearrangement. byincreasing themarketforsuppliers within a region,opensthepossibility ofincreasing economies oflargescaleproduction. Thiscanmeanthatevenwherearegional arrangement initially causestrade diversion. subsequent scaleeffects couldreducethecostofthatdiversion and possibly outweigh itthrough incomeeffects. 87.Thepresence ofscaleeffects meansthat.inaddition toexpansion ofexisting trade.theremaybespecialization withinindustries andtradeatamore disaggregated product levelthanbefore. Scaleisthemaineconomic argument used tosupportregional trading blocsamongdeveloping countries. Increased productive efficiency 88.Importcompetition provides animportant discipline ondomestic firmsto minimize cestsandmaximize productivity. Totheextentthatthisisblunted by
**Analysis**
The text appears to be a discussion on the effects of regional trading blocs on international trade, focusing on the concepts of trade creation and diversion, economies of scale, and specialization. It seems to be an economic analysis, exploring the implications of these blocs on countries' welfare and trade patterns. The language and concepts used are technical and specific to the field of international trade, suggesting that the text is primarily concerned with this topic.

**Category**
International trade