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Trading blocsA regional trading bloc is a group of countries within a geographical region that protect themselves from

imports from non-members. Trading blocs are a form ofeconomic integraon, and increasingly shape the

paern of world trade. There are several types of trading bloc:

Preferenal Trade Area

Preferenal Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tari

barriers on selected goods imported from other members of the area. This is oen the rst small step towards the

creaon of a trading bloc.

Free Trade AreaFree Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or eliminate barriers to

trade on all goods coming from other members.

Customs Union

A customs union involves the removal of tari barriers between members, plus the acceptance of a common

(unied) external tari against non-members. This means that members may negoate as a single bloc with 3 rd

pares, such as with other trading blocs, or with theWTO.

Common MarketA common market is the rst signicant step towards full economic integraon, and occurs when member

countries trade freely in all economic resources not just tangible goods. This means that all barriers to trade in

goods, services, capital, and labour are removed. In addion, as well as removing taris, non-tari barriers are also

reduced and eliminated. For a common market to be successful there must also be a signicant level of

harmonisaon of micro-economic policies, and common rules regarding monopoly power and other an-

compeve pracces. There may also be common policies aecng key industries, such as the Common

Agricultural Policy (CAP) and Common Fisheries Policy (CFP) of the European Single Market (ESM).

The European Union (EU)

The EU is the worlds largest trading bloc, and second largest economy, aer the USA.

The EU was originally called the Economic Community (Common Market, or The Six) aer its formaon following

the Treaty of Rome in 1957. The original six members were Germany, France, Italy, Belgium, Netherlands, and

Luxembourg.

The inial aim was to create a single market for goods, services, capital, and labour by eliminang barriers to trade

and promong free trade between members.

In terms of dealing with non-members, common tari barriers were erected against cheap imports, such as those

from Japan, whose goods prices were arcially low because of the undervalued yen.

By 2009, following connuous enlargement, the EU had 27 members:

Austria Germany Norway

Belgium Greece Poland

Bulgaria Ireland Portugal

Cyprus Italy Romania

Czech Republic Latvia Spain

Denmark Lithuania Slovenia
http://www.economicsonline.co.uk/Global_economics/Economic_integration.htmlhttp://www.economicsonline.co.uk/Global_economics/Economic_integration.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/The_WTO.htmlhttp://www.economicsonline.co.uk/Global_economics/The_WTO.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.civitas.org.uk/eufacts/FSTREAT/TR1.htmhttp://www.economicsonline.co.uk/Global_economics/Trade_protectionism.htmlhttp://www.economicsonline.co.uk/Global_economics/The_WTO.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.civitas.org.uk/eufacts/FSTREAT/TR1.htmhttp://www.economicsonline.co.uk/Global_economics/Economic_integration.html


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Estonia Luxembourg Slovakia

Finland Malta Sweden

France Netherlands UK

The main advantages for members of trading blocs

Free trade within the bloc

Knowing that they have free access to each other's markets, members are encouraged to specialise. This means

that, at the regional level, there is a wider applicaon of the principle of comparave advantage.

Market access and trade creaon

Easier access to each others markets means that trade between members is likely to increase. Trade creaton

exists when free trade enables high cost domesc producers to be replaced by lower cost, and more ecient

imports. Because low cost imports lead to lower priced imports, there is a 'consumpon eect',

with increased demand resulng from lower prices.

See:Trade creaon and trade diversion

Economies of scale

Producers can benet from the applicaon ofscale economies, which will lead to lower costs and lower prices for

consumers.

Jobs

Jobs may be created as a consequence of increased trade between member economies.

Protecon

Firms inside the bloc are protected from cheaper imports from outside, such as the protecon of the EU shoe

industryfrom cheap imports from China and Vietnam.

The main disadvantages of trading blocs

Loss of benets

The benets of free trade between countries in dierent blocs is lost.

Distoron of trade

Trading blocs are likely to distort world trade, and reduce the benecial eects of specialisaon and the

exploitaon ofcomparave advantage.

Ineciencies and trade diversion

Inecient producers within the bloc can be protected from more ecientones outside the bloc. For example,

inecient European farmers may be protected from low-cost imports from developing countries. Trade diversion

arises when trade is diverted away from ecient producers who are based outside the trading area.

See:Trade creaon and trade diversion.
http://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Business_economics/Economies_of_scale.htmlhttp://ec.europa.eu/enterprise/sectors/footwear/index_en.htmhttp://ec.europa.eu/enterprise/sectors/footwear/index_en.htmhttp://ec.europa.eu/enterprise/sectors/footwear/index_en.htmhttp://www.economicsonline.co.uk/Business_economics/Efficiency.htmlhttp://www.economicsonline.co.uk/Business_economics/Efficiency.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Business_economics/Economies_of_scale.htmlhttp://ec.europa.eu/enterprise/sectors/footwear/index_en.htmhttp://ec.europa.eu/enterprise/sectors/footwear/index_en.htmhttp://www.economicsonline.co.uk/Business_economics/Efficiency.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.htmlhttp://www.economicsonline.co.uk/Global_economics/Trade_creation.html


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See:EU Sugar Case

Retaliaon

The development of one regional trading bloc is likely to smulate the development of others. This can lead to

trade disputes, such as those between the EU and NAFTA, including the recent Boeing (US)/Airbus (EU) dispute.

The EU and US have a long history of trade disputes, including the dispute over US steel taris, which were

declared illegal by the WTOin 2005. In addion, there are the so-called beef wars with the US applying 60m taris

on EU beef in response to the EUs ban on US beef treated with hormones; and complaintsto the WTO of each

others generous agricultural support.

During the 1970s many former UK colonies formed their own trading blocs in reacon to the UK joining the

European common market.

TRADING BLOCKS

hp://commerce.nic.in/trade/internaonal_trade.asp
http://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.wto.org/english/tratop_e/dispu_e/cases_e/ds316_e.htmhttp://www.economicsonline.co.uk/Global_economics/The_WTO.htmlhttp://www.economicsonline.co.uk/Global_economics/The_WTO.htmlhttp://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htmhttp://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htmhttp://commerce.nic.in/trade/international_trade.asphttp://www.economicsonline.co.uk/Global_economics/Common_Agricultural_Policy.htmlhttp://www.wto.org/english/tratop_e/dispu_e/cases_e/ds316_e.htmhttp://www.economicsonline.co.uk/Global_economics/The_WTO.htmlhttp://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htmhttp://commerce.nic.in/trade/international_trade.asp


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