Trade Blocs

Trade Bloc - a group of countries who agree to reduce/eliminate trade barriers among members

Preferential Trade Area - lowest form of trade bloc; countries agree to lower but not eliminate trade barriers

Free Trade Area - member countries eliminate barriers between each other but maintain separate policies for external countries - e.g. NAFTA (USA, Mexico, Canada)

Customs Union - eliminate internal barriers but agree on common external barriers - e.g. Russia, Belarus, Kazakhstan

Common Market - eliminate internal barriers, common external barriers and free movement of resources among member countries - e.g. Mercosur (South American Countries)

Economic Union - all of the above and adopt uniform set of economic policies - e.g. EU (adopting 'euro')

Full Integration - e.g. USA


Positives of grouping nations (using EU and NAFTA as examples):

- EU - freedom of people to live and work within trade bloc

• economically active population has plenty more employment opportunities
• facilitates emigration to another country

- Promotion of peace between its members

• EU's initial establishment as the 'European Economic Community' formed after WW2 for cooperation
• EU - no longer any credible threats of war between members due to social, economic and political cooperation

- Increased trade opportunities due to reduction of trade barriers

• lack of tariffs = country can more efficiently import goods as less money spent overcoming trade barriers
• Economies grow as money spent on economically developing the country/raising standard of living/developing production in other industries
• NAFTA - due to almost complete reduction of trade barriers, merchandise trade > tripled since establishment until 2008 - contributing to soaring GDP growth (surpassing $17 trillion in 2008)

- Less developed areas in international groupings benefit economically

• NAFTA - Mexico's growing economy opened country up to outside investment  and has become one of the largest recipients of FDI among emerging markets ($156 billion from NAFTA partners between 1993-2008
• EU Regional Fund allocates funds distributed to support underdeveloped parts of the EU - Poland benefitted and as a result been able to shift from state-controlled economy to more market orientated
• EU - areas in UK also benefitted from funds to improve local development - South Wales, Lake District, Cornwall

- EU - agreed policies to protect the environment

• in 2007 EU agreed to use 20% renewable energy and to cut carbon emissions by 2020
• forestry expansion scheme = success - increasing 10% in west and 15% in east

            - reduced  amount of CO2 released into atmosphere
            - creating more animal habitats
            - protecting existing forests from threat of logging



Negatives of grouping nations (using EU and NAFTA as examples):

- EU - problems due to uncontrollable migration - e.g. Poland --> UK migration in 2004

• shortage of economically active people in Poland - skilled workers moved where salary was higher ('brain drain')
• social tension in destination country
• shortage of work and housing in destination country

- obligation to share resources has damaged some economic sectors

• EU - UK sharing its traditional fishing grounds with France and Spain - fishermen argue there is "too many fishermen chasing too few fish"
• countries may have shared preferences in fish --> overfishing of one species --> threatened coastal ecosystem as food chains disrupted

- membership = expensive - UK contributions to EU about £12 billion a year

- pressure on countries to adopt centralised decisions

• EU's Social Chapter - which UK opted out of as they felt that workplace regulations should be negotiated between employer and employee, without European interference
• could lead to loss of sovereignty

Over time, the trade bloc may be strengthened as countries establish successful trade links between countries and less developed areas continue to grow through regional funds and well developed trade links. However countries may become increasingly aware of the fact that many of their regulations are being controlled centrally - leading to increasing separatist movements.