Trading Blocs

A regional trading bloc is a group of countries within a geographical region that

protect themselves from imports from non-members.
(A group of countries who have joined together to promote trade. This might be
through relaxing protectionist barriers or even having a common currency.
Examples of trading blocs include the EU, NAFTA and ASEAN)

Types of Trading Blocs:

- Preferential Trading area
- Free trade area
- Customs Union
- Common Market

Features of Trading blocs:

Barriers of entry
Implies a reduction or elimination of barriers to trade
Applies only to the member countries of the trading blocs, generally discriminatory to
outside countries
Advantages:
Firms can enjoy economies of scale, in a trading bloc, firms can produce goods and
services with a lower average cost because trading blocs allows firm to have large scale
of production

Trading blocs brings firms closer to each other and create greater competition,
consumers will be benefited with better quality of goods and services in a lower price,
they will have more choices

Firms within the bloc can enjoy a tariff free environment

Countries within the trading bloc can have more international bargaining power

Disadvantages:
- unfair against countries out of the Trading Blocs
- Groups not within the Blocs have to pay Tariffs in order to transfer goods
- Countries within the Blocs have to pay higher price to buy goods input from countries out of the
Blocs
- May take over local producers
- Workers are often exploited by global companies and paid low wages for long hours
(On joining Trading Blocs)
-Loss of Sovereignty
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
organization 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.

Case Study: The European Unions trading bloc

The EU is the world's biggest trading bloc consisting of 27 member states.

The European Economic Community was first formed in 1958 by six countries
(Belgium, The Netherlands, France, Luxembourg, Italy and West Germany.
The Union has slowly grown ever since with the latest two countries (Romania and
Hungary) joining in 2007. The EU now covers a population of over 500 million
people and accounts for over 25% of global GDP. One aim of the EU was to create
a single market where goods, money and people could travel freely between
member states.
Seventeen of the member states also joined in the use of a single currency, the
EURO. The seventeen countries make up the an area called the Eurozone. The aim
of the single market was to promote trade between member countries.
Through the relaxation of protectionist policies, the free movement of labour and
even the removal of exchange rates for Eurozone countries it was believed that all
member states would benefit through increased job creation and income.
Despite the EU helping growth in many member countries the current global crisis
has hit the EU and in particular the Eurozone hard. Massive debts held by some EU
member countries (Greece, Portugal, Ireland, Italy, Spain) has forced the larger

economies of Germany and France to offer financial support slowing growth

across the EU.
The common currency has also meant that countries can no longer set their own
interest rates which have harmed countries trying to slow growth or increase
growth through the use of lowering or increasing interest rates.