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4.1.5 Trading Blocs - Coggle Diagram
4.1.5 Trading Blocs
Types of Trading Blocs
Regional Trade Agreement (RTA)
Examples
European Union
The European Union is the most tightly integrated trade bloc, because it combines common external tariffs, with the free movement of labour and for many nations, a common currency in the Euro.
The European Union is a trade bloc made up of 28 European nations (as of 2018).
Mercosur
Mercosur is an economic grouping of Argentina, Brazil, Paraguay and Uruguay.
It was established by the Treaty of Asuncion in 1991.
Mercosur does have an external tariff on goods from outside the trade bloc.
COMESA
COMESA is a grouping of 19 countries in east and southern Africa.
Its members include Kenya, Libya, Egypt, Madagascar, Mauritius and Zambia.
NAFTA
The North American Free Trade Agreement (NAFTA) is a trade bloc made up of the USA, Canada, and Mexico. In 2018, its name was changed to the USMCA.
NAFTA supports free trade between its three members. Removing internal quotas and tariffs is the aim of the organisation.
NAFTA does not have common external tariffs on nations outside the 'customs union' or 'trade bloc'.
ASEAN
The Association of Southeast Asian Nations is a trade bloc of 10 Asian countries, including Indonesia, Malaysia, Singapore, the Philippines, Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam.
Preferential Trade Agreement (PTA)
A type of trading bloc where certain types of products from participating countries receive a reduced tariff rate
This is the beginning of the process of economic integration and a PTA may become a free trade area over time
Free Trade Area (FTA)
A region where member states remove all trade barriers between themselves, but each member state nevertheless keeps different barriers against non-member states
Customs Union
A group of countries who agree to remove barriers to trade between the union and enforce common trade barriers to those outside of the union.
Member states adopt a common set of barriers against non-members
Quality regulations are usually standardised within a customs union and people outside the union have to meet these regulations
There are usually no tariffs or quotas between members of a custom union.
There is usually a common tariff on goods coming from countries outside of the customs union
Economic Union
A type of trade bloc involving both a customs union and a common market
Common Markets
A market where goods, labour and capital can move freely across the member states; tariffs are generally removed and non-tariff barriers eliminated, or at least reduced.
This is more integrated than free trade arrangements or customs unions.
Workers can relocate from one country to another without restriction.
Members of a common market must work together on economic and political policies that affect the market
Single Markets
A market where almost all trade barriers between members have been removed and common laws or policies aim to make the movement of goods and services, labour and capital between countries as easy as the movement within each country.
A common market is generally the starting point for the creation of a single market
Borders, standards and taxes are harmonised as much as possible to minimise interference between members
The EU is a single market but also a monetary and economic union
Advantages
Access to other markets without exports being penalised
Manufacterers can import from bloc members without tariffs
Possibility of Economies of scale
Spreading of risk
A trading bloc creates a larger market which attracts FDI from outside
Greater competition within trade bloc can create efficiency within firms
Disadvantages
No protection for domestic industries from other bloc member's exports
Increased competition for domestic producers
A common external tariff in a Common market can increase costs of raw materials/supplies from outside
Reaching agreement with member states can be difficult and time consuming
New rules and regulations may not suit all businesses
Evaluation
Trading blocs allow trade liberalisation to take place which leads to access new markets and be able to drive down costs through a reduction of barriers. However, there is some risks and competition but most of all these blocs allow more businesses to develop and gain more market share.
A group of countries that have signed a regional trade agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves.