Trading Blocs

Trading Blocs

Nowadays, the world is increasingly divided into trade blocs.

Two types of trading blocs are recognized by the WTO : the free trade

areas, where member states have removed all tariff barriers between

them but where each member states can set its own tariffs on imports

from non member countries ( EFTA, NAFTA, ASEAN, APEC) and the customs

union, where countries agree on common tariffs from non members and

remove all trade barriers between them ( like the EU, the Southern

Common Market MERCOSUR formed by Argentina, Brazil, Paraguay and

Uruguay).

However there are also the common market in which members allow full

freedom of factors flows (migration of labour and capital) among

themselves in addition to having a customs union and the full economic

union, in which member countries unify all their economic policies,

including monetary, fiscal and welfare policies as well as policy

toward trade and factor migration.

Trade blocs were formed in order to facilitate exchanges between

nations that look like to each other as far as economy, politics and

culture are concerned by removing tariff barriers between its members.

Free trade is the trade between nations without protective customs

tariffs.

Protectionism can be definite as the establishment of barriers to the

importation of goods and services from foreign countries in order to

protect domestic producers.

We can wonder if forming a trade bloc is a step toward free trade or a

step toward protectionism and what are the advantages and

disadvantages of forming a regional trade bloc like the EU.

I – Forming a trade bloc

1 – Forming a trade bloc : a step toward free trade

On the one hand, forming a trade bloc may seem to answer the...

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trade. As a consequence cheaper imports from non partners country may

be replaced by expensive imports from a better country. In that case,

it allows free trade between members while restricting imports from

outside countries.

9 – Redundancies

As competition is often tougher when the customs union is implemented,

regional trade agreements may entail rounds of redundancies.

The opening of markets led to much restructuring and downsizing due to

foreign competition.

Eventually, forming a trade bloc is a step toward free trade as it

simplifies exchanges, as it boosts the economies of the poorest

countries of the agreement and because it lowers prices by raising

competition. However, we can not but notice that it is a step toward

protectionism because it pushes back all the non member countries and

encourages discrimination between countries.