Trading+Blocks

Trading Blocks:

There are many different types of trading blocks:

Free Trade Area Sovereign countries belonging to the free trade area trade freely amongst them but have individual trade barriers with countries outside the free trade area. Examples include North American Free Trade Area (NAFTA) between the USA, Canada and Mexico; Asia Pacific Economic Cooperation (APEC) and COMESA (Common Market for Eastern and Southern Europe).



Customs Unions The countries are no longer fully sovereign over trade policy. There will be some degree of unification of custom or trade policies. They will have a common external tariff (CET) which is applied to all countries outside the customs union. A Customs Union differs from a Free Trade Area through the existence of a common tariff against outsiders. Members of a free trade area are free to set their own tariffs and quotas against non-member countries.



Common Market This trading bloc is a customs union, which has in addition the free movement of factors of production such as labour and capital between the member countries without restriction. Mercosur is an example of a common market comprising of a number of South American nations.

Economic Union This is a common market where the level of economic integration is more developed. The member states may adopt common economic policies e.g. the Common Agricultural Policy (CAP) of the European Union. They may have a fixed exchange rates between themselves. Indeed, they may have integrated further and have a single common currency. This will involve common monetary policy( monetary union). Political integration may also occur but doesn’t have to example the EU, which is working towards:
 * No customs posts between countries.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Identical product standards between countries, e.g., safety standards.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Harmonisation of taxes, e.g., income taxes and VAT.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">A common currency.

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;"> Benefits and Disadvantages of

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">You would generally think that these FTAs would be beneficial and often they are. <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">Greater competition leads to greater efficiency more choice for consumers and lower prices. Specialisation can occur and firms can grow as the potential market is bigger and then they gain economies of scale. generally the benefits are the same as for free trade. BUT remember that free trade throughout the world is always better than free trade within a trading block. Within the EU there is free trade, but heavy restrictions on trade with countries outside of the trading block. This can be harmful to consumers. Let me give you an example:

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;">I always think of the way my Mum used to serve us cheap NZ lamb prior to entry into EU and then more expensive french lamb after entry. You see after the UK joined the EU we were forced to place higher tariffs on NZ lamb. No welfare gain for the Oldfield family I can tell you!

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[|Brexit video] <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 18px;"> <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; font-size: 16px;"> Now read the textbook pages 218-9 and make additional notes.