A trade bloc is a type of intergovernmental agreement, often part of a regional

intergovernmental organization Globalization Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of ...

, where barriers to trade (

tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...

s and others) are reduced or eliminated among the participating states. Trade blocs can be stand-alone agreements between several states (such as the North American Free Trade Agreement) or part of a

regional organization Regional organizations (ROs) are, in a sense, international organizations (IOs), as they incorporate international membership and encompass geopolitical entities that operationally transcend a single nation state. However, their membership is c ...

(such as the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...

). Depending on the level of

economic integration Economic integration is the unification of economic policies between different states, through the partial or full abolition of tariff and non-tariff restrictions on trade. The trade-stimulation effects intended by means of economic integrati ...

, trade blocs can be classified as

preferential trading area A preferential trade area (also preferential trade agreement, PTA) is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely. It ...

free-trade area A free-trade area is the region encompassing a trade bloc whose member countries have signed a free trade agreement (FTA). Such agreements involve cooperation between at least two countries to reduce trade barriers, import quotas and tariffs, and ...

customs union A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.GATTArticle 24 s. 8 (a) Customs unions are established through trade pacts where the participant countries set up ...

common market The European Economic Community (EEC) was a regional organization created by the Treaty of Rome of 1957,Today the largely rewritten treaty continues in force as the ''Treaty on the functioning of the European Union'', as renamed by the Lisbo ...

s, or

economic and monetary union An economic and monetary union (EMU) is a type of trade bloc that features a combination of a common market, customs union, and monetary union. Established via a trade pact, an EMU constitutes the sixth of seven stages in the process of economic ...

Use

Historic trading blocs include the Hanseatic League, a Northern European economic alliance between the 12th and 17th centuries, and the

German Customs Union The (), or German Customs Union, was a coalition of German states formed to manage tariffs and economic policies within their territories. Organized by the 1833 treaties, it formally started on 1 January 1834. However, its foundations had b ...

, formed on the basis of the

German Confederation The German Confederation (german: Deutscher Bund, ) was an association of 39 predominantly German-speaking sovereign states in Central Europe. It was created by the Congress of Vienna in 1815 as a replacement of the former Holy Roman Empire, w ...

and subsequently the German Empire from 1871. Surges of trade bloc formation occurred in the 1960s and 1970s, as well as in the 1990s after the

collapse of Communism The Revolutions of 1989, also known as the Fall of Communism, was a revolutionary wave that resulted in the end of most communist states in the world. Sometimes this revolutionary wave is also called the Fall of Nations or the Autumn of Natio ...

. By 1997, more than 50% of all world commerce was conducted within regional trade blocs.

Economist An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...

Jeffrey J. Schott of the

Peterson Institute for International Economics The Peterson Institute for International Economics (PIIE), known until 2006 as the Institute for International Economics (IIE), is an American think tank based in Washington, D.C. It was founded by C. Fred Bergsten in 1981 and has been led by ...

notes that members of successful trade blocs usually share four common traits: similar levels of per capita

GNP The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...

, geographic proximity, similar or compatible trading regimes, and political commitment to regional organization. Some advocates of global

free trade Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...

are opposed to trading blocs. Trade blocs are seen by them to encourage regional free trade at the expense of global free trade. Those who advocate for it claim that global free trade is in the interest of every country, as it would create more opportunities to turn local resources into goods and services that are both currently in demand and will be in demand in the future by consumers. However, scholars and economists continue to debate whether regional trade blocs fragment the global economy or encourage the extension of the existing global multilateral trading system.

Terminology

A common market is seen as a stage of economic integration towards an economic union or possibly towards the goal of a unified market. A single market is a type of trade bloc in which most trade barriers have been removed (for

goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not t ...

) with some common policies on product regulation, and freedom of movement of the

factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the rel ...

( capital and

labour Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...

) and of

enterprise Enterprise (or the archaic spelling Enterprize) may refer to: Business and economics Brands and enterprises * Enterprise GP Holdings, an energy holding company * Enterprise plc, a UK civil engineering and maintenance company * Enterpris ...

and

services Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a p ...

Statistics

Comparison between regional trade blocs

¹ not all members participating
² involving

telecommunications Telecommunication is the transmission of information by various types of technologies over wire, radio, optical, or other electromagnetic systems. It has its origin in the desire of humans for communication over a distance greater than that fe ...

transport Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land ( rail and road), water, cable, pipelin ...

(full

liberalisation Liberalization or liberalisation (British English) is a broad term that refers to the practice of making laws, systems, or opinions less severe, usually in the sense of eliminating certain government regulations or restrictions. The term is used m ...

railway Rail transport (also known as train transport) is a means of transport that transfers passengers and goods on wheeled vehicles running on rails, which are incorporated in tracks. In contrast to road transport, where the vehicles run on a pre ...

s from 2012),

energy In physics, energy (from Ancient Greek: ἐνέργεια, ''enérgeia'', “activity”) is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work and in the form of hea ...

(full liberalisation from 2007)
³

and

- proposed
⁴ sensitive goods to be covered from 2019
⁵ least developed members to join from 2012
⁶ least developed members to join from 2017
⁷ Additionally some non member states also participate (the

EFTA The European Free Trade Association (EFTA) is a regional trade organization and free trade area consisting of four European states: Iceland, Liechtenstein, Norway and Switzerland. The organization operates in parallel with the European U ...

have overlapping membership and various common initiatives regarding the European integration).
⁸ Additionally some non member states also participate (

ASEAN Plus Three ASEAN ( , ), officially the Association of Southeast Asian Nations, is a political and economic union of 10 member states in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, military ...

)
⁹ Limited to "entitled persons" and duration of one year.

References

Bibliography

* Mansfield, Edward D. and Helen V. Milner, "The New Wave of Regionalism" in * Milner, Helen V., "International Trade" in * * {{DEFAULTSORT:Trade Bloc * *

Use

Terminology

Statistics

Comparison between regional trade blocs

See also

Lists of trade blocs

References

Bibliography