Trading blocs as the name suggests are a block of countries in specific regions that are able to manage, promote and transform trade activities. Normally, members of the same bloc get treated favourably in comparison to those outside the block, they are often called non-members. This means that there are common trading agreements that are shared by all countries within the block that results in trade liberation, which means border free trading with no protectionist measure, thereby giving a sense of free trade or trade liberalisation.
Trading agreements are a set of well documented written set of rules and guidance that underpins the base of a trading bloc. They solidify the base of any trading bloc.
One of the watchdogs of trading blocs in the WTO and as such the World Trade Organisation allows the existence of trading blocs based on certain fair rules or strategic guidance.
The most common and well-known trading blocs are the:
EFTAEuropean Free Trade Association
NAFTANorth America Free Trade Agreement
Common Market for Eastern & Southern Africa
Others Blocs Include
Mercosur, ASEAN, SAFTA and the Pacific Alliance.
This shows that we also have regional trading blocs, and the most important aspect of a regional trading bloc is to protect themselves from imports from non-members. If we were to understand the platforms of trading blocs, we would have to explore the PTA (Preferential Trade Area), FTA (Free Trade Area), Customs Union and the Common Market (also known as the single market).
Advantages of a common market
The common market approach is one which really helps to achieve full economics integration as member countries engage freely in all economics activities – that includes tangible and intangible goods. This means no barriers to entry and exit for goods, services and human capital. No tariffs mean there is fair play involved. There are other factors that can influence a country’s integration into the common market due to each country’s economy, political and legal landscapes being different from one another.
Some of the main advantages of member states in trading blocs include:
- Free Trade at regional level, within the bloc
- Access to each other’s market and trade creation
- Application of economies of scale
- Increased job opportunities due to increased trade
- Protection from cheaper imports from outside the bloc
Consequences of No Trading Bloc
However, if the trading bloc has unfair rules towards non member countries, that can lead to retaliation, which means that other countries in different regions might be encouraged to form their alliances in the format of a trade association. This situation gives birth to other regions having a trade bloc in order to compete with other trade blocs. There could be trade war as well, with regards to blocs negotiating with each other and re-negotiations which also might take years. Some trade blocs have been accused of having too much red tape, e.g. in some cases of US businesses trying to get business into the EU and Japan trying to access the EU as an example. There is also Nafta where there are issues within their own blocs, e.g., Mexico versus the US and the US versus Canada. Too much protection for domestic economies from competition from abroad could lead to the disruption of effects of globalisation where the idea is the world is becoming a local market and that countries are facing similar challenges. There is some sort of balance that need to be maintained within the bloc and outside the block with non-members so that global trade could be fair.