Sovereign countries belonging to the free trade area trade freely amongst them but have individual trade

barriers with countries outside the free trade area have most favored nation status That is, they are all treated equally NAFTA CAFTA

free trade 1. areas

All members

Examples

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 which is applied Profile to all countries outside the customs union at trade negotiations countries will be represented with organizations such as the WTO

customs 2. unions

by supra-national organizations e.g. the European Union

Types of Trade Blocks

internal economies of scale longer-term advantages external economies of scale better terms of trade increased competition between members certain regions of the union may suffer longer-term disadvantages possibility of oligopolistic collusion administrative costs which has in addition the free movement a customs union of factors of production labour capital

common 3. markets

between MERCOSUR is an example

without restriction the member countries

common market where the level of integration is more developed member states may adopt common economic policies e.g. the Common Agricultural Policy (CAP) of the European Union and have a single common currency This will involve common monetary policy

Economic 4. Union

They may have a fixed exchange rate regime they may have integrated further

Types of Trade Blocks.mmap - 18/04/2009 - Carlos Mondragón