Trade Blocs

What is a Trade Bloc?

A group of countries
 Which are geographically close to each other
 Have similar trade policies
 With their mutual co-operation allow free flow of goods

Trade blocs have liberal rules for the member countries and
separate set of rules for the non-member countries
They facilitate trade to member countries of the group but
create barriers and block the trade of non member countries.
A Trading bloc is a group of countries that have
reduced or removed trade barriers for its
participants. Trade blocs are a form of economic
integration and it increasingly forms the
structure of world trade. To form a trade bloc,
countries conclude international treaties.
Typically, trade blocs have their own
administrative and regulatory bodies. Some
trading blocs also set political goals. The
purpose of the trade blocs is to free trade from
protectionist measures and to create an enabling
environment for trade among members.
 Features of Trade Blocs
Voluntary in Character
 Mutual Negotiations
 Regional in Character
Divisions based on political considerations
Existence based on usefulness
 Objectives of Trade Blocs
→Reduction of trade barriers among the member
countries
→ Maintaining better relations
→ Imposing barriers on non member countries
→Promoting free transfer of labour, capital and other
factors
→ Creating common currency and Central Bank
→ Collective Bargaining
→ Assisting member countries
→ Enhancing welfare of consumers
→ Generating competition
→ Promoting Higher Employment
Types of Trade Blocs
 1. Free Trade Area

Two or more countries form a Free Trade

Area in which trade barriers between the
countries are abolished but each country
maintains its own tariffs against non-member
countries. For example the North American
Free Trade Agreement (NAFTA) between
USA, Canada & Mexico created a free trade
area.
 NAFTA - Type: Free Trade Area
NAFTA stands for North American Free Trade Agreement
An agreement signed by Canada, Mexico, and the United
States
It came into force on January 1, 1994.
It is the most powerful trade bloc of the world
NAFTA has two supplements:
North American Agreement on Environmental Cooperation
(NAAEC)
North American Agreement on Labour Cooperation
(NAALC)
Intra-regional trade between the member countries is US $
767
 SAARC: South Asian Association for Regional
Cooperation

Type: Free Trade

Headquartered in Kathmandu, Nepal
It was established on 8th December 1985
The SAARC policies aim to promote:
 Welfare economics
 Collective self-reliance among the countries of
South Asia
 Accelerate socio-cultural development in the
region
 Develop good external relations
Members:
1. Afghanistan
2. Bangladesh
3. Bhutan
4. India
5. Maldives
6. Nepal
7. Pakistan
8. Sri Lanka
 2. Customs Union
A Customs Union is like a free trade area
except that member countries maintain a
common tariff against non-member countries.
 CACM-Type: Customs Union
CACM: Central American Common Market.
It was established on 15th December 1960.
Headquartered in Guatemala City.
It consists of 5 Central American member countries:
1. Guatemala
2. Honduras
3. El Salvador
4. Nicaragua
5. Costa Rica
 3. Common Market
A Common Market is like a customs union but
there is free flow of factors of productions
between the countries. Ex: No permits are
required to work in another member country.
 OPEC-Type: Common Market
OPEC: Organization of the Petroleum Exporting
Countries.
It was established on 14th September, 1960
An oil cartel whose mission is to coordinate
the policies of the oil-producing countries.
Its headquartered is in Vienna, Austria.
Member Countries: 9. Venezuela
1. Iraq 10. Ecuador
2. Qatar 11. Libya
3. Kuwait 12. Angola
4. Indonesia 13.United Arab
5. Iran 14.Gabon.
6. Algeria 15.Emirates
7. Saudi Arabia
8. Nigeria
 4. Economic Union
A Economic Union has the same benefits as a
common market but there is a common tax
system and employ the same currency. For
example the European Union is an economic
union.
 ALADI-Type: Economic Union
ALADI is a Spanish abbreviation for Latin
American Integration Association.
It replaced Latin American Free Trade Agreement
(LAFTA)
Headquarter: Montevideo, Uruguay
It was established on 12 August 1980
ALADI aims at
1. Harmonious and balanced socio-economic
development
2. Progressive establishment of a Latin-American
Common Market.
It has 13 member 7. Panama
countries 8. Mexico
1. Argentina 9. Paraguay
2. Bolivia 10.Ecuador
3. Brazil 11.Peru
4. Chile 12.Uruguay
5. Colombia 13.Venezuela
6. Cuba
 EU stands for European Union
Type: Economic Union
Came into existence on 1st January 1958
It is headquartered at Brussels, Belgium
In January 1999, a common currency € (Euro) was
introduced
EU offers financial aid to the developing countries
It is a strong trade bloc politically, industrially and
economically
It has 28 member countries:
1. United Kingdom
2. Belgium
3. Finland
4. France
5. Germany
6. Netherlands
7. Norway
8. Poland
9. Portugal
10. Greece and 18 more
 (ASEAN) Association of Southeast Asian
Nations

Formed 8th August,1967 (Indonesia, Malaysia,

Philippians, Singapore & Thailand)
Later joined by Brunei, Burma, Cambodia,
Laos & Vietnam
Established ASEAN Free Trade Area (AFTA)
Headquarter- Jakarta, Indonesia.
 MERCOSUR:Mercado Comun del
Cono Sur/southern common market
 Established in 1991 by Brazil, Argentina, Paraguay,
Uruguay.
 These four members generate 70% GNP of South
America.
 By 1996, MERCOSUR had abolished tariffs on
goods accounting for 90% of the trade between its
members countries, with remaining tariffs to be
abolished by 2000.
 MERCOSUR & EU Signed a cooperation
 agreement to pave the way for a free trade accord in
2001.