Lecture notes
Trading Blocs Economics A Level Notes
- Module
- Unit 4 - Making markets work
- Institution
- PEARSON (PEARSON)
Gives everything you need to know about the topic of Trading Blocs in the economics A level course.
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Trading BlocsTrading Blocs
A trading bloc is a group of countries that signed an agreement to reduce/eliminate barriers to
trade.
- Preferential trading areas: Where barriers to trade are reduced on some but not all
goods traded.
- Free trade areas: Where all barriers to trade are removed in trade in goods between
countries.
- Customs unions: Where there is free trade within the trading bloc and a common
external tariff on goods coming from outside the bloc.
- Common markets: Customs unions where both labour and capital have freedom of
movement within the area.
- Economic unions: Economies of member countries are fully integrated as different
regions within a country. There is some degree of fiscal union and monetary union.
Advantages and Disadvantages of Trading Blocs
- Creating and maintaining trading blocs can distract governments from larger gains by
signing free trade agreements with the WTO. This would gain free trade for all
countries.
- Some regional trade agreements may distribute gains from trade unequally.
- May be weak as these agreements may only cover a set range of goods.
- As WTO says, trading blocs may only lead to trade diversion and not trade creation.
Reduce overall economic output even if some members are net gainers.
- Trading blocs lessen national sovereignty. E.g., UKIP want UK to leave EU as there
would be loss of sovereignty for Brussels.
- Membership of trading blocs can bring dynamic gains if it lessens the international
isolation of countries and brings improvements in government. E.g., the EU has
helped countries such as Romania and Bulgaria.
Examples of Trading Blocs
Unites States – Mexico – Canada Agreement (USCMA): Free trade area between the three
largest North American states. To promote freer, fairer trade and more robust economies.
The Association of Southeast Asian Nations (ASEAN): Formed in 1992. Part of ASEAN in
the ASEAN Free Trade Area (AFTA).
Union of South American Nations (UNASUR): A union of two trading blocs, the Andean
Community of Nations (CAN) and Mercosur. Aims to create a single market between
member countries.
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