Regional trade blocs
Loss of SovereigntyĪ trading bloc is likely to lead to at least partial loss of sovereignty for its participants. The average cost of production is decreased because mass production is allowed. Increases economic leverage for the trading bloc as a whole. The larger markets created via trading blocs permit economies of scale. Open trade leads to faster transfer of technology across borders. It increases local investments since the trading bloc increases the overall size of markets for firms. Size of MarketĪn increase in foreign direct investment results from trade blocs and benefits the economies of participating nations. Thus, the member country may start importing from other member countries since the price becomes artificially cheaper than buying from the previous non-member country. When a trade bloc is formed, an external tariff maybe be applied to non-member countries, making some goods that were initially cheaper, now more expensive. The more efficient producer produces, leading to less wastage of scarce resources. Trade CreationĮliminations of trade barriers for member countries increase domestic production and consumption. – Union of South American Nations (Unasur/Unasul) 1.
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– North American Free Trade Agreement (NAFTA) For example, the European Union is an economic union. Economic UnionĪn Economic Union has the same benefits as a common market but there is a common tax system and employs the same currency. For example, no permits are required to work in another member country. Common MarketĪ Common Market is like a customs union but there is a free flow of factors of productions between the countries. Customs UnionĪ Customs Union is like a free trade area except that member countries maintain a common tariff against non-member countries. For example, the North American Free Trade Agreement ( NAFTA) between the USA, Canada & Mexico created a 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. The EU also works with the World Trade Organization (WTO) to help set global trade rules and remove obstacles to trade between WTO members.A trading bloc is a formal agreement between two or more regional countries that remove trade barriers between the countries in the agreement while keeping trade barriers for other countries.
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At the same time, the EU supports foreign companies with practical information on how to access the EU market. The EU supports and defends EU industry and business by working to remove trade barriers so that European exporters gain fair conditions and access to other markets. The EU also gets input from the public, businesses, and non-government bodies when negotiating trade agreements or rules. EU companies can grow their business, and can also more easily import the raw materials they use to make their products.Įach agreement is unique and can include tariff reductions, rules on matters such as intellectual property or sustainable development, or clauses on human rights. These agreements grant mutually-beneficial access to the markets of both the EU and the countries concerned. The EU actively engages with countries or regional groupings to negotiate trade agreements. Speaking as one voice, the EU carries more weight in international trade negotiations than each individual member would. The EU is responsible for the trade policy of the member countries and negotiates agreements for them. Free trade among its members was one of the EU's founding principles, and it is committed to opening up world trade as well.įrom 1999 to 2010, EU foreign trade doubled and now accounts for over 30% of the EU’s gross domestic product (GDP). It is also the world’s largest single market area. The European Union is one of the most outward-oriented economies in the world.