Trade blocs are groups of countries that form agreements to enhance trade and economic cooperation.
Here are some types of trade blocs:
- Free Trade Area (FTA): Member countries eliminate or significantly reduce tariffs and other trade barriers among themselves while maintaining individual trade policies with non-member countries. An example is the North American Free Trade Agreement (NAFTA).
- Customs Union: In addition to removing trade barriers among member countries, a customs union establishes a common external tariff on goods imported from non-member countries. The European Union (EU) is an example of a customs union.
- Common Market: Goes beyond a customs union by allowing not only the free movement of goods but also the free movement of factors of production, such as labor and capital. The Mercosur (Southern Common Market) is an example.
- Economic Union: Involves deeper integration, including a common currency, harmonized economic policies, and a unified central bank. The Eurozone, which uses the euro as a common currency, is an example.
- Political Union: Represents the highest level of integration, including not only economic but also political cooperation and coordination among member countries. The European Union is moving toward greater political union.
These trade blocs vary in the degree of integration they achieve, ranging from simply reducing trade barriers to creating a unified political entity. The aim is to promote economic efficiency, enhance political cooperation, and leverage collective bargaining power in the global market.