For example, when the UK joined the EEC customs union, it required higher import tariffs on imports from former Commonwealth countries. Joining a customs union may lead to increased import tariffs – which leads to trade diversion.Therefore domestic firms have a greater incentive to cut costs to remain competitive. The removal of tariffs creates greater choice for consumers. Gives small countries a greater say in global trade agreements.Gravity theory of trade suggests that trade with countries in close proximity is the most important due to lower transport and similar cultural and economic ties.Countries in Eastern Europe have made considerable progress in catching up with average income levels in Western Europe. Countries joining a rich trading block can benefit from inward investment and increased trade opportunities. Increased trade enables increased specialisation – which gives benefits of economies of scale (lower average costs from increased output).Tariff removal leads to trade creation – lower prices for consumers and greater opportunity for exporters.However, since trade deals are complicated and take several years, there is an advantage to negotiating trade deals as part of a regional trade block – rather than separate individual countries. For example, if imports from Africa enter Spain then if goods travel across the border from Spain to France, there is no need to check whether goods are paying the correct import tariff – because the import tariffs are all the same.Ī disadvantage of joining a customs union is that a country is not able to pursue its own independent trade deals. This means there doesn’t need to be internal checking on ‘ Rules of origin‘. This means that it doesn’t matter which country the imports enter – because all countries have the same import tariff.
#PATTERN BLOCS FREE#
It has aspirations to become a free trade area.ĭifference between free trade area and customs unionĪ customs union has a common external tariff on imports. Created to forge closer political and economic ties.
#PATTERN BLOCS FULL#
Includes full members of Argentina, Brazil, Paraguay and Uruguay.
A free trade area between Canada, US and Mexico NAFTA – North Atlantic Free Trade Association.The EU27 have free trade and common regulations and are part of a customs union. European Union – The most integrated trading block.Also, the move to free trade tends to create winners and losers – with some domestic industries losing out to lower-cost imports.Įxamples of Global trading blocks Free trade areas However, it can lead to compromise as countries pool economic sovereignty.
This can lead to lower prices, increased export potential, higher growth, economies of scale and greater competition. They have advantages in enabling free trade between geographically close countries.Trading blocks have become increasingly influential for world trade. Economic union/Single market – Customs union + common rules and regulations.Customs union – free trade area + a common external tariff with non-members.Free trade areas – elimination of tariffs between economies in the trading block.Trading blocks are groups of countries who form trade agreements between themselves.