4.3.1.5 TRADING BLOCS

What’s a trading bloc?

When the governments of a group of countries agree to trade together freely

Types of trading blocs

• preferential trade areas (removal of trade barriers for select goods)

• free trade areas (reduction or removal of all trade barriers)

• customs union (agree to remove trade barriers and a common approach to trade barriers)

• common markets (removal of trade barriers and freedom of movement of factors of production)

• economic unions (common economic policies)

Advantages and Dis of the Single European Market

+Encourages trade

+Competition

+Access to markets

+Freedom of movement

-Trade diversion diverts trade away from the EU

-monopolies may form

-Unemployment

-Cost

EU Enlargement benefits and disadvantages

+EoS and free trade potential

+Increased competition

+Low wages

-Influx of migrant workers - overpopulation

-Support needed for new accession countries

-Bureaucratic costs may b increased

Name 3 trading blocs

ASEAN NAFTA EU

Why do trading blocs conflict with the WTO?

Trading blocs

• distort trade by creating barriers

• Negatively impact on non-members

• Allocate resources in an inefficient manner

• Lead to protectionist policies between trading blocs

ALL OF THIS CONFLICTS WITH THE WTO’S GOALS

How are businesses impacted by trading blocs?

+Free trade encourages specialisation and trade

+Easier access to knowledge, workers, components

+EoS

+Favourable taxes/labour costs between members

-Reduce trade w countries outside bloc

-Not all members have same power

-May damage domestic industries

-High bureaucratic costs for business