The competition promotes efficiency within firms. These markets form economies of scale.Ĭompetition − Trade blocs bring manufacturers from various economies, resulting in greater competition. The advantages of having a Regional Trading Bloc are as follows −įoreign Direct Investment − Foreign direct investment (FDI) surges in TRBs and it benefits the economies of participating nations.Įconomies of Scale − The larger markets created results in lower costs due to mass manufacturing of products locally. In addition to tariffs, non-tariff barriers are also diminished or removed in common markets. All barriers to trade in goods, services, capital, and labor are removed in common markets. The member countries trade freely all types of economic resources – not just tangible goods. Effectively, the members are allowed to negotiate as a single bloc with third parties, including other trading blocs, or with the WTO.Ĭommon Market − A ‘common market’ is an exclusive economic integration.
#Types of trade blocs plus#
Preferential Trade Area − Preferential Trade Areas (PTAs), the first step towards making a full-fledged RTB, exist when countries of a particular geographical region agree to decrease or eliminate tariffs on selected goods and services imported from other members of the area.įree Trade Area − Free Trade Areas (FTAs) are like PTAs but in FTAs, the participating countries agree to remove or reduce barriers to trade on all goods coming from the participating members.Ĭustoms Union − A customs union has no tariff barriers between members, plus they agree to a common (unified) external tariff against non-members. Trading blocs are a special type of economic integration. RTB protects its member nations within that region from imports from the non-members. One example would be the nations in the EU who also utilize the Euro.A regional trading bloc (RTB) is a co-operative union or group of countries within a specific geographical boundary. An economic and monetary union has the same qualities of an economic union but each member nation also uses the same currency. The best known economic union is the EU though more can be found here. There are no well-known common markets, but the previous link also contains a list. You may also want to look at single market and unified market. Probably the best known free-trade area is NAFTA but others are listed here and here.Īgain, there are no well-known customs unions, but a list can be found here.Ī common market has free trade and free movement of the factors of production but other economic policies of the countries may be different (one of the differences between a common market and an economic union).
Ī free-trade area is the agreement among all member countries to eliminate tariffs, import quotas, and preferences on goods and services traded between each other (the free-trade as defined in the question). There are no particularly well-known examples, but a list can be found here.
Ī preferential trade area (PTA) is a trading bloc that reduces tariffs on particular goods between two countries but does not abolish them completely. There are actually five different types of trading blocs: preferential trading areas, free trade areas, customs unions, common markets and economic (and monetary) unions.
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