Becoming part of Trading Blocs.

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Peter Hill

Introduction to International Business, Year 1, Level 4

Luiz Montanheiro

Becoming part of Trading Blocs

Trading blocs are suggested to be an efficient way to create a sustainable economic growth. This will now be explained, giving detail as to the advantages and disadvantages to countries when becoming part of trading blocs. Referencing will be used throughout; illustrating where the relevant information has been found, as well as a Bibliography, which will lead into further detail about the research gathered.

On a global scale, organisations like the World Trade Organisation, (also known as the WTO) aim to free up world trade from any trade barriers. These trade barriers are also trying to be lowered on a more regional scale, by groups of countries, which can also be looked at as Trade Blocs. This is being done so that regional trade can be stimulated. The regional co-operation is seen to be a very important cause of the economic growth for the reason that trade is being created. Some of the larger trading blocs can be recognised as, NAFTA (North American Free Trade Area) between the United States of America, Canada and Mexico, Asean (Association of South East Asian Nations) which consists of Singapore, Malaysia, Indonesia, Thailand and the Philippines. The largest and in some peoples opinion, best established trading bloc however is the EU (European Union) which is a 15 country organisation including the United Kingdom, France, Germany, Spain and Italy. These will later be used with positive and negative effects on countries when becoming part of trading blocs.

As has just been explained, there are a number of different trading blocs, which have social, cultural, political and economic effects. With this, there are different methods of trade, aiming to create a more favoured economic growth. A few examples of these trading blocs can be seen below from the least integrated to the most integrated.

Free Trade Area (FTA)– This type is used by NAFTA for example, and is where the independent countries who belong to this area trade freely between themselves, however, have got individual trade barriers with countries who do not belong to this area.

Customs Union – As well as getting rid of the internal tariffs between countries involved in the trading bloc, the members also have a common external tariff on goods which are being imported from members not involved in that bloc.

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Common Market – This is similar to the previous Customs Union, however in addition has the free movement of production factors, which could include labour and capital. The common market has a great advantage to workers whereas, if it weren’t available, they would have to apply for a working visa, which may be hard to come by. This is done without any restriction and is used by MERCOSUR, which comprises of different South American countries.

Economic Union – through complete economic integration, countries create a greater economic harmonisation. This is done through the members adopting a common economic policy. ...

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