A Economic block Or trade bloc is a form of economic integration between a group of countries that normally share a common geographical area.
Its objective is to establish economic agreements to facilitate trade between member countries.
MERCOSUR, economic bloc of Latin America
This is a phenomenon typical of Globalization . Thanks to these types of blocs, it is possible to eliminate the economic barriers that exist between countries, allowing the growth of trade and greater circulation of labor and capital.
Types of economic blocks
There are different types of economic blocks. These are classified according to the degree of openness of tariffs and the depth of established agreements.
In some cases, trade is only facilitated, but in others, important joint decisions are made and even currency is shared.
Preferential trade zone
The areas of preferential trade are those where a group of countries agree to reduce or eliminate tariffs for trade in some products. However, each country maintains its own tariffs against non-member countries.
There are multilateral and bilateral preferential trade zones. The former are established between three or more countries and the latter, less frequent, are established only between two countries.
For example, the Economic Cooperation Organization (ECO) is a preferential trade zone established between Iran Pakistan and Turkey.
The objective is to facilitate trade between member countries but also serves as a first step towards the creation of a common market.
Free trade area
Free trade areas, like the preferential trade areas, are those where countries in a region agree to eliminate or reduce barriers to trade.
However in this case, the agreements apply to all goods that are exchanged between them.
Customs union
The customs union refers to the elimination of tariff barriers between member countries. Its particularity is that it includes the creation of a unified external tariff against non-members.
This implies that members can negotiate as a single bloc with other countries or with other trade blocs.
For example, the Southern African Customs Union - SACU, for its acronym in English. It is a link between five countries in South Africa: Botswana, Lesotho, Namibia, South Africa and Swaziland.
This is the oldest Customs Union in the world, dating back to 1910, before its member countries were independent. For this reason it has been relaunched in 1969 to enter into force officially in 1970.
Common Market
The common market consists in the existence of free trade between countries, with all economic resources and not only tangible goods. This means that all barriers to trade in goods, services, capital and labor are eliminated. This includes the total elimination of tariffs.
In order for a common market to be possible, there is a need for harmonization of the microeconomic policies of the bloc member countries. This also includes rules related to monopoly power and other practices that harm competition.
For example, him MERCOSUR Is a common market composed of Argentina, Brazil, Paraguay, Uruguay, Venezuela and Bolivia and with associated countries in Latin America. Like the ECO, it is a common market with a view to deepening the union.
Evidence of this is the creation of PARLASUR, an assembly that functions as a deliberative body for MERCOSUR decisions.
Economic union
Economic union has practically the same characteristics as a common market. However, their particularity is that in addition to trade liberalization, they also share a tax system and a currency.
For example, the European Union is a grouping of countries that not only share a common market.
In this case also share a series of common economic policies among which is counted the use of a common currency.
Advantages of the economic blocks
Trade growth
Easy access to markets in other countries implies an increase in domestic trade.
This allows replacing high-cost local producers for cheaper and more efficient imports. Likewise, it leads to the specialization of the industry of each country.
This phenomenon leads to a reduction in costs and allows lower prices for the consumer.
Consequently, an increase in the demand that generates a growth of the trade is obtained.
Growth of the economy
Favoring trade between member countries protects domestic industries.
This is because it is difficult to get cheaper products coming from other regions of the world. Thanks to this, a trade is maintained based on the block products.
Globalization
In addition, trade blocs are seen as helping globalization by facilitating global negotiations between blocs.
For example, the European Union's negotiations are useful for simultaneously developing the trade relations of a whole group of countries.
Disadvantages of economic blocks
Loss of profits
When a country enters an economic bloc, it receives benefits from member countries. However, it loses the advantages that may eventually represent the relationship with other countries that are outside the bloc
Loss of sovereignty
One of the main criticisms of the economic blocs is the loss of the sovereignty of the member countries.
This is because when common agreements are made between different nations, it is possible to lose to some extent the independence with which each nation decides.
For example, in the case of the European Union, it can be seen how the economic bloc begins to participate also in other decisions.
Economic interdependence
The economic blocs are presented as an opportunity for the specialization of the production of each country.
What is promoted is the idea that each country generates different and complementary products for the common economy.
However, this specialization generates economic interdependence with the other member countries of the bloc.
In this way, nations will be conditioned to political and economic situations that fluctuate the value of products and eventually lose sovereignty.
References
- Argarwal, P. (S.F.). Trading Blocs. Recovered from: intelligenteconomist.com
- Economic Cooperation Organization. (S.F.). Brief Introduction. Retrieved from: eco.int
- Economics Online. (S.F.). Trading blocs. Recovered from: economicsonline.co.uk
- Mercosur. (S.F.). What is MERCOSUR? Retrieved from: mercosur.int
- Pettinger, T. (2008). Trading Blocks and Globalization. Retrieved from: economicshelp.org.