A trading bloc is preferential economic arrangement among a group of countries. From least to most integrative, they are the free trade area, the customs union, the common market and the economic union. It should be noted countries (or groups of countries) may give preferential treatment to another countries on the basis of historic ties or due to political motivations.

01. The Free Trade Area

The free trade area is the least restrictive and loosest from of economic integration among countries. In a free trade area. All barriers to trade among member countries are removed. Therefore, goods and services are freely traded among member countries in much the same way that they flow freely between. No discriminatory taxes, quotqs, tariffs, or other trade barriers are allowed. The most notable feature of a free trade area is that each country continues to set its own policies in relation to nonmembers. In other words, each member is free to set any tariffs, quotas, or other restrictions that it chooses on trade with countries outside the free trade area.

02. The Customs Union

The customs union is one step further along the spectrum of economic integration. Like the members of free trade area, members of a customs union dismantle barriers to trade in goods and services among themselves. In addition, however, the customs union establishes a common trade policy with respect to nonmembers.

03. The Common Market

Further still along the spectrum of economic integrations is the common market. Like the custom union, a common external trade policy. In addition, however, factors of production are also mobile among members. Factors of production include labor, capital, and technology; when factors of productions are freely mobile, then capital, labor, and technology may be employed in their most productive uses. Despite the obvisious benefits, members of a common market must be prepared to cooperate closely in monetary, fiscal, and employment policies. Furthermore, while a common market will enhance the productivity of members in the aggregate, it is by no means clear that individual member countries will always benefit.

04. The Economic Union

The creation of a true economic union requires integration of economic policies in addition to the free movement of goods, services, and factors of production across borders. Under the economic union, members would harmonize monetary policies, taxation and government spending. In addition, a common currency would be used by all members.


They center on (1) trade creation and diversion; (2) the effects of integration on import prices, competition, economic of scale, and factor productivity; and (3) the benefits of regionalism versus nationalism.

Trade Creation and Trade Diversion

The increased export of wheat and other products by Spain to the EU as a result of its membership is termed trade creation. The alimination of the tariff literally created more trade between Spain and the EU. At the same time, because the united states was still outside of the EU, its products suffered the higher price as a result of tariff applications. U. S. exports to the EU fell. When the source of trading competitiveness is shifted in this manner from one country to another, it is termed trade diversion.

Reduced Import Prices

When a small country imposes a tariff on imports, the price of the goods will typically rise because sellers will increase prices to cover the cost of the tariff. This increase in price, in turn, will result in lower demand for the imported goods.

Higher Factor Productivity

When factors of production are freely mobile, the wealth of the common market countries, in aggregate, will likely increase. The theory behind this contention is straightforward: factor mobility will lead to the movement of the labor and capital from areas of low productivity to areas high productivity. In addition, to the economic gains from factor mobility, there are other benefits not so easily quantified. The free movement of labor fosters a higher level of communication across cultures. This, in turn, leads to higher degree of cross-cultural understanding; as people move, their ideas, skills, and ethnicity move with them.

Regionalism Versus Nationalism

Economists have composed elegant and compelling arguments in favor of the various levels of economic integration. It is difficult, however, to turn these arguments into reality in the face of intense nationalism.


• Economic Integration In Europe From 1948 to The Mid-1980s

• The European Union Since The Mid-1980s

• Organization of The EU

• Implications of The Integrated European Market


• U. S.- Canada Free Trade Agreement

• North American Free Trade Agreement