4.1.5 Trading blocs

• A trading bloc is a type of intergovernmental agreement to reduce regional trade barriers
• Depending on how closely the members wish to integrate their economies they may form different types of trading blocs such as free trade areas, customs unions, common markets and full economic & monetary union
• • A hard Brexit would likely see the UK give up full access to the single market and full access to the customer union along with the EU
  • The arrangement would prioritise giving Britain full control over its borders and making new trade deals
  • A hard Brexit, however, could see British goods and services subject to tariffs, adding 10% to the cost of exported cars
• • A soft Brexit would mean that the UK would have full access to the single market on a tariff free basis
  • British firms could also do business in any part of the EU, and the goods from the Uk would not be subject to border checks
  • However this means the UK would have to make payments into the EU budget - which they don't want to do and they have to accept the free movement of people which does not achieve the immigration targets of the government
• • ASEAN was started in 1967 by Thailand, Malaysia, Philippines, and Singapore to promote economic and social growth in the region
  • Since then it has expanded several times with five more countries joining the trade bloc
  • It has negotiated a free trade agreement among member states and with other countries such as China, as well as eased travel in the region for citizens of member countries.
• • NAFTA was created in 1992 with the simple idea of giving the customers in the USA, Canada and Mexico cheaper goods.
  • Without import tariffs between the countries the goods are less expensive which is a bonus for the consumer, but not always popular with business
• Expansion of a trading bloc; the process of more countries joining an existing trading bloc, thereby making it expand
• • As other countries see the benefits of belonging to a free trade area, they may eventually apply to join - this is expansion of a trading bloc
  • These benefits might be; access to larger markets, economies of scale by producing more and selling more, enhanced competition and migration with a good supply of able bodied labour
• Free trade is trade that takes place between countries without protectionism e.g. no tariffs or quotas on imports
• Free trade brings with it opportunities to business:

  1. Freedom to trade; For example UK businesses can sell goods and services freely across the whole of the European Union
  2. Enlarged market; For example the size of the market for British goods is now 499 million people, can mean EOS
  3. Protection from international competition outside of the BLOC; For example UK businesses are protected from competition from China
  4. Freedom of movement of people; For example UK firms can employ talented people from across Europe.
• Free trade agreements (such as trading blocs) can also create problems for business:

  • Dominance of developed countries in global trading
  • It can kill off domestic business in developing nations
  • It can reduce national sovereignty or identity as countries become standardised and westernised