Lesson 5 of 6 · 11 min
Trading blocs: from free trade areas to economic unions
Regional trading blocs are steps on a ladder of integration: each level keeps everything from the level below and adds one more thing, from free internal trade up to a common currency.
In short
- A regional trading bloc (regional trading agreement, RTA) is a group of countries that agree to reduce and progressively eliminate barriers to trade and factor movements among themselves.
- Free trade area (FTA): no barriers on goods and services between members; each keeps its own policy toward non-members.
- Customs union: FTA + a common trade policy (common external tariff) against non-members.
- Common market: customs union + free movement of factors of production (labour and capital).
- Economic union: common market + common economic institutions and coordinated economic policy; adding a common currency makes it a monetary union.
- Regional deals are popular because they are quicker, easier and less contentious than multilateral WTO negotiations.
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