A trade bloc is an association of participating countries that promotes international trade by and between them on regional basis. It is a large free trade area resulting from a set of trade, tariff and tax agreements.
Economic blocs, which may be broadly similar but different from trade blocs, include single markets, economic and monetary union, free trade area and customs union.
In addition to economic agenda, trade blocs may have political missions and defense pacts as well. For instance, European Union, the world’s largest trading bloc, has political agenda of international stability and development beyond free trade. The charter of the European Union also has considerations for joint policies in the military defense and citizenship.
There may be visa free or borderless travel arrangements for citizens of the participating countries across any regional trading bloc.
Trade blocs have smaller size and area of markets, in contrast to the global economy. The perception of many backward developing countries is that regional trade blocs provide protection to them from an aggressive global market. Regionalism is an alternative form of trade to the aggressive free trade sponsored by WTO. Of course, regionalism impedes free trade to the extent trade blocs pursue protectionist policies to shield their members.
Trade blocs use several measures to reduce global competition. They put in place import quotas, customs delays and other barriers on import of goods from abroad. They subsidize specified exports from the home economy.
Evaluation of the impact of trade blocs on living standards, welfare and redistribution of income has been inconclusive.
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