ECONOMIC BLOCKS: CHARACTERISTICS, ADVANTAGES AND DISADVANTAGES - CULTURE VOCABULARY - 2025

An economic bloc or commercial 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 commercial exchange between member countries.

MERCOSUR, economic bloc of Latin America

This is a phenomenon typical of globalization. Thanks to these types of blocks, it is possible to eliminate the economic barriers that exist between countries, allowing the growth of trade and a 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 the tariffs and the depth of the agreements established.

In some cases only trade is facilitated but in others important joint decisions are made and even the currency is shared.

Preferential trade zone

Preferential trade areas are those where a group of countries agree to reduce or eliminate tariffs for the trade of some products. However, each country maintains its own tariffs against non-member countries.

There are preferential multilateral and bilateral 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, for its acronym in English, is a preferential trade zone established between Iran, Pakistan and Turkey.

Its objective is to facilitate trade between the member countries, but it also serves as a first step towards the creation of a common market.

Free trade area

Free trade areas, like preferential trade areas, are those where the countries of 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 trading blocs.

For example, the Southern African Customs Union - SACU, for its acronym in English. It is an existing union between five South African countries: 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 was relaunched in 1969 to officially enter into force in 1970.

Common Market

The common market consists of the existence of free trade between countries, with all economic resources and not only with tangible goods. This means that all barriers to trade in goods, services, capital and labor are removed. This includes the total elimination of tariffs.

For a common market to be possible, there must be a harmonization of the microeconomic policies of the member countries of the bloc. This also includes the rules related to monopoly power and other practices that harm competition.

For example, MERCOSUR is a common market made up 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

The economic union has practically the same characteristics as a common market. However, its particularity is that in addition to open trade, 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, a series of common economic policies are also shared, including the use of a common currency.

Advantages of economic blocks

Trade growth

Easy access to the markets of other countries implies an increase in national trade.

This makes it possible to replace high-cost local producers with cheaper and more efficient imports. Likewise, it leads to the specialization of the industry in each country.

This phenomenon leads to a reduction in costs and allows lower prices for the consumer.

Consequently, an increase in demand is achieved that generates a growth in trade.

Economy growing

Favoring trade between member countries protects national industries.

This occurs because the entry of cheaper products that come from other regions of the world is difficult. Thanks to this, a trade based on the block's products is maintained.

Globalization

Furthermore, trade blocs are seen to aid globalization because they facilitate global negotiations between blocs.

For example, the negotiations carried out by the European Union are useful for simultaneously developing the trade relations of an entire group of countries.

Disadvantages of economic blocks

Loss of profits

When a country joins an economic bloc, it receives benefits from the member countries. However, it loses the advantages that the relationship with other countries that are outside the bloc may eventually represent.

Loss of sovereignty

One of the main criticisms of the economic blocs is the loss of sovereignty of the member countries.

This occurs because when common agreements are established 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 also begins to participate in other decisions.

Economic interdependence

The economic blocks 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 cause the value of products to fluctuate and would eventually lose sovereignty.

References

1. Argarwal, P. (SF). Trading Blocs. Recovered from: intelligenteconomist.com
2. Economic Cooperation Organization. (SF). Brief Introduction. Recovered from: eco.int
3. Economics Online. (SF). Trading pads. Recovered from: economicsonline.co.uk
4. Mercosur. (SF). What is MERCOSUR? Recovered from: mercosur.int
5. Pettinger, T. (2008). Trading Blocks and Globalization. Recovered from: economicshelp.org.