Episode 38: Trade Blocs You may recall from the previous episode on the World Trade Organization, formerly known as GATT, that the process of coming to agreement with over 150 countries involved is a long and arduous journey, with every round taking longer and longer to complete. Given that, some countries are finding it more expedient to work in smaller groups, usually with neighbors, to eliminate trade barriers. But even in smaller groups, there's a spectrum of types of trade blocs. A trade bloc is a group of countries which trade with one another, but they have an agreement among members to reduce trade barriers with one another. The differences among the types of trade blocs come from both internal rules (that is, rules among the member countries) and external rules, or dealings with nonmembers. Let me show you. The lowest level of commitment to trade barrier reduction is a preferential trade area, where members lower, but do not eliminate, barriers among themselves. Dealings with nonmembers are not addressed, so member countries maintain policies of their own choosing with regard to nonmember countries. The next level of commitment is a free trade area, where member countries agree to eliminate trade barriers among themselves, but continue to maintain independent policies in their dealings with nonmember countries. An example of a free trade area is NAFTA, the North American Free Trade Agreement, where Canada, Mexico and the US have agreed to eliminate the barriers among themselves, but each maintains independent policy when trading with other areas of the world. The third type of trade bloc is a customs union, where member countries not only eliminate internal trade barriers, but they also adopt common policies for trade barriers on any nonmembers. For example Russia, Kazakhstan and Belarus formed a customs union in 2010. Those countries are eliminating trade barriers among themselves, but would agree to some common set of trade standards on anyone who is not in their group. After the customs union, trade blocs begin to address the flow not only of goods and services, but also the flow of resources, like labor. In a common market, members eliminate internal trade barriers, adopt common external trade barriers, AND allow free movement of resources among the member countries. Think about the US: if you lived in New York, and wanted to leave New York for a job in California, there are no barriers to prevent you from making that choice. Examples of common markets include Mercosur -- also known as the Southern Cone Market - whose members include Argentina, Brazil, Paraguay, Uruguay, and Venezuela's membership pending, at the moment. Other markets would be the East African Common Market or the West African Common Market. After the common market is economic union: members eliminate internal barriers, adopt common external barriers, allow free movement of resources among members, AND adopt a uniform set of economic policies. The European Union, once the common currency had been adopted, became a prime example of an economic union. With one currency, they had to adopt one monetary policy. At the final structure in the spectrum, there's full integration of the member states, like the United States. NEXT TIME: Well, we've reached the end of the road where my original plan for this series is concerned, so now I think it's going to be up to you. I'm getting a lot of feedback from YouTube viewers so you never know -- I might be working on one of your ideas.