Study notes

Trading Blocs and Regional Trade Agreements (RTAs)

  • Levels: A Level
  • Exam boards: AQA, Edexcel, OCR, IB, Other, Pre-U

In recent years there has been a flurry of bi-lateral trade deals between countries and the emergence of regional trading blocs. For example, the European Union now has over 30 separate international trade agreements including those with countries such as Colombia and South Korea.

Some of these deals are free-trade agreements that involve a reduction in tariff and non-tariff import controls to liberalise trade in goods and services between countries.

The most sophisticated RTAs include rules on flows of investment, co-ordination of competition policies, agreements on environmental policies and the free movement of labour.

Examples of Regional Trade Agreements (RTAs):

The number of RTAs has risen from around 70 in 1990 to over 300 now – this both reflects and reinforces a switch towards greater intra-regional trade most notably between many of the world's fast-growing emerging market economies. No regional trade agreement is the same!

The WTO permits the existence of trade blocs, provided that they result in lower protection against outside countries than existed before the creation of the trade bloc

  • European Union (EU) – a customs union, a single market and now with a single currency
  • European Free Trade Area (EFTA)
  • North American Free Trade Agreement (NAFTA) between the USA, Canada and Mexico
  • Mercosur - a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela
  • Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA)
  • Common Market of Eastern and Southern Africa (COMESA)
  • South Asian Free Trade Area (SAFTA) created in 2006 with countries such as India and Pakistan
  • Pacific Alliance – 2013 – a regional trade agreement between Chile, Colombia, Mexico and Peru
  • Trans-Pacific Partnership (TPP) - a proposed free trade agreement being negotiated during 2013 between Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam

General notes on regional trade blocs

Trade blocs are usually groups of countries in specific regions that manage and promote trade activities. Trade blocs lead to trade liberalisation (the freeing of trade from protectionist measures) and trade creation between members, since they are treated favourably in comparison to non-members. However, trade diversion away from non-members is also likely to occur, especially if protectionist measures are imposed against non-members. Trade diversion contradicts the aims of the WTO and distorts comparative advantage

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