What is Trading Blocks ?

In the present day international trade scenario, trading blocks representing various forms of economic integration have a profound impact on the nature of competitiveness in the export markets. Economic integration is a state of affairs, or a process, involving the amalgamation of varied types of sovereign economies into a larger entity. In specific terms, it strives for cooperation among nations and is concerned with discriminatory removal of all trade restrictions between the participating nations and evolving of certain elements of cooperation and coordination between them. Such groups of countries are known as trading blocks.

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Type of Trading Blocks

There are five different types of economic integration as given below

  • Free Trade Area
  • Custom Union
  • Common Market
  • Complete Economic Union
  • Complete Political Integration.


Free Trade Area

In this form of economic integration, member nations remove all trade impediments among themselves but retain their own policies with the outside world. That to say, the member countries do not charge any import tariff on imports from each other but they do have their respective policies as regards levy of import tariffs on imports from the countries outside the group.

Custom union

This arrangement of economic integration is similar to free trade area. Besides, member nations have common external commercial relations. For example, they adopt common external tariff on imports from the non member nations. Thus, custom union marks the second stage of economic integration amongst the nations.


Common Market

In this type economic integration, the member nations have custom union agreement with one another and they also agree for factor mobility across the national borders of member countries. Thus, the common market arrangement permits free movement of labour and capital amongst the member nations.

Complete Economic Union

This is the final stage of economic integration to provide the basis for complete unification of monetary and fiscal policies. This arrangement is akin to economic and monetary union amongst the member nations. In a recent development, eleven out of fifteen countries of the European Union have agreed to move forward to forge economic and monetary union amongst themselves with effect from 1.1.1999 when they decided to have a common currency unit called Euro. There eleven countries are Belgium, France, Germany, Italy, Luxembourg, Netherlands, Austria, Ireland, Portugal, Spain and Finland.


Complete Political Integration

This is the ultimate stage of integration amongst the nations when the member nations literally merge their individual identities into one nation. In this form, the nation members have a central parliament with the sovereignty of a national government.

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