Economic Blocks (Meaning and Explanation)

We explain what economic blocks are, their objectives, advantages, disadvantages and characteristics. Also, its link with globalization.

economic gasoline blocks — Economic blocs are international trade groupings.

What are economic blocks?

Economic blocks or commercial blocks are voluntary groupings of nations, which exhibit some degree of economic integration. Therefore, they seek to mutually benefit from international trade in accordance with common legal regulations.

In other words, these are international commercial groups, generally associated with a specific region. They pursue the goal of benefiting their members through a common policy of economic exchange, both among themselves and with the rest of the countries.

The economic blocks can arise from the signing of a Free Trade Agreement (FTA), or other types of diplomatic instruments, in which, in addition, the accession of a new associated country occurs according to specific terms, voluntarily and usually after the approval of the countries that are already members.

Likewise, all countries in an economic bloc tend to agree on positions regarding trade and often other sociopolitical foundations, such as the defense of democracy. Consequently, establish a framework of minimum standards common to all just as in international treaties of another nature.

Objectives of the economic blocks

Economic blocks can have numerous and diverse objectives, depending on the spirit that motivates their integration and the degree of affinity that exists between their members.

You may be interested: Quaternary Sector

Usually, however, economics is the determining factor. Its members agree on common tariff, commercial and exchange policies, which usually consist of the lifting of tariff barriers and free trade between member countries.

Ultimately, these measures aim at mutual development instead maintaining a set of common tariffs for all transactions that do not come from member countries of the bloc.

At the same time, these multilateral international organizations can have as their purpose aid to less favored member countries, the development of common social policies (such as regional integration) and even the defense of democracy among their members. Everything will depend on the founding treaties of the bloc.

Types of economic blocks

Usually, economic blocs are classified according to the degree of economic integration achieved by their member countries. Thus, one can speak of:

Economic Complementation Agreements They barely imply reciprocal tariff preferences for some of the products manufactured in the countries that subscribe to them.
Customs Agreements A single and same customs policy is implemented between the subscribing countries.
Free Trade Areas Founded by Free Trade Agreements (FTA), they usually involve the full lifting of tariffs between countries, except for certain protected products, considered “sensitive.”
Economic Community They imply the total liberation of trade in factors of production.
Economic Union It implies total and complete economic integration, not only in trade and tariff matters, but even in monetary and fiscal matters.

Characteristics of economic blocks

Mercosur economic blocks — Group members may have political disagreements, as occurs in Mercosur.

The economic blocks embody that saying that “there is strength in unity.” Nations integrate to some extent to give a common face, “en bloc”, to international trade, and thus benefit reciprocally.

You may be interested: Economic Globalization

Said common good may not be solely economic, as we said before, but It is maintained based on internal regulations and letters of principles that govern the block. In any case, among the countries that make it up there may be economic inequalities, or political discrepancies. This is a business alliance, not the founding of a new country together.

Advantages of economic blocks

Economic blocs represent great advantages for their members, such as:

The possibility of a joint trade negotiation with other countries power, on more equal terms than if negotiated separately.
The application of integrative plans to the tariff and trade policy of the countries of the bloc, allowing the free transit of merchandise between its borders and therefore promoting common consumption and spirit.
Reciprocal defense in matters not strictly economic since the collapse of a partner country on which many businesses depend is never a good idea for investors.
The possibility of sign agreements on other matters non-commercial.

Disadvantages of economic blocks

At the same time they entail the following disadvantages:

Obligation of subscribe to the group's economic decisions even if they go against one's own interests.
Restrictions when managing foreign trade for each country.
Loss of autonomy on non-economic issues compared to the rest of the bloc.
Lack of protection against inequalities that exist within the bloc's own countries.

Examples of economic blocks

The main economic blocks today are the following:

The European Union. Composed of the nations of Finland, Sweden, Austria, Greece, Luxembourg, Portugal, Spain, Italy, Denmark, Belgium, Holland, Ireland, France and Germany. The United Kingdom was part of it until the approval of the so-called “Brexit” in 2016.
Mercosur. Made up of the South American countries of Argentina, Brazil, Paraguay, Uruguay and Venezuela.
NAFTA. Composed of the North American countries of Mexico, the United States and Canada.
The Andean Pact. Which make up the nations of Peru, Ecuador, Colombia and Bolivia.
The Southern African Development Community (SADC) Composed of Angola, Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.
The Central American Common Market (CACM). Which make up Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.

Globalization and economic blocks

The creation of economic blocks is a response at the beginning of the 21st century to economic globalization. The integration of distant markets into a large network of investments, businesses and transactions is not always accompanied by justice. Therefore, it has a different impact between countries with a solid and industrialized economy, and weak countries with dependent economies.

That's why, Affiliation in regional economic blocs is a possible protection against the globalized economy. This, paradoxically, establishes the next step in the composition of a globalized world economy: trade between regions, which in the future could become integrated and thus compose a decentralized global economy.

Continue with: Macroeconomics