Chapter 6.

Trade Blocks
The most basic agreement is called a preferential trade agreement. With this type, nations grant
preferential trade to a group of nations. These are not necessarily reciprocal.
Free trade areas reciprocal agreements among groups of nations to remove tariffs and other trade
barriers among members, but each nation is free to impose any barriers or preferential treatments
to other nation.
Customs union a free trade area with the additional provision that members use uniform
treatment of outsiders with regard to trade policies. Customs unions are similar to free trade areas
regarding relationships among members. All members get the same benefits of reduced tariffs and
other trade barriers with each other. What makes customs unions different from regional trade
agreements is that country members also agree to use uniform treatment of outsiders with regard
to trade policies.
Common markets allow free movement of labor, capital, and technology across member nations’
borders. From the strategic point of view, this allows companies to locate any value-chain activity
in any fellow common market country without restrictions.
Class Activities
1. What is trade block?
2. What are the advantages and disadvantages of Trade Blocks? Explain
•Thanks