Sovereign countries belonging to the free trade area

trade freely amongst them

have individual trade barriers
but
with countries outside the free trade area
free trade
have most favored nation status
1. areas All members
That is, they are all treated equally

NAFTA
Examples
CAFTA

countries are no longer fully sovereign over trade policy

There will be some degree of unification of custom or trade policies
They will have a common external tariff

to all countries
which is applied
Profile outside the customs union

with organizations
at trade negotiations
such as the WTO
countries will be represented by supra-national organizations
customs
2. unions e.g. the European Union

internal economies of scale

Types of
external economies of scale
Trade longer-term advantages
better terms of trade
Blocks
increased competition between members

certain regions of the union may suffer

longer-term disadvantages possibility of oligopolistic collusion
administrative costs

which has in addition

the free movement

labour
a customs union of factors of production
common capital
3. markets
without restriction
between
the member countries
MERCOSUR is an example

common market where the level of integration is more developed

member states may adopt common economic policies

the Common Agricultural Policy (CAP)

Economic e.g.
of the European Union
4. Union
They may have a fixed exchange rate regime
and have a single common currency
they may have integrated further
This will involve common monetary policy
Types of Trade Blocks.mmap - 18/04/2009 - Carlos Mondragón