A2 Macroeconomics: Trade blocs Mercosur

A trade bloc is an association of nations who are abolishing, or have abolished, the barriers to trade between them. Not surprisingly, they tend to be the countries in the same region as the benefits of free trade would be partly negated by the cost of transport if they were too far apart geographically.

Trade blocs exist alongside the WTO. This is because it is much easier to abolish trade barriers between a few, neighbouring countries who are culturally and politically close. In comparison, the sheer number of WTO members makes negotiations on trade much more cumbersome, so trade in the regional trade blocs has zoomed ahead.

As a result, some of the negotiations at WTO level are not now between individual countries but between trade blocs. Members have often become quite reach as a result of specialisation and trade within their own trade bloc. Opening up as new markets to countries from outside the trade bloc might displace them as the most efficient producer of a product in the trade bloc. Having become established within the trade bloc, they are reluctant to give up their position as chief exporter of a particular good and so the negotiations to liberate World trade stall.

An example of a trade bloc is Mercosur:

MERCOSUR from Plaid Avenger on Vimeo.