Free trade blocks are groups of countries geographically close that have arranged to trade with each other without restrictions.
Countries which want to trade with each other often form a free trade bloc without any trade barriers within. Sometimes, they may impose trade barriers on other groups of countries to gain competitive advantage against imports.
Free trade agreements are a way of opening up foreign markets and stimulating international trade. They not only create favorable trade and investment policies for the member countries, but also improve economic, legal and technological cooperation.
Major free trade blocks around the world
There are a few examples of free trade blocks in the world in both Europe, Americas and Asia.
Free trade blocks in Europe
1. European Union (EU). The European Union (EU) is a politico-economic union of 28 member states that are located primarily in Europe. It covers an area of 4,324,782 km2, with an estimated population of over 508 million. The EU operates through a system of supranational institutions and intergovernmental-negotiated decisions by the member states. The institutions are: The European Parliament, The European Council, The Council of the European Union, The European Commission, The Court of Justice of The European Union, The European Central Bank, and The Court of Auditors. The European Parliament is elected every five years by EU citizens. The EU has developed a single market through a standardized system of laws that apply in all member states. Within The Schengen Area, passport controls have been abolished. The monetary union was established in 1999 and came into full force in 2002. It is currently composed of 19 member states that use the euro as their legal tender.
2. European Free Trade Association (EFTA). The European Free Trade Association (EFTA) is a common market consisting of four European countries that operates in parallel with – and is linked to – The European Union (EU). These member states include Iceland, Liechtenstein, Norway and Switzerland. The EFTA was established on May 3, 1960 as a trade bloc-alternative for European states who were either unable or unwilling to join The European Economic Community (EEC) which has now become the EU. The Stockholm Convention, establishing the EFTA, was signed on January 4, 1960 in the Swedish capital by seven countries (known as the ‘outer seven’).
Free trade blocks in Americas
3. North American Free Trade Agreement (NAFTA). The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral rules-based trade bloc in North America. The agreement came into force on January 1, 1994. It superseded The Canada–United States Free Trade Agreement between the U.S. and Canada. NAFTA has two supplements: The North American Agreement on Environmental Cooperation (NAAEC) and The North American Agreement on Labor Cooperation (NAALC).
Free trade blocks in Asia
4. Association of Southeast Asian Nations (ASEAN). The Association of Southeast Asian Nations (ASEAN) is a political and economic organization of ten Southeast Asian countries. It was formed on August 8, 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Since then, membership has expanded to include Brunei, Cambodia, Laos, Myanmar (Burma), and Vietnam. Its aims include accelerating economic growth, social progress, and socio-cultural evolution among its members, protection of regional peace and stability, and opportunities for member countries to resolve differences peacefully.
5. ASEAN Plus Three (APT). ASEAN Plus Three (APT) is a forum that functions as a coordinator of co-operation between The Association of Southeast Asian Nations (ASEAN) and the three East Asia nations of China, Japan, and South Korea. Government leaders, ministers, and senior officials from the 10 members of the ASEAN and the three Northeast Asian states consult on an increasing range of issues. The APT is the latest development of East Asian regional co-operation. In the past, proposals, such as ROK’s call for an Asian Common Market in 1970 and Japan’s 1988 suggestion for an Asian Network, have been made to bring closer regional co-operation.
The establishment of free trade blocks and the increasing use of information technology systems reduce the differences between national markets. It powers up international trade. By reducing the importance of national borders, it is easier for businesses from different countries to trade with each other.
