What are economic blocs?

Emerged more frequently after the Second World War, economic blocs are now extremely common in international politics. Whenever certain countries have a common goal, especially in a specific region, this type of association is used.

But what exactly are economic blocs? What is your purpose? We explain better what it is about next.

What this article covers:

What are economic blocks?

Having several countries as members, economic blocs are associations whose main objective is to form a common regional market that provides tariff benefits to its participants.

There are several types of blocks and benefits offered by them. For example, economic blocs may offer a customs union, political and monetary union, or free trade zones and a common market.

What is the history of economic blocs?

Economic blocs began to emerge mainly after the Second World War and the Cold War, with a new phase in the global economy, which started a greater integration between countries, thus generating what many call globalization.

With the intention of keeping their markets functioning and growing, several countries formed commercial alliances that had both internal and external consequences.

The first known economic bloc was the Benelux, formed by Belgium, the Netherlands and Luxembourg.

What are the characteristics of economic blocks?

The economic blocs are divided into four specific characteristics: free trade zone, customs union, common market, and economic and monetary union, where each one complements the previous one.

• Free Trade Zone: Here, aiming at products and profit, the member countries of the economic blocs come together to release goods and capital within their territorial limits, gradually;
• Customs Union: As an evolution of the free trade zone, in this case the economic blocs, in addition to releasing goods and capital, create a TEC, Common External Tariff, for negotiations with countries that are not part of the bloc;
• Common Market: Along with the free trade zone and customs union, this characteristic of economic blocs seeks to further expand relations between member countries. Standardizing labor laws and economic legislation, in addition to having free movement of people among members. Another important point is that companies originating in member countries can establish themselves in any of the bloc’s territories;
• Economic and Monetary Union: Being the maximum stage of economic blocs, here there are all the previous characteristics, together with the adoption of a single currency and the creation of a central bank of the bloc.

Since we understand the types of economic blocs, let’s move on to the main ones, such as Mercosur and the European Union.

What are the main economic blocks?

Currently, there are five main economic blocks known worldwide, representing three continents.

• European Union: Best known of the current blocs and that reverberates since Benelux, created in 1944, the EU is the one with the most members. The bloc has several characteristics, including the adoption of a single currency, the Euro, however, not all member countries have adopted the currency;
• NAFTA: The North American Free Trade Agreement, or NAFTA for short, started in 1989, with the United States and Canada as members. Currently, Mexico is also part of the bloc, with little economic interaction between the members;
• Mercosur: Block of which Brazil is a member, the Common Market of the South, or Mercosur, started in 1990 and currently represents the largest GDP in Latin America. With ten members, the bloc has commercial exchanges and even the free movement of people within its territory.
• Asean: One of the economic blocs on the Asian continent, the Association of Southeast Asian Nations was created in 1967 and counts Southeast Asian countries as members, with the objective of economic development through its customs union;
• Apec: With 21 members, the Asia-Pacific Economic Cooperation had the objective, when created in 1989, to create a free trade zone between the countries bordering the Pacific Ocean, however, several divergences prevent this from being fully implemented until today.

These are currently the main ones.

What are the advantages of economic blocs?

Thanks to their broad economic exchanges and transactions, economic blocs are extremely advantageous for their member countries, especially the least developed ones.

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In addition, there is the possibility of the rapid installation of national companies in the territory of the member countries, which generates an even greater economic movement, especially in blocks with the free movement of people between the members.

Disadvantages?

However, it is also important to point out that there are some factors that end up harming some countries that are members of economic blocs. One of them, for example, is the economic protectionism that exists in relation to negotiations between countries that are not part of the bloc, or even cultural issues, such as xenophobia.

What is the importance of economic blocs?

In times of economic turmoil, as was the case at the time post WWIIeconomic blocs are crucial for facilitating economic movement, and can even recover a country’s economy.

In addition to economic development, this generates other types of development, such as social, with the generation of jobs and income, lifting families out of extreme poverty.

Since their creation, economic blocs are a strategy that can completely change the economic and social situation of a country, as long as negotiations are carried out in a way that benefits all members. With that, as many say, everyone wins.