An alternative to liberalising trade
through out the world generally by removing tariffs and
other barriers between countries, is for a group of countries
to develop closer links by reducing trade restrictions
amongst themselves, but at the same time leaving restrictions
in place against the rest of the world. These groups of
countries which pursue closer links with one another are
referred to as trading blocs.
A trading bloc is a group of countries bound
by a specific agreement which determines some or all of
their international trade practices and which usually provides
for common import tariffs on certain, if not all, goods.
There are different forms of economic links or integration,
depending on the closeness of the ties adopted by the countries
- A free trade area is the simplest
kind of trading bloc. Tariffs and other barriers to trade
are eliminated between member countries, but individually
each country retains its own tariffs on imports from countries
not included in the agreement. An example of a free trade
area is the North American Free Trade Area (NAFTA) comprising
the United States, Canada and Mexico.
- A customs union goes one stage further. Besides
abolishing tariffs amongst themselves, the countries concerned
establish a common external tariff on goods imported from
outside the union, and divide the customs revenue amongst
the members according to a specific formula. South Africa
has had a customs union, the Southern African Customs Union
(SACU) agreement, in place with Botswana, Lesotho and Swaziland
since 1910. Namibia joined this union in 1990.
- In a common market, a common tariff is placed on
imports from other countries. Within the common market,
there is freedom of movement of labour and capital. In
other words, restrictions on immigration, emigration and
cross-border investment are abolished. The Common Market
for Eastern and Southern Africa (COMESA), for example,
has replaced the Preferential Trade Area (PTA).
- In a monetary union, the countries concerned use
the same currency or the rate of exchange for their currencies
is fixed, and there is a common monetary policy. South
Africa has a monetary union with Lesotho and Swaziland,
and most of the countries of the European Union (except
for Britain) have also formed a monetary union and use
a common currency, namely the euro.
- The creation of an economic union requires - in
addition to the free movement of goods, services and factors
of production across borders - integration of economic
policies, such as the harmonisation of monetary policies
and taxation, and the introduction of a common currency
for all members. The European Union (EU) has made significant
progress towards becoming an economic union. The EU comprises
the following countries : Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal,
Spain, Sweden, The Netherlands and the United Kingdom.
Economic integration has the effect of stimulating
efficient utilisation of capital, manpower and resources
in the particular region because the capital tends to move
to labour-rich or resource-rich locations. This arguably
results in a more even development of the economy and a
better distribution of income in the region. In addition,
a manufacturer in a member country has access to a larger
market. Increased production and competition result in
more competitive markets both inside and outside the trading
On the other hand, it can be said that
the creation of artificial barriers around a trading bloc
constitutes an obstacle to the efficient growth of international
trade in general.