Limited Time Offer: Save 10% on all 2022 Premium Study Packages with promo code: BLOG10

Trading Blocs, Common Markets, and Economic Unions

Trading Blocs, Common Markets, and Economic Unions

Trading Blocs

A trading bloc is defined as a number of nations within a geographical area that guard themselves against imports and non-members. Trading blocs bring countries together and increase the conditions for imports. Regional barriers to trade, i.e., tariffs, within members of a trading bloc are usually low or non-existent. Examples of  trading blocs include the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN).

Common Markets

A number of nations imposing few or no duties on trade with one another, and a common trade with other nations is called a common market. It is characterized as a free-trade region with relatively free movement of services and capital. Examples include the East African Common Market.

Economic Unions

An economic union is a type of trade bloc that is constituted of a common market with a customs union. The member nations have common policies on regulating products, capital and labor, and freedom of movement of goods and services. For instance, the European Union (EU) is both political and economic.

Motivations for Trading Blocs, Common Markets, and Economic Unions

Getting into New International Markets

When countries cooperate with other countries with whom they share the same political and economic environment, their growing companies enjoy access to new skills. These skills allow companies to navigate the business world with more ease.

Acquiring Knowledge

Firms may realize that they do not have some skills that are required for maximum production. Such a realization may propmt them to form unions that enable them to learn from their partners. For example, companies in developing countries are usually searching for partnerships with their counterparts in more developed countries to provide them with technological advances.

Increasing Available Resources

Many companies sign strategic alliances to use their partners’ manufacturing and/or distribution resources. Using their partner’s resources reduces the companies’ unnecessary investments.

Reducing Future Competition

A lot of countries form trading blocs and unions with countries that are their business competitors. This trick helps minimize chances of future competition.

Gaining Competitive Advantage

Alliances help countries discover new markets and technologies. This enables them increase the competitive position of their businesses.

Suppressing Trade Barriers

Trade blocs eliminate trade barriers and facilitate free and easy movement of factors of production among trading partners, especially those within a trade bloc.

Advantages of Trading Blocs, Common Markets, and Economic Unions

Free Trade

Members have unconstrained access to one another’s markets. As a result, specialization thrives.

Economies of Scale

When producers apply economies of scale, it’s highly beneficial because the increase in markets enables manufacturers to produce more products locally.

Job Creation

A rise in trading activities excites an increment of employment opportunities. Labor then becomes mobile as individuals can move freely from one country to another because of increased opportunities.


Companies get the added advantage of being protected from cheaper imports that reduce their market share.

Easy Access to Market and Trade Creation

Alliances make it easier for countries to access one another’s markets; hence, trading goes up. Further, due to intermarket interactions, individuals can access lower-priced imports.


If Columbia and Ecuador have free trade between themselves and a common policy excluding non-members from this free trade, then they are a part of a:

  1. Customs union.
  2. Free trade area.
  3. Common market.


The correct answer is A.

Customs unions allow free movement of goods and services and also form a mutual policy against non-members.

 B is incorrect. A free trade area is a grouping of countries where trade barriers are abolished.

C is incorrect. A common market is a free trade area with relatively free movement of capital and services.

Shop CFA® Exam Prep

Offered by AnalystPrep

Featured Shop FRM® Exam Prep Learn with Us

    Subscribe to our newsletter and keep up with the latest and greatest tips for success
    Shop Actuarial Exams Prep Shop GMAT® Exam Prep

    Sergio Torrico
    Sergio Torrico
    Excelente para el FRM 2 Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
    So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts. The fun light-hearted analogies are also a welcome break to some very dry content. I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
    Kriti Dhawan
    Kriti Dhawan
    A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them. Thank you ! Grateful I saw this at the right time for my CFA prep.
    nikhil kumar
    nikhil kumar
    Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
    Great support throughout the course by the team, did not feel neglected
    Benjamin anonymous
    Benjamin anonymous
    I loved using AnalystPrep for FRM. QBank is huge, videos are great. Would recommend to a friend
    Daniel Glyn
    Daniel Glyn
    I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
    michael walshe
    michael walshe
    Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.