Trading bloc

A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental organization, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.

Historic economic blocs include the Hanseatic League, a trading alliance in northern Europe in existence between the 12th and 17th centuries and the German Customs Union (Zollverein) initiated in 1834, formed on the basis of the German Confederation and subsequently German Empire from 1871. Surges of trade bloc formation were seen in the 1960s and 1970s, as well as in the 1990s after the collapse of Communism. By 1997, more than 50% of all world commerce was conducted within regional trade blocs.

Economist Jeffrey J. Scott of the Peterson Institute for International Economics notes that members of successful trade blocs usually share four common traits: similar levels of per capita GNP, geographic proximity, similar or compatible trading regimes, and political commitment to regional organization.

Advocates of worldwide free trade are generally opposed to trading blocs, which, they argue, encourage regional as opposed to global free trade. Whereas other economists believe that free trade is in the interest of every country, because it would create more feasible opportunities by turning indigenous resources into goods and services that are both currently in demand and will be in demand in the future by consumers. Scholars and economists continue to debate whether regional trade blocs are leading to a more fragmented world economy or encouraging the extension of the existing global multilateral trading system.

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