Trade Bloc:

A trade bloc can be defined as a preferential trade agreement (PTA) between a subset of countries, designed to significantly reduce or remove trade barriers within member countries. When a trade bloc comprises neighboring or geographically close countries, it is referred to as a regional trade (or integration) agreement. It is sometimes also referred to as a natural trade bloc to underline that the preferential trade is between countries that have presumably low transport costs or trade intensively with one another. The two principal characteristics of a trade bloc are that: (1) it implies a reduction or elimination of barriers to trade, and (2) this trade liberalization is discriminatory, in the sense that it applies only to the member countries of the trade bloc, outside countries being discriminated against in their trade relations with trade bloc members. Though few, there exist as well regional integration agreements in which cooperation rather than preferential market access is emphasized. Trade blocs can also entail deeper forms of integration, for instance of international competition, investment, labor and capital markets (including movements of factors of production), monetary policy, etc. The integration of countries into trade blocs is commonly referred to as regionalism, irrespective of whether the trade bloc has a geographical basis or not. The first waves of PTAs appeared in the 1930s leading to a fragmentation of the world into trade blocs. This old (first) regionalism is also associated with regional initiatives involving developing countries in the 1950s and 1960s. Based on the objective of importsubstitution industrialization, the rationale was that developing countries could reap the benefit from economies of scale by opening up their trade preferentially among themselves, hence reducing the cost of their individual importsubstitution strategy while the trade bloc became more selfsufficient. More successful experiences followed with the recent proliferation of trade blocs, the socalled new (second) regionalism, which involve mostly countries from the North with the South (the NorthSouth trade bloc.