Case Study

There are four major types of trade or economic blocs: free-trade area, customs union, common market, and economic union. WTO rules generally call for equal trade barriers against all other countries (at least those that are also members of the WTO)the most-favored-nation principle. But the WTO rules also have a few exceptions, including an exception for a trade bloc that achieves substantially free trade among its members. A trade bloc can have several effects on the well-being of its member countries and the world overall. We usually analyze trade blocs by comparing them to countries maintaining barriers against all other countries. The net effect depends on whether the gains from trade creation are larger than the losses from trade diversion.

For the European Union, most estimates are that the EU gains from its internal free trade in manufactures, because trade creation has been larger than trade diversion, and because there are probably also dynamic gains, although these are harder to measure. Additional gains came as the move toward a true common market in 1992 removed nontariff barriers and freed resource movements. However, the EU also incurs substantial losses from its highly protectionist common agricultural policy. In 2004, 10 additional countries joined the EU, in 2007 two more, and in 2013 one more (Croatia), bringing the total number of members to 28. Integration of the new members has been relatively smooth, though some features of EU policies have been phased in slowly for them.

The North American Free Trade Area (NAFTA) began in 1994, subsuming the previous Canada-U.S. Free Trade Area. NAFTA has eliminated tariffs, reduced some nontariff barriers, and liberalized trade in services and cross-border business investments. The formation of NAFTA was controversial. In Mexico there were fears of jobs lost to more productive U.S. and Canadian firms, as well as the loss of political sovereignty as NAFTA committed Mexico to change a number of its government policies. In the United States there were fears of job losses to low-wage Mexico, as well as complaints about linking with a country that has a corrupt political system and poor environmental protection. Proponents in both Mexico and the United States hoped that NAFTA would commit the Mexican government to maintain and extend its market-oriented refor.

Write down about any two of upper mentioned trades.?