Hello and welcome along to another Taking the Biz tutorial. This is the channel for A-level business students and their revision, and this is the video that will hopefully help you revise the topic of trading blocks. So a trading block is a group of nations, a block of nations if you like, that have agreed to work together to reduce...
reduce protectionist policies, or maybe even remove protectionist policies in their entirety between all of the nations in that bloc. So it's an agreement, it's a pact that they will actively try and increase the amount of free trade between their nations by removing or reducing the amount of protectionism that exists between those nations. Now, there are different models of trading blocks and what separates them is a spectrum of how closely the nations inside the block have integrated. Some trading blocks are quite informal.
They place very little requirements on the nations that are members of those blocks. They don't integrate very closely between the nations inside that block. But then there are different shades or different scales of trading blocks. Moving up to where the countries inside the block actually very closely integrate with each other. The first model of trading block is what's known as a PTA, a preferential trade area.
And this is where countries or nations decide that they're going to reduce or remove the protectionist policies such as tariffs or quotas that might exist, but only on specific. goods and services and quotas and tariffs will remain on the whole for many goods and services but countries will strike agreements between themselves where if nation a removes its quotas or tariffs or other protectionist policies on a good then country b will reciprocate by removing the tariffs or quotas on another good so that those nations can trade more freely with each other. But when businesses from those nations are trading other goods and services that are not covered by one of the agreements that's been signed between those nations, then protectionist policies will still prevail. Next step up from that is what's known as an FTA, a free trade area. This is where the countries inside this bloc agree to remove all barriers to trade.
that exists between the members of the bloc. So the nations inside that bloc will now be able to trade freely with each other on all goods and services. However, they will still have the power, the autonomy, the independence to strike their own individual trade agreements with any nations outside of the bloc.
So country A might have a different agreement with America say, then country B will. Even though countries A and B will trade freely with each other, it gives them the sovereignty to strike their own trade agreements with other nations. Now the logical next step from that is what's known as a customs union.
This time we have free trade between all of the nations inside the bloc, but they develop what's called a common external barrier, where all of the countries inside that bloc... lay down an agreed level of protectionism that they will all abide with, with countries that are outside of the bloc. So they may develop what's called a common external tariff. So all of the nations inside of the trading bloc can trade freely with each other without having to go through tariffs, without having to go through quotas or other protectionist policies such as embargoes, but they will have an agreed set of... trade deals in place so that every nation inside that block has the same trading deal or the same contract with any nation that is outside of their trading block.
If we go even more integrated, if we go to the next level from a customs union, we develop what's known as a common market. This is where we have free trade between all of the members of the block. And we have a common external barrier, a shared set of protectionist policies with any nations that are... outside of the block.
But this time, as well as allowing the free movement of goods and services inside our trading block, on top of that, we allow the free movement of capital and labour as well. So it's not just goods that are free to move around the trading block and be sold inside different nations, but it's workers as well. So the worker from country A has the entitlement to go and work in country B without having to apply for visas.
They are allowed to move freely and take their labour anywhere inside the bloc. Which brings us to our most integrated form of trading bloc, what are known as economic unions. This time we have free trade between all of the countries inside of the bloc.
We have a shared negotiated set of external tariffs or barriers to trade. with any country that's outside of the bloc. We have the free movement of goods, we have the free movement of capital, we have the free movement of labour.
But on top of that, the thing that makes us even more closely integrated is that we begin to harmonise some of our policies. So that we might share a currency, we might share a central bank, and we might have a shared monetary policy or the setting of interest rates. for every nation that is inside our trading block. So if the UK were to draw in an economic union, rather than our monetary policy being determined by the Bank of England, based on the needs of just our nation, monetary policy would be set for the entire zone that we were a member of the trading block for.
And this is what happens in the Eurozone, of which the UK has not been a member. Interest rates are set across the Eurozone for all of those countries that share a currency. They have the same central bank and the same monetary policy, which means that the interest rates set in Germany are also the same interest rates that apply to Croatia.
So the currency that is used in France is the same currency that is used in Portugal. So the most integrated form of trading block, the one that... brings nations inside that block closest together and harmonizes arrangements inside that trading block the most is an economic union.
And for our exams, we need to know the different styles of trading blocks and how nations inside trading blocks can change the nature and the agreements of their block in order to more closely integrate with the other nations inside it. hopefully that quick video supports you with that topic keep on revising and keep on taking the biz