Economic blocs are a form of commercial and political association between countries that often share something in common such as borders or cultural heritage.
Its objective is to eliminate customs barriers between member countries.
A treaty will list products that do not pay customs duties to enter these countries. Likewise, there will be the rules of origin, that is, the criteria to determine what makes a product from that country. Finally, the treaty determines a timetable for the reduction and elimination of customs duties.
Types and Examples of Economic Blocks
Free Trade Zone
A Free Trade Zone is an agreement that establishes the end of customs duties between two or more countries.
Let's look at a case to understand how it works:
Country A exports an engine to Country B worth 10,000 reais. Country B charges 20% tax for the entry of this engine. Thus, the final value of the product will be 12,000 reais.
In a Free Trade Zone there are no customs duties and the engine can be sold in Country B for 10.000 reais.
Free Trade Zone Examples
- European Single Market: free movement of goods agreement between the countries of the European Union and Iceland, Liechtenstein, Norway and Switzerland.
- African Free Trade Area (AFCFTA): formed by 54 countries on the African continent.
- United States, Mexico and Canada Agreement (USMCA)
Customs union
Like the Free Trade Zone, a customs union is the elimination of customs duties between countries. In this case, however, all products are included, including agricultural ones. Furthermore, it has the same Common External Tariff (CET) for countries that do not belong to this agreement, something that does not occur in the Free Trade Zone.
Let's take this case to understand:
Country A and Country B form a customs union, do not pay customs duties between themselves and must charge the same customs duty to Country C.
Country C, which is not in this customs union, sells products to both countries and will pay the same amount of taxes to sell them to both Country A and Country B.
Examples of Customs Union
- European Customs Union (UAE): consists of all countries that are part of the European Union, plus San Marino, Turkey, Monaco and Andorra.
- Southern African Customs Union (SACU) formed by South Africa, Namibia, Botswana, Lesotho and Swaziland.
common market
The Common Market promotes free trade in goods and services, free movement of people and capital among its members.
Let's imagine that Country A and Country B, in addition to selling products without charging customs fees, allow their citizens to travel across their borders, without the need for a visa.
Common Market Example
- Association of Southeast Asian Nations (ASEAN)
- Southern Common Market (Mercosur): created in 1991 and comprising Argentina, Brazil, Paraguay and Uruguay.
- Central American Common Market (MCCA): made up of Honduras, El Salvador, Guatemala and Nicaragua.
See too: Mercosur
Economic blocks of which Brazil is part
Brazil is part of Mercosur (Southern Common Market) together with Argentina, Paraguay and Uruguay.
It also integrates other economic cooperation associations such as the Community of Portuguese Language Countries (CPLP), the G-20 (Grupo dos 20) and the BRICS (Brazil, Russia, India, China and South Africa).
These last three, however, are not economic blocks, as they do not have the characteristics of free circulation of goods or common tariffs. However, they are important business forums between countries.
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