The world is increasingly dividing into trade blocs.  The world's two most powerful economies, the United States, and the European Union, have each sought to forge links to neighbouring countries and deny access to rivals. Other major trading countries, like the fast growing exporters on the Pacific Rim and the big agricultural exporting nations, have also sought to create looser trade groupings to foster their interests.

The formation of free trade zones and trade blocs is one of the major issues facing the world trading system - whether it will lead to increased protectionism, or whether the trade blocs will promote trade liberalisation.  A number of the main trade blocs are described below.

The European Union

Trade Flow:

·        exports $813bn

·        imports $801bn

The EU has become the most powerful trading bloc in the world with a GDP now exceeding that of the United States. The creation of the euro as a single currency for 12 EU members has led to ever closer economic links. The EU has found it difficult to shed its protectionist past based on the idea of self-sufficiency in agriculture which limits agricultural exports from the other countries.

Members:

·        Austria

·        Belgium

·        Denmark

·        Finland

·        France

·        Germany

·        Greece

·        Ireland

·        Italy

·        Luxembourg

·        Netherlands

·        Portugal

·        Spain

·        Sweden

·        UK

North American Free Trade Agreement (NAFTA)

Trade Flow:

·        exports $1,017bn

·        imports $1,277bn

The United States has linked with Canada and Mexico to form a free trade zone, the North American Free Trade Agreement, and now hopes to extend that to the rest of Latin America to create a Free Trade Area of the Americas. The US is already negotiating with Chile to join NAFTA, but that has caused controversy with some other South American countries. The NAFTA agreement covers environmental and labour issues as well as trade and investment, but US unions and environmental groups argue that the safeguards are too weak.

Members:

·        Canada

·        Mexico

·        United States

The Cairns Group

Trade Flow:

·        exports $577bn

·        imports $549bn       

The Cairns group of agricultural exporting nations was formed in 1986 to lobby at the last round of world trade talks in order to free up trade in agricultural products. It is named after the town in Australia where the first meeting took place. Highly efficient agricultural producers, including those in both developed and developing countries, want to ensure that their products are not excluded from markets in Europe and Asia. Canada, Brazil and Argentina are other leading members.

Members:

·        Argentina

·        Australia

·        Brazil

·        Canada

·        Chile

·        Columbia

·        Fiji

·        Indonesia

·        Malaysia

·        New Zealand

·        Paraguay

·        Philippines

·        South Africa

·        Thailand

·        Uruguay

Asia-Pacific Economic Cooperation forum  

 Trade Flow:

·        exports $2,592bn

·        imports $2,581bn

The Asia-Pacific Economic Cooperation forum is a loose grouping of the countries bordering the Pacific Ocean who have pledged to facilitate free trade. Its 21 members range from China and Russia to the United States, Japan and Australia, and account for 45% of world trade. Progress on free trade initiatives was seriously dented by the Asian crisis, which hurt the economies of the fast-growing newly industrialised countries like South Korea and Indonesia.

Members:

·        Australia

·        Brunei

·        Canada

·        Chile

·        China

·        Hong Kong

·        Indonesia

·        Japan

·        South Korea

·        Malaysia

·        Mexico

·        New Zealand

·        Papua New Guinea

·        Peru

·        Philippines

·        Russia

·        Singapore

·        Taiwan

·        Thailand

·        United States

·        Vietnam

European Free Trade Association (EFTA)

It was established by the Stockholm Convention in 1960.  It is a loose free trade area set up solely for industrial goods by the UK, Austria, Denmark, Norway, Portugal, Sweden and Switzerland.

It was set up in response to the EEC, which had closer political and economic ties.  EFTA member countries feared that they would be excluded from the EEC’s market.

As nations joined the EEC they had to leave the EFTA, presently leaving only Iceland, Norway, Sweden and Liechtenstein.  As the EU expands it’s likely that the number of EFTA members will continue to fall.

European Economic Area (EEA)

Created by the signing of a treaty in Oporto in May 1992.  It is a free trade area comprising of 18 nations, 380 million people and is responsible for about 40% of world trade.

The member states are those of the EU plus Iceland, Liechtenstein and Norway.

The purpose of the treaty is to allow the free movement of goods, persons, services and capital throughout the EEA.

If a country wishes to join the EU, it must first become a member of the EEA.  Member states of the EFTA have the choice of joining the EEA.

Areas of EU policy that lie outside of the EEA are relations with other countries (trading and development), fiscal policy, economic and monetary union (EMU) and the common agricultural policy (CAP).