Trade, Trade Blocs and the European Union

World trade has been the continuing basis of global interdependence. By the 1970s an international economy had been established. The General Agreement on Tariffs and Trade (GATT) was established in 1947 and sought to gradually lower the barriers to international trade; with free trade as its ultimate aim. Reaching agreements has not been easy, but average trade tariffs have shrunk to a tenth of their level when GATT first began operating. World trade has therefore been increasing at a much faster rate than gross domestic product (GDP). In recent years however agreements have become increasingly difficult to reach.

 

Since the 1950s countries have joined together to form trade blocs in order to stimulate trade between themselves and to obtain economic benefits from cooperation. There are various mechanisms for this, including free trade areas, customs unions, common markets and economic unions such as the European Union (EU), of which the UK is a current member.    

 

The EU is the world’s largest trading bloc and the second largest economy (after the USA). The EU was originally called the European Economic Community (EEC) after its formation following the Treaty of Rome in 1957. There were originally six members: Germany, France, Italy, Belgium, the Netherlands and Luxembourg but this has now expanded to 28 members (see the expansion of the EU in the animation below). The initial aim was to create a single market for goods, services, capital and labour by eliminating barriers to trade and promoting free trade between members. The EU has also set up common policies on trade, agriculture, fisheries and regional development as well as allowing the free movement of people between member countries.