Regional trading blocs:

There are various forms  of economic integration and regional trading blocs are only one of them. The degree of economic integration can be categorised into five stages: (i) Preferential  trading area (ii) Free  trade area (iii) Customs union (iv) Common market and (v) Economic and monetary union. In  a preferential trading area, members grant tariff preferences amongst them while in a fiee trade area, members move towards zero or near-zero tariff levels amongst them on substantially all trade. In  a customs union, members,  in addition have a common external tariff on products coming fiom outside the union.  Freer movement of factors of production is allowed in the case of common market.

In  the case of  economic and monetary union, harmonisation  of various economic policies, including monetary policies are also effected. These stages of regional  integration, if adopted in  sequence, depict deeper economic integration processes. In reality, however, countries have embarked upon regional integration without, at times, following the strict sequence of different stages of integration. The main reason for regional trade integration is imbibed in  the theories of trade creation and trade diversion.