AP® World History: Modern · Unit 9 · Topic 9.4
The WTO, NAFTA, ASEAN, and the EU
Trade blocs are groups of countries that agree to shared rules on tariffs and trade so they can act like one big market, trading some control over their own trade policy for reliable access to a much bigger set of customers and suppliers.
A tariff is a tax on imported goods, and it exists to protect domestic producers by making foreign goods more expensive. When a group of countries forms a trade bloc, members agree to drop tariffs among themselves and often adopt common product standards, so a car made in one member country can sell in another as if it were local. Removing the tariff usually shifts production toward whichever member can make a good most cheaply, since it no longer carries a tax penalty crossing the border, which raises overall efficiency but can hurt producers in countries that used to be protected.
Four organizations show different versions of this bargain. The World Trade Organization, founded in 1995, is global and sets rules for trade disputes among its members worldwide rather than erasing borders. NAFTA, signed in 1994 by the United States, Canada, and Mexico, eliminated most tariffs among the three. ASEAN, founded in 1967 and including countries like Indonesia, Thailand, and Vietnam, promotes economic cooperation across Southeast Asia. The European Union went furthest: it grew from six founding members in 1957 under the Treaty of Rome to twenty-seven today, adding countries in waves, including a major expansion into Eastern Europe in 2004, and created a shared currency, the euro, used by most members.
These blocs connect to the unit's bigger theme: globalization knits economies together, and governments have to decide how much independence to trade for how much market access. The EU sits at one extreme, with open borders and a shared currency, while the WTO sits at the other, offering shared rules without surrendering much sovereignty at all.
Key terms
- tariff
- A tax placed on imported goods, usually meant to make foreign products cost more than domestic ones.
- trade bloc
- A group of countries that agrees to shared rules on trade, such as lower tariffs, to act more like one combined market.
- European Union (EU)
- A trade bloc that grew from six members in 1957 to twenty-seven today, with open borders and a shared currency for most members.
- NAFTA
- The 1994 agreement among the United States, Canada, and Mexico that eliminated most tariffs on trade between them.
- sovereignty
- A country's independent authority to govern itself and set its own policies.
Watch it explained
- How it worksShow me the world's regional trade blocs on a map with their members and their dates.
- How it worksWalk me through how removing a tariff changes what gets made where.
- Worked exampleTrace the European Union expanding from six countries to twenty-seven on one map.
- Common mistakeWhy doesn't joining a trade bloc mean a country gives up its own economy entirely?
Check yourself
End of topic.