Trading blocs take many forms, depending on the degree of cooperation and interrelationships, which lead to different levels of integration among the participating countries. There are five levels of formal cooperation among member countries of these regional groupings, ranging from a free trade area to the ultimate level of integration, which is political union.
Before the formation of a regional group of nations for freer trade, some governments agree to participate jointly in projects that create economic infrastructure (such as dams, pipelines, and roads) and that decrease the levels of barriers from those that allow little or no trade to those that encourage substantial trade. Each country may make a commitment to financing part of the
project, such as India and Nepal did for a hydroelectric dam on the Gandak River. Alternatively, they may share expertise on rural development and poverty-alleviation programs as well as lower trade barriers in selected goods, as did SAARC, which is comprised of India, Pakistan, Sri Lanka, Bangladesh, Nepal, Maldives, and Bhutan. These types of loose cooperation are considered a precursor to a more formal trade agreement. The evolutionary path for the development of various forms of trading blocs is shown in Figure 1.
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