3.1.3 trading blocs Flashcards
When does trade creation occur?
When a country consumers more imports from a low cost producer, and fewer from a high cost producer.
When does trade diversion occur?
When trade shifts to a less efficient producer.
What is a free trade area?
Where countries agree to trade goods with other members without protectionist barriers.
What are some examples of free trade areas? [2]
- USMCA (United States-Mexico-Canada Agreement)
- EFTA (European Free Trade Association)
What do free trade areas allow members to do?
Exploit their comparative advantages, which increases efficiency.
What is a customs union?
Countries in a customs union have established a common trade policy with the rest of the world. They might use a common external tariff. There is also free trade between members.
What is an example of a Customs Union?
The EU.
What is a common market?
This establishes free trade in goods and services, a common external tariff and allows free movement of capital and labour across borders.
What are the impacts on firms of trading blocs? [4]
- Reduced transaction costs
- Economies of scale
- Enhanced competition
- Migration
What could increasing interdependence between economies result in?
Recessions spreading globally, as it increase the vulnerability of the economy to external shocks and it means an economic decision of one member state affects other members.
Where can interdependence of trading blocs be seen as a huge issue?
In 2008 and 2009 when the effects of the global financial crisis spread across the globe.
What are the characteristics of a trade bloc? [4]
- Similar levels of GNP per capita
- Geographic proximity
- Similar or compatible trading regimes
- Political commitment to regional organisation
What are the types of trade blocs? [5]
- Free trade area
- Customs Union
- Common markets
- Single market
- Monetary union
What are the main features of a free trade area? [2]
- Removing tariffs
- Removing regulations applied to member countries who trade with eachother
What is the main feature of a Customs union?
Apply one common system of procedures, rules and tariffs for almost all of their imports, exports + transiting goods.
What is the main feature of common markets?
Free movement of people, goods, services + capital.
What is the main feature of a single market?
Same laws + regulations.
What is the main feature of a monetary union?
Same currency.
What are the positive impacts of a trading bloc? [5]
- lower prices
- Increased export potential
- Higher growth
- Economies of scale
- Greater competition
What are the negative impacts of trade blocs? [4]
- Loss of sovereignty
- Increased import tariffs
- Greater competition
- Increased interdependence
