33.3 Current Trade Policy Flashcards
What is an FTA?
free trade area (FTA)
An agreement among two or more countries to abolish tariffs on trade among themselves while each remains free to set its own tariffs against other countries.
members are required to maintain customs points at their common borders to make sure that imports into the free trade area do not all enter through the member that is levying the lowest tariff on each item. They must also agree on rules of origin to establish when a good is made in a member country and hence is able to pass tariff-free across their borders, and when it is imported from outside the FTA and hence is subject to tariffs when it crosses borders within the FTA.
What is a customs union?
customs union
A group of countries that agree to have free trade among themselves and a common set of barriers against imports from the rest of the world.
What is a common market?
common market
A customs union with the added provision that labour and capital can move freely among the members.
What is trade creation?
trade creation
A consequence of reduced trade barriers among a set of countries whereby trade within the group is increased and trade with the rest of the world remains roughly constant.
What is trade diversion?
trade diversion
A consequence of reduced trade barriers among a set of countries whereby trade within the group replaces trade that used to take place with countries outside the group.
