4.1.5 Trade Blocs / WTO

Question 1

What is a monetary union?

Answer 1

These are two or more countries with a single currency, with an
exchange rate that is monitored and controlled by one central bank.

Like the EU

Question 2

What is a common market?

Answer 2

Members trade freely in all economic resources so barriers to trade in goods, services, capital and labour are removed.

Question 3

What are the benefits of trade blocs?

Answer 3

• Free trade encourages increased specialisation, and this increases output, according to comparative advantage.
• Firms may be able to grow by accessing a greater customer market.
• Firms inside the bloc are protected from cheaper imports from outside.
• Promotes competition, creates jobs and more choice for consumer.

Question 4

What are the disadvantages of trade blocs?

Answer 4

• Countries cannot benefit from trade with countries from other blocs.
• Inefficient producers within the bloc are protected from efficient producers outside the bloc (Doesnt become efficient) (TRADE DIVERSION) / reduction in competition.
• Heightening of regional inequalities - developed countries gain the most.
• National sovereignty eroded.

Question 5

What is trade diversion?

Answer 5

When a country moves buying goods from a low cost to a higher cost country.

Can result from trade blocs.

Question 6

What is trade creation?

Answer 6

Trade creation is when a country moves from buying goods from a high cost to a lower cost country.

Question 7

What are the main aims of the WTO?

Answer 7

1. Trade liberalisation.
2. Ensure compliance with trade agreements.

Question 8

How does the WTO ensure compliance with trade agreements?

Answer 8

1. Negotiation.
2. Panel of experts (binding ruling).
3. If ruling rejected, winning country can impose trade sanctions.

Question 9

How does the WTO promote free trade

Answer 9

Cut protectionism on agricultural goods.

Reduced tariffs on manufacturing.

Improved access to services markets.

Strengthened intellectual property rights.

Question 10

Possible conflicts with the WTO

Answer 10

WTO seen as too powerful, ignoring developing countries; developed countries don’t trade freely with developing nations.

Current Threats: Protectionism (USA and China) challenges the WTO system.