4.1.5 - Trading blocs and the World Trade Organisation (WTO) Flashcards
What are the different types of trading blocs ?
- Free trade areas
- Customs unions
- Common markets
- Monetary unions: conditions necessary for their success with particular reference to the Eurozone
Where are trading blocs formed ?
When countries join tougher and agree to remove trade barriers to trade. E.g - reduce or eliminate tariffs, quotas and other protectionist barriers among themselves.
What are Free trade areas ?
FTAs:
- Involve the elimination or reduction of import tariffs and quotas on trade between member countries.
- Each member is able to impose its own tariffs and quarters on goods it imports from outside the FT A .
- Goods and services can move freely within the bloc without customs duties
Examples include USMCA (US-Mexico- Canada-Agreement) and ASEAN Free Trade Area (AFTA).
What are Customs Unions ?
Customs unions go beyond FTAs by not only removing trade barriers (removal of tariff barriers between members) but also establishing a common external tariff on imports from non-member countries.
Member countries coordinate their trade policies with respect to non-members.
The European Union (EU)
What are common markets ?
Common markets not only remove trade barriers but also allow for the free movement of factors of production (capital, labor, and sometimes, technology).
- Also impose a common external tariff on imported goods from outside the market
It results in a higher degree of economic integration.
E.g The EU, before the establishment of the Eurozone
What are monetary unions ?
A monetary union involves a common currency shared by member countries.
- They also place a common external tariff upon imports from non-member countries.
- Involves only 20 of the 27 countries that are part of the European Union
- Example : Eastern Caribbean Currency Union
Benefits of joining trading blocs
-firms image bloc are protected from cheaper imports from outside. E.g firms inside the EU are protected from Chinese imports
- ↑comp = ↑ innovation, productivity and efficiency = ↑ consumer choice and ↓prices
Costs of joining a trading bloc
- Trade diversion
What is the Role of the WTO in trade liberalisation
- To bring about trade libertarisation
- To ensure that countries act according to trade agreements they have signed
- Dispute Settlement: Resolving trade disputes through a rules-based system.
What are Possible conflicts between regional trade agreements and the WTO
- RTA = common external tariff but WTO = trade liberalisation
Application
What is the WTO ?
An international organisation that governs global trade.
- Their main goal is to ensure that trade in goods and services flows freely.
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