4.1.5 Trading Blocs and the WTO

Question 1

what is a trading bloc?

Answer 1

group of countries that have signed an agreement to reduce/eliminate tariffs, quotas + other protectionist barriers between themselves

Question 2

types of trading blocs

Answer 2

preferential trading areas, free trade areas, customs union, common market, monetary union, economic union

Question 3

define preferential trading areas

Answer 3

where tariffs + other trade barriers are reduced on some goods traded between member countries

Question 4

characteristics of PTAs

Answer 4

• loosest form of economic integration
• provide lower barriers on trade among participating nations than with non-member nations

Question 5

define free trading areas

Answer 5

when 2 or more countries in a region agree to reduce trade barriers on all goods

Question 6

characteristics of FTAs and examples

Answer 6

• each member can impose its own tariffs + quotas on goods it imports from outside the trading bloc
• e.g. NAFTA (North Atlantic Free Trade Agreement), AFTA (ASEAN Free Trade Agreement)

Question 7

define customs union

Answer 7

• involves removing tariff barriers between members + accepting a common/external tariff against non-members

Question 8

define common market (or single market)

Answer 8

when members trade freely in all economic resources so barriers to trade in goods, services, capital + labour are removed

Question 9

characteristics and examples of common markets

Answer 9

• imposes a common external tariff on imported goods from outside the markets
• e.g. EU, EAC (East African Community)

Question 10

define monetary union

Answer 10

2 or more countries with a SINGLE CURRENCY; exchange rate is monitored + controlled by one central bank OR several w/ closely coordinated monetary union

Question 11

examples of monetary union

Answer 11

EU, African Economic + Monetary Union

Question 12

define economic union

Answer 12

agreement between 2 or more countries to remove barriers to trade; allow free flow of labour, capital + economic policies

Question 13

characteristics of economic union

Answer 13

• integration is more intense in an economic union, as member countries are required to harmonise their tax, monetary + fiscal policies and to create a common currency

Question 14

define trade creation

Answer 14

where trading blocs result in high cost domestic products being replaced by low cost + more efficient imports

Question 15

define trade diversion

Answer 15

when trade is diverted from a more efficient NON-MEMBER exporter to a less efficient MEMBER exporter rather than creating new trade