4.1.5 Trading blocs and the WTO Flashcards
LS4
1
Q
Problems with international trade in first half of 1900s?
A
- High degree of protectionism
- No trade disputes settlement mechanism
2
Q
Problems with GATT? (General Agreement on Tariffs and Trade)
A
- Only a treaty (not permanent)
- Flawed trade dispute settlement mechanism
3
Q
WTO?
A
- Permanent institution
- Formed in 1995
- Provided formal mechanism to resolve trade disputes
4
Q
Trade bloc?
A
A group of countries that mutually agree to remove/reduce trade barriers
5
Q
FTA?
A
- Free Trade Agreement
- Can be bilateral or multilateral
- Reduce trade barriers below WTO levels
- Removes/reduces tariffs and quotas
6
Q
Advantages of FTAs?
A
- Competitive sectors benefit e.g. Mexican car industry, textiles, meat
- Improved choice for consumers and firms
- Reduced admin costs
- Increase in FDI
- Trade creation (more efficient allocation of resources if TC > TD)
7
Q
Disadvantages of FTAs?
A
- Decline of uncompetitive sectors
- Risk of structural unemployment
- Trade diversion (less efficient allocation of resources if TD > TC)
- Individuals countries lack bargaining power
- Other countries may set trade policy in a way that improves competitiveness of rival firms/industries
8
Q
Trade diversion?
A
- When trade moves from a low cost to producer to a high cost producer due to the formation of a trade bloc
9
Q
Trade creation?
A
- When trade moves from a high cost to producer to a low cost producer due to the formation of a trade bloc
10
Q
Customs union?
A
- Free trade areas that impose uniform trade restrictions on non-members
11
Q
Common external tariff?
A
- A trade policy agreed by the members of a custom union that sets identical restrictions on trade to non-members
12
Q
Advantages of a customs union?
A
- Increased bargaining power when negotiating trade deals
- Ability to set common external tariffs to protect industries
13
Q
Disadvantage of customs union?
A
- Loss of independent trade policy
14
Q
Remaining trade restrictions in FTAs and CUs?
And how do Single Markets/Common Markets solve these problems?
A
- Firms have to modify products based on diff countries standards
- Checks of goods and paperwork still required at borders
- Workers still need visas to work throughout the bloc
- Countries set diff standards on qualifications (e.g. doctors, lawyers etc)
- Common standards agreed through collective decision making
- Freedom of movement for labour
15
Q
Downside to a Single Market?
A
- Loss of sovereignty over decision making
