4.1.5: Trading blocs and the WTO Flashcards
1
Q
What is a trading bloc?
A
- A group of countries that make trading agreements between themselves.
- They sign an agreement to reduce or eliminate tariffs, quotas and other protectionist barriers among themselves.
2
Q
Examples of trading blocs
A
- NAFTA
- The EU
- ASEAN
- MERCOSUR
3
Q
What are the different types of trading blocs?
A
- PTA (Preferential Trading Areas)
-FTA (Free Trade Areas) - Customs Unions
- Common Markets
- Monetary Unions
4
Q
What are Preferential Trading Areas?
A
- These are when tariff and other trade bariers are reduced on some but not all goods traded between member countries.
5
Q
What are free trade areas (FTA)?
A
- These occur when two or more countries in a region agree toreduce or eliminate trade barriers on all goods coming from other members.
- Each member is able to impose its own tariffs and quotas on goods it imports from outside the trading bloc.
6
Q
What are customs unions?
A
- A custom union involves the removal of tariff barriers between members and the acceptance of a common external tariff against non members.
- This means that members may negotiate as a single bloc with third parties such as other trading blocs or countries.
7
Q
What are common markets?
A
- They impose a common external tariff on imported goods from outside the markets.
- For a common market to be successful there must also be a significant level of harmonisation of micro-economic policies, common rules regarding monopoly power and anti-competitive practices and the removal of custom posts.
8
Q
What are the monetary unions?
A
- These are two or more counties with a single currency, with an exchange rate that is monitored and controlled by one central bank or several central banks with closely coordinated monetary policy.
9
Q
Benefits of a Monetary Union
A
- Prices are fixed as all currencies are the same and there are reduced exchange rate costs.
- It becomes easier for prices to be compared across the union and so MNCs are less able to price discriminate.
10
Q
Disadvantages for a Monetary Union
A
- There are financial costs involved with starting the new currency and there would be costs if the union broke up.
- There is a loss of policy independence, countries are unable to change the value of their currency and what is good for one country may not be good for another.
11
Q
What is an economic union?
A
- The final step of economic integration. There will be a common market with coordination of social, fiscal and monetary policy.
12
Q
What are the two main advantages of trade blocs?
A
- Free trade encourages increased specialisation, and this increases output, according to comparative advantage.
- This specialisation also helps firms to benefit from economies of scale, causing lower prices and costs, a dynamic advantage.
- Firms may be able to grow much larger by creating a larger customer market, but this may be difficult given different customers markets in different countries.
-Firms inside the bloc are protected from cheaper imports from outside, e.g those in the EU are protected from Chinese imports. - Increased choice for consumers
- Increased trade may create more jobs if it leads to an increase in output.
13
Q
What are the disadvantages of trade bloc
A
- Countries are no longer able to benefit from trade with countries in other blocs and the blocs are likely to distort world trade, reducing the benefits of specialisation.
- Trade Diversions: Inefficient producers within the bloc are protected from efficient producers outside the bloc
- A reduction in competition as inefficient firms are driven out of the business and the market becomes oligopolistic.
- Loss of Resources: most successful countries will attract capital and labour and so this heightens regional inequalities ass the richest countries experience faster rates of growth.
- Creating and maintain trading blocs can distract governments from gains of signing full free trade agreements.
- They lessen national sovereignty
14
Q
What is trade creation?
A
- Trade creation is when a country moves from buying goods from a high cost to a lower cost country
- Trade creation is when trade is created by joining of a trade union.
15
Q
What is trade diversion?
A
- Trade diversion is when they go from low cost to a higher cost.
- Trade diversion occurs where consumption shifts from a lower cost producer outside the trading bloc to a higher cost producer within it.
16
Q
What are the WTO’s aims?
A
- To bring about trade liberalisation and to ensure countries act according to the agreements they have signed.
17
Q
What are the possible conflicts with the WTO?
A
- Regional trade agreements contradict WTO’s principles as common external tariff on trade outside the trading bloc introduces protectionism.
- Customs unions and free trade areas can be seen as violating the WTO’s principle since not all trading partners are treated equally.
