4.1.5 Trading blocs and WTO

Question 1

Types of trade agreements

Answer 1

Regional trade agreements (RTAs): involve trade agreements between countries within a geographic area

Bi-lateral trade agreements: between countries or two trading blocs

Question 2

Free trade areas

Answer 2

-A group of countries with no barriers to trade in most goods and services
-Each member can impose its own restrictions on goods exported from outside the trading bloc
(NAFTA, ASEAN)
(most common)

Question 3

Customs union

Answer 3

-Free trade area with common external tariff
-All members adopt a common trade policy towards all non-member countries
-Stronger bargaining power

Question 4

Common market and its benefits

Answer 4

-Customs union with completely free movement of goods, services, labour, capital
-Must be a significant level of harmonisation of micro-economic policies - monopoly power, anti-competitive policies

Benefits:
-Deal with labour shortages
-Lower unemployment
-Freedom of movement results in higher productivity and rising GDP
-Diverse and skilled workforce

Question 5

Monetary union and its benefits

Answer 5

-A common market with a common currency and a common monetary policy (e.g. eurozone)
-Exchange rate monitored and controlled by one central bank
-Economies should share same business cycle
-In EU govs agreed to not exceed a fiscal deficit of more than 3%

Benefits:
-prices are fixed
-MNCs less able to price discriminate as it is easier for prices to be compared across the union

Eval:
-financial costs involved in starting new currency - costs if the union breaks up
-Loss of policy independence
-Countries unable to change value of currency - what is good for one may be bad for another

Question 6

Economic union

Answer 6

Monetary union + common fiscal policy/transfers
-Final step of economic integration