Economic integration

Question 1

What is a preferential trade agreement?

Answer 1

when a country gives preferential access to certain products from certain countries by reducing or eliminating tariffs or by other agreements relating to trade. It is usually only for certain range of goods and services

Question 2

What are bilateral and multilateral trade agreements?

Give some examples

Answer 2

Bilateral: A trade agreement between two countries
Example: South Asian Preferential Trade Arrangement (SAPTA) (1999)

Multilateral: A trade agreement between more than two countries
Examples: India–Afghanistan (2003)

Question 3

What is a trading bloc?

What types of trading bloc are there?

Answer 3

An agreement between nations to form a region in which trade and cooperation take place more freely. One key objective is to increase economic efficiency by increasing competition between producers in this region.

In order of increasing integration:
free trade areas, customs unions, common markets, Monetary union

Question 4

What is a free trade area?

Common example

Answer 4

An area drawn up by a free trade agreement among countries to remove all barriers to trade between each other. They are free to set their own barriers to non-member countries.

E.g. ASEAN

Question 5

What is a customs union?

Example

Answer 5

Similar to a FTA, there are no barriers of trade between the partner countries. But they also agree to set common regulations and policies to non-members.

East Asian Customs Union (EACU) (2005)

Question 6

What is a common market?

Answer 6

An area of economic integration that allows nations to trade freely with each other, set a common external policy and allow free movement of labour and capital between member states. Think of the EU minus the common currency

Question 7

Pros and cons of trading blocs

Answer 7

Pros:
More choice for consumers. Increase relations.
More efficient globally
Economies of scale as more access to FOP’s

Cons: depending on imports and exports, the country could end up losing as their domestic firms are out-competed

In the case of Common markets and monetary unions, country may lose factors of production(labour and capital).

Question 8

Who tries to encourage free trade?

Answer 8

The WTO

Question 9

What are the factors of globalisation?

Answer 9

• Reduction in trade barriers+increased trade
• Growth of multinational companies
• Technological developments
• IMF and world bank- Some countries are being forced to liberalise markets. This causes some mixed results

Question 10

What is trade creation?

Answer 10

When trade moves from a high-cost producer to a lower-cost producer. By joining a trade agreement, a country may previously not have been able to trade with the lower-cost producer, but now can as a benefit of the agreement.

Question 11

What is trade diversion?

Answer 11

When a country moves its trade from a low-cost producer to a high-cost producer. This may be the result of protectionist barriers in the agreement existing against the low-cost producer.

As if they now have to put up the same barriers as their partners.

Question 12

What is a monetary union?

Answer 12

Same as a common market, except with the additional feature that there is a shared currency

Question 13

What are the advantages of a monetary union?

Answer 13

• More competitive business environment encourages efficiency
• Improves relations within countries
• Improves global trade competitiveness
• Price stability

Question 14

Disadvantages of monetary unions?

Answer 14

• Political disagreements
• Loss of monetary policy- Countries have to rely on other policies to control inflation and price levels
• Restrictions of fiscal policy- Countries can’t deal with things flooding the market as effectively