LS4 - Trading Blocs & WTO Flashcards
1
Q
Types of trading blocs
A
- free trade area
- customs union
- common market
- monetary unions
2
Q
Free trade area
A
An area where countries agree to trade goods with other members without protectionist barriers. E.g. the North American Free Trade Agreement (NAFTA)
3
Q
Customs union
A
- countries in a customs union have established a common trade policy with the rest of the world e.g. they might use a common external tariff.
- they also have free trade between members.
- the European Union is an example of a customs union
4
Q
Common market
A
- this establishes free trade in goods and services, a common external tariff allows free movement of capital and labour across borders
- when EU was established, it was a common market as EU citizens can work in any country in the EU
5
Q
Monetary unions
A
- sometimes called a currency union
- members share the same currency - more economically integrated than a customs union and free trade area e.g. the Eurozone
- use the same interest rate
6
Q
Costs & benefits of regional trade agreements
A
- trade creation and trade diversion - trade has been created between members but diverted from elsewhere
- reduced transaction costs - no barriers to trade or no border controls so cheaper and simpler to trade
- economies of scale - by specialising, firms/countries can exploit their comparative advantages as there is a larger potential market in which to trade
- enhanced competition - more efficiency
- migration - supply of labour is increased however some countries lose their best workers
7
Q
Trade creation and trade diversion
A
- trade creation is a theory that derives from a country’s membership of a customs union
- trade creation occurs when a country consumes more imports from a low cost producer inside the customs union, and fewer from a high cost producer
- trade diversion occurs when trade shifts to a less efficient producer
- usually, a country might stop importing from a cheaper producer outside a trade bloc to a more expensive one inside the trading bloc
8
Q
Role of the WTO
A
- promotes world trade through reducing trade barriers and policing existing agreements
- settles trade disputes
9
Q
Possible conflicts between regional trade agreements and the WTO
A
- trading blocs might distort world trade or adversely affect those who do not belong to them - inefficient allocation of resources
- conflicts between blocs could lead to a rise in protectionism - a common external tariff contradicts WTO’s principles since protectionism is imposed on those who are not members
10
Q
Advantage of FDI
A
- AD increases -> increase in output and employment
11
Q
Evaluation of FDI
A
- repatriation of profits to shareholders in country from which it originated
12
Q
Economic integration
A
- process whereby countries coordinate to reduce trade barriers and to harmonise monetary & fiscal policy
13
Q
Trading blocs
A
- a group of countries that join together and agree to increase trade between themselves
14
Q
Bilateral/multilateral trade agreements
A
- agreements to reduce tariffs & quotas between 2/multiple countries
15
Q
Advantages of being part of a monetary union
A
- non-fluctuating exchange rate (becomes much easier to trade)
- reduced costs from currency conversion (can be used for investment by business and spending by consumers)
- increased business confidence knowing the cost of raw materials without unexpected fluctuations
- easier to compare prices between member nations
