Macro A2 - Trading Blocs & World Trade Organisation Flashcards
Free trade areas
Where there is completely free trade between the countries involved, but each country can set their own trade restrictions on countries outside of the agreement. Examples include USMCA and EFTA.
Customs unions
A customs union is a type of trade agreement between countries where they agree to remove tariffs and other trade barriers on goods traded between them. In a customs union, the participating countries also agree to impose a common external tariff on goods imported from countries outside the union.
Common markets
A common market is a type of economic integration between countries where they agree to remove trade barriers and allow the free movement of goods, services, capital, and labour between them. In a common market, participating countries create a single market in which there are no restrictions on the movement of goods, services, capital, and labour, and where goods, services, capital, and labour are treated as if they were domestically produced.
Monetary unions
A monetary union is a type of economic integration between countries where they agree to adopt a common currency and give up their individual monetary sovereignty. In a monetary union, participating countries agree to a single monetary policy and a common exchange rate system, and they give up their ability to independently set interest rates and control the money supply.
Advantages of regional trade agreements
Wider market access.
Encouraging economic growth.
Creating more jobs.
Better access to cheaper and more abundant capital.
Stronger position in international treaty negotiations.
More choices.
Quality improvement and innovation.
Disadvantages of regional trade agreements
Trade deflection.
Increase economic dependence.
Reduction of economic sovereignty and independence of economic policies.
Domestic industry bankruptcy.
The role of the WTO in trade liberalisation
The trade liberalization policy under the WTO regime has three fundamental components. They include: Expansion of market access by requiring the conversion of all non-tariff barriers to tariffs (tariffication) and the binding and reduction of these tariffs. Reduction of trade-distorting domestic subsidies or support.
Possible conflicts between regional trade agreements and the WTO
Conflicts between blocs could lead to a rise in protectionism. A common external tariff contradicts the WTO’s principles, since although there is free trade between members, protectionist barriers are imposed on those who are not members.
