Sub topic 1 - Free-Trade Agreements, Trading Blocks and Monetary Unions

Question 1

What are free trade agreements?

Answer 1

Formal agreements between countries designed to break down barriers to trade between those nations

Question 2

What is a bilateral trade agreement - Example

Answer 2

A trade agreement that exists only between two countries

In 2016, the U.S. and Peru reached an agreement removing barriers to U.S. beef exports to Peru.

Question 3

What is a multilateral trade agreement - Example

Answer 3

A tradea greement that exists only between two countries

Question 4

What are free trade agreements more accurately known as? Why is this more accurate?

Answer 4

Trade agreements are more accurately referred to as preferential trade agreements as they give more favourable access to G&S from one nation or a group of nations compared to another.

Sometimes, they can make it harder for nations outside the preferential trade agreement, especially developing economies, to trade.

Question 5

Why did free-trade agreements arise?

Answer 5

As trade grew, countries formed agreements + trading alliances to ensure they are in the position to gain from growing trade opportunities and avoid being excluded from emerging trade blocs.

Question 6

Why are WTO free trade agreements different to other ones?

Answer 6

WTO agreements remove barriers uniformly across all countries, the smaller more private agreements only give advantage to specific countries

Question 7

What is a trading block?

Answer 7

A trading bloc occurs when a number of countries join together in a formal preferential trading arrangement, to the exclusion of other countries, such as the EU and the USMCA, or NAFTA.

Question 8

What percentage on international trade is composed of multi-lateral trade agreements?

Answer 8

50%

Question 9

Trade can increase faster between within a trade agreement… however there is a concern… what is this?

Answer 9

That trade diversion will occur

Question 10

What is trade diversion?

Answer 10

where a country’s imports of a G&S switch from coming from the most efficient producer to a less efficient producer, or country with whom a regional trade agreement exists, because of the impacts of a trade agreement’s provisions, such as tariff levels, import quotas, or other rules.

Question 11

Name some upsides and downsides of trading with neighbouring countries (regional trade blocks)

Answer 11

Economic efficiencies in trading due to lower transport costs and the potential of encouraging economies to reduce their protection barriers

Risks that regional trade blocs could result in global trade fragmenting into self-contained regions, hindering the spread of global free trade.

Question 12

Define Monetary Union

Answer 12

Where two or more countries share a common currency and common interest rate.

Question 13

3 advantages of monetary unions

Answer 13

Reduced transaction costs - Businesses + travellers save on currency conversion fees, and cross-border transactions cheaper + straightforward.

Price transparency - A single currency makes it easier to compare prices across member countries, enhancing competition and efficiency.

Elimination of Exchange Rate Fluctuations - Countries in a monetary union dont face exchange rate volatility among themselves, which simplifies trade and investment.

Question 14

Disadvantage of monetary unions + example

Answer 14

While successful in promoting trade and economic integration among member countries since the GFC, the eurozone has struggled to coordinate fiscal policies and had difficulty in accommodating different economic conditions across the region.

Economic hardship within the EU intensified again in 2020 due to the COVID-19 crippling economic activity, especially in Spain and Italy, the EU’s fourth and fifth largest economies respectively.

Question 15

What does APEC FORUM stand for?

Answer 15

Asia-Pacific Economic Cooperation

Question 16

When was APEC founded?

Answer 16

1989

Question 17

How many countries compose APEC?

Answer 17

21

Question 18

Why was APEC created?

Answer 18

Countries in Australia’s region established the APEC Forum in response to the formation of trading blocs in other areas of the world (EU and NAFTA) with the aim of stimulating greater regional prosperity through accelerated economic integration.

Although APEC meetings have never resulted in a regional trade agreement, they have created a forum for annual meetings of the leaders of member countries to discuss the geopolitical priorities of the day, and have helped other trade agreements.

Question 19

APEC has only 21 member economies, in 2020 it accounted for X% of the world’s population, X% of world GDP and X% of world trade.

Answer 19

38% of the world’s population
62% of world GDP
48% of world trade.

Question 20

Did APEC achieve it’s initial goal? What did it achieve?

Answer 20

APEC’s original vision of establishing free trade among member countries was not achieved; it has played a relatively minor role in advancing free trade over the past three decades.

Nevertheless, APEC has contributed to progress on trade liberalisation; estimated that average tariff rates of APEC member states had been reduced from 10.2% in 1999 to 5.2% in 2020

Question 21

APEC, unlike other forums is non-discriminatory, what does this mean?

Answer 21

Nations will trade with other countries outside of the grouping on the same basis as members of the forum if they are prepared to give equal access to their markets.

Question 22

What does ASEAN TRADE BLOCK stand for?

Answer 22

Association of South-East Asian Nations

Question 23

When was ASEAN founded?

Answer 23

1967

Question 24

Who is ASEAN composed of? (Who is part of their free trade area AFTA)

Answer 24

covers emerging and developing economies in South-East Asia; the ASEAN Free Trade Area ( AFTA ) comprises Indonesia, Myanmar, Thailand, Malaysia, Singapore, the Philippines, Vietnam, Brunei, Burma, Cambodia and Laos.

Question 25

What is the purpose of ASEAN?

Answer 25

Acted as a counterweight to the APEC Forum, dominated by the large economies; US, China, Japan and South Korea.

ASEAN has become the most effective force for trade negotiations within the Asia-Pacific region.

Question 26

what is AANZFTA (ASEAN GROUP), when was it established and why?

Answer 26

The ASEAN-Australia-New Zealand Free Trade Area ( AANZFTA ) agreement came into effect in 2010 with ASEAN nations committing to lowering and eliminating tariffs on 96% of Australian exports to the region, compared to 67% prior.

Question 27

Collectively, the ASEAN region has a population of X million across X countries and a combined GDP of $X trillion, equivalent to almost X% of the global economy

Answer 27

Population of 666 million across 12 countries
GDP of $3.4 trillion
Equivalent to almost 4% of the global economy.

Question 28

What does the EU stand for? TRADE BLOC

Answer 28

European union

Question 29

When was the EU formed?

Answer 29

1959

Question 30

Who composes the EU?

Answer 30

27 countries across the European nation

Question 31

What is the EU? Why was it created? Is it exclusive?

Answer 31

The EU is the most important trade bloc in the world economy - account for 15% of global traded goods

The formation of the EU in the late 1950s helped to dismantle trade barriers within Europe; a single market for European goods and services was established in 1992, and this helped drive strong trade growth within the EU.

The EU has frequently used tariff barriers against non-member countries, resulting in accusations that it is a closed trading bloc.

Question 32

Has the EU been successful?

Answer 32

While successful in promoting trade and economic integration among member countries, slower growth rates in EU economies have meant that its share of world output, while large, has almost halved since 1980.

Question 33

What is the Eurozone? (Part of the EU)

Answer 33

19 member countries participate in a voluntary monetary union, Eurozone; the monetary union involves the adoption of a common currency ( Euro ), and common interest rates, and it has played a major role in economic integration among the Eurozone economies.

Question 34

what does USMCA (FORMERLY NAFTA) stand for?

Answer 34

US-Mexico-Canada Agreement

Question 35

When was the USMCA trade bloc formed?

Answer 35

1988

Question 36

How many countries are part of USMCA?

Answer 36

3 OBVIOUSLY U IDIOT WHY DID U EVEN TURN THIS CARD

Question 37

what is the USMCA?

Answer 37

Previously known as North American Free Trade Agreement ( NAFTA ), it is a three-country deal that has contributed to the value of trade more than tripling between the three economies in the 25 years after its introduction; it has gradually eliminated all tariffs and most non-tariff barriers on goods produced and traded within North America.

Question 38

List Advanatges of bilateral trade agreements

Answer 38

Faster Negotiations - Easier to reach agreement with only two parties involved

Tailored Solutions - Can be customized to specific needs and circumstances of both countries

Strategic Partnerships - Can strengthen diplomatic and economic ties between two nations

Greater Flexibility - Easier to modify or update as circumstances change

Specific Market Access - Can target particular sectors or industries of mutual interest

Question 39

List Disadvanatges of bilateral trade agreements

Answer 39

Limited Scope - Benefits restricted to just two countries rather than broader regional or global gains

Power Imbalances - Larger economies may dominate negotiations with smaller partners

Complex Web of Rules - Multiple bilateral agreements can create a complicated network of different rules and standards

Administrative Burden - Companies must navigate different rules for different country pairs

Trade Diversion Risk - May artificially redirect trade from more efficient producers to partner country producers

Question 40

List Advantages of Multilateral Trade Agreements:

Answer 40

Greater Economic Efficiency - Creates standardized rules across multiple countries, reducing complexity and transaction costs for businesses operating internationally

Enhanced Bargaining Power - Smaller nations can negotiate collectively with larger economies, potentially securing better terms than they could individually

Reduced Risk of Trade Diversion - With many countries participating, there’s less chance of trade being artificially redirected to less efficient producers

Harmonized Standards - Promotes consistent regulations, quality standards, and business practices across multiple countries

Global Problem Solving - Better equipped to address international challenges like climate change, labor standards, and intellectual property rights

Question 41

List disadvantages of Multilateral Trade Agreements:

Answer 41

Complex Negotiations - More parties mean longer negotiation periods and more difficulty reaching consensus

Compromise Requirements - Countries often must accept provisions they don’t fully support to reach agreement

Implementation Challenges - Different economic development levels among members can make uniform implementation difficult

Less Flexibility - Harder to modify agreements once established due to the number of parties involved

Slower Response to Changes - Cannot quickly adapt to new economic circumstances or technological developments