Trade Agreements and Protection: Concepts

Question 1

Why do some economists argue that countries should focus on signing bilateral and regional trade agreements rather than negotiating more global agreements through the World Trade Organisation?

Answer 1

Global negotiations are too slow, so bilateral and regional agreements create stepping stones towards a larger global agreement

Question 2

Why do some economists argue that countries should stop focusing on signing bilateral and regional trade agreements and just focus on negotiating more global agreements through the World Trade Organisation?

Answer 2

All these separate negotiations hinder global trade negotiations by distracting from global negotiations

Question 3

What is a trade bloc?

Answer 3

An association of countries that reduce or remove protection between each other, as parties to a multilateral trade agreement

Question 4

What is the benefit of joining a monetary union?

Answer 4

It makes trade and investment flows more simple and less risky

Question 5

What is the cost of joining a monetary union?

Answer 5

The country’s exchange rate will no longer act as a shock absorber for that specific country, so the country may experience more extreme upswings and downswings in the business cycle

Question 6

Who is in the EU?

Answer 6

• 27 European economies, including France, Germany and Italy
• But Britain recently left (an event called ‘Brexit’)

Question 7

What are the features of the EU?

Answer 7

• A trade bloc and monetary union
• No protection at all on trade between members
• High protection on imports from non-member countries
• Had a Eurozone debt crisis after the GFC where some governments couldn’t repay debt, but the shared currency didn’t depreciate to help them boost exports

Question 8

What are some of the EU’s protectionist policies?

Answer 8

• One-third of the EU’s annual budget is spent on agricultural subsidies
• A Carbon Border Adjustment acts as a tariff on imports from countries with less ambitious greenhouse gas reduction policies (such as Australia)

Question 9

What are the features of ASEAN?

Answer 9

• Trade bloc comprising 10 south-east Asian nations, including Indonesia and Singapore
• Has significantly lowered protection between members, and is aiming to have a ‘common market’ (total free trade) between members by 2025

Question 10

What are the features of APEC?

Answer 10

• A multilateral trade agreement between 21 countries around the Pacific Ocean (inc. US, China, Mexico and Australia)
• Non-discriminatory, so member countries can establish separate agreements with non-member countries
• Coordinates regulations on products (such as safety requirements for electrical goods) so it is easier to export them
• Has had limited impact on increasing trade

Question 11

What is the CPTPP?

Answer 11

• Multilateral trade agreement in the Pacific region, including Japan, Mexico and Australia
• US pulled out of negotiations due to concerns about structural unemployment
• Reduces tariffs and regulations restricting service imports
• Has a controversial clause allowing firms to sue governments if new policies unfairly reduce profits

Question 12

What are recent examples of free trade agreements in the global economy?

Answer 12

2015: ChAFTA
2018: CPTPP
2020: RCEP
2020: USMCA replaced NAFTA

Question 13

What are the features of the USMCA?

Answer 13

• Multilateral agreement between the US, Mexico and Canada
• Created in 2020, to replace NAFTA
• The new agreement added a minimum wage for production of manufactured imports (to slow the movement of car production from the US to Mexico)

Question 14

What are the features of ChAFTA?

Answer 14

• Signed in 2015 and reduced protection on many products, including agriculture and commodities
• Particularly benefitted Australia’s agricultural sector
• Undermined by Chinese restrictions on Australian goods since 2020 due to a political dispute during the pandemic

Question 15

What are the features of ANZCERTA?

Answer 15

• Almost 40 years old
• Elimination of all trade restrictions
• Aligns regulations on many types of products (to make it easier to sell the same product in both countries)
• One of the most comprehensive agreements in the world

Question 16

What are some recent criticisms of the World Trade Organisation?

Answer 16

1. Negotiations are slow (e.g. Doha Round)
2. Many of its rules are too outdated to prevent China’s protectionism
3. Hasn’t prevented trade restrictions during the pandemic or the US-China trade war
4. The US has blocked new judges, so it is now unable to hear cases

Question 17

What is a recent example of the IMF carrying out its role in the global economy?

Answer 17

• During the pandemic, the IMF provided $110 billion to 85 countries through its Rapid Credit Facility
• This included a $35 billion loan to the Mexican Government
• The IMF also waived debt repayments from some of its poorest members during the pandemic

Question 18

What is a criticism of the IMF?

Answer 18

Before providing funding, it sets ‘structural adjustment programs’ that specify how the government must cut spending and raise revenue to reduce the risk of future defaults.

These requirements have sometimes been very strict, and in fact worsened aggregate demand and the downturn in those countries (e.g. Greece, 2009)

Question 19

What is a recent example of the World Bank carrying out its role in the global economy?

Answer 19

Provided $157 billion to over 100 countries during the pandemic to detect the virus and treat those infected.

$20 billion to buy COVID vaccines for developing countries

Question 20

What are some UN organisations that contribute to the global economy?

Answer 20

UNDP – provides technical advice to governments to improve economic policies

UNICEF – provides humanitarian projects for children

International Labour Organisation - promotes labour standards across all countries

Question 21

What is an example of the OECD carrying out its role in the global economy?

Answer 21

• Conducted a review of the Australian economy in 2021
• Recommended an inquiry into the RBA for consistently missing its inflation target
• Also recommended the introduction of a carbon price

Question 22

What is an example of the G20 carrying out its role in the global economy?

Answer 22

• Was important in global response to the GFC (2008)
• Failed to coordinate a response in the COVID-19 pandemic