Trade Liberalisation Flashcards
What is free trade?
The removal or reduction of restrictions or barriers on the free exchange of goods between nations.
This includes the removal or reduction of both tariff (tax on imports) and non-tariff obstacles (like quotas, embargos and bureaucracy - rules and regulations).
What does free trade lead to economies of scale?
Trade allows firms to exploit scale economies by operating on a large scale and leading to average costs.
How does free trade reduce X-inefficiency?
Increased exposure to competition reduce complacency and organisational slack. Access to new technologies and idea is also important mechanism by which countries can have access to new technologies.
How does free trade reduce unemployment?
Evidence shows that countries that experience higher economic growth. Firms can exports goods to more markets abroad. Leading to economic growth…(X-M) increases, therefore AD increases. Exporting firms increase unemployment. Rising living standards and a reduction in poverty.
What is the infant industries argument?
(Disads of free trade)
Small, domestic and growing firms (particularly less developed countries) would be exposed to large international competitors, who can exploit economies of scale. This could force them out of business, increase unemployment and slow economic growth.
So, developing countries may raise tariffs to protect certain industries.
What is retaliation?
(Disads of free trade)
The development of one regional trading bloc (and their tariffs) is likely to stimulate the development of others. This can lead to trade blocs placing tariffs upon each other and disrupting the exploitation of comparative advantage. USA and China have engaged in such a trade war recently.
Trade diversion?
(Disads of free trade)
A
What is a bilateral trade agreement?
Trade agreements between two jurisdiction - which can either be two countries, a trade bloc and a country or perhaps even between two trade blocs.
The most famous being the EU-UK Brexit trade deal.
More than two countries become a multilateral agreement (known as a trade bloc).
All members of a trade bloc are unable to…
negotiate individual bilateral trade agreements.
What happens if no trade deal exists between two nations?
They automatically follow WTO
What is the benefit of bilateral trade agreement
Bilateral trade agreements can be bespoke to needs of the economy - avoid infant industries suffering.
It is sometimes easer to negotiate and resolve any disputes.
What is a free trade area?
Free Trade Areas: Where all (or most) tariffs and quotas are removed between member countries. However, each member country is able to impose its own tariffs and quotas on goods it imports from outside the trading blocs.
What is a Customs Unions?
This is where members not only agree to free trade with each other, but they also adopt a common external tariff (CET) on imports from non-members outside of the bloc.
Explain the EU CET?
Common External Tariff - All EU members (hence, common) have a legal obligation to charge tariffs on goods imported imported from non-EU nations (external).
EU law dictates that members cannot negotiate individual bilateral free trade agreement with non-EU nations.
Tariffs are on all goods, but the size of the tariff barriers.
CETs are effectively a wall to protect members of the trade bloc.
What is a common market?
This is when member states agree free trade and adopt a CET. Additionally, they now allow free movement of capital and labour, as well as product standards and regulations are common between member countries (regulatory alignment).
