Trading Blocs

Question 1

What is a trading bloc?

Answer 1

An agreement between a group of countries that promotes and manages trade between member states, removing protectionist measures, aiming to create trade between member states

Question 2

What are the 3 types of trade agreements?

Answer 2

1) Regional trade agreements.
2) Bilateral trade agreements.
3) Multilateral trade agreements.

Question 3

What is a regional trade agreement (give example)?

Answer 3

An agreement between 2 or more countries to remove/reduce protectionist measures (tariffs, quotas, etc.).
E.g.: the Association of South East Asian Nations (ASEAN).

Question 4

What is a bilateral trade agreement (give example)?

Answer 4

A trade agreement between 2 countries or trading blocs.
E.g.: the 2018 agreement between the EU and Japan.

Question 5

What is a multilateral trade agreement (give example)?

Answer 5

A trade agreement between more than 2 countries or trading blocs. E.g.: the Pacific Alliance Free Trade Area (PAFTA).

Question 6

What are the 4 types of trading blocs?

Answer 6

1) Free trade areas.
2) Customs unions.
3) Common markets.
4) Monetary unions.

Question 7

What are the features of a free trade area (2)?

Answer 7

1) All barriers to trade between members are removed.
2) Members can impose barriers on non-member countries.

Question 8

What are the features of a customs union (2)?

Answer 8

1) All barriers to trade between members are removed.
2) Common external tariffs imposed on non-member countries.

Question 9

What are the features of a common market (3)?

Answer 9

1) All barriers to trade between members are removed.
2) Common external tariffs imposed on non-member countries.
3) Labour and capital have freedom of movement within the area.

Question 10

What are the features of a monetary union (2)?

Answer 10

1) All barriers to trade between members are removed.
2) Members have a single, common currency and a central bank.

Question 11

What are 2 drawbacks of regional trade agreements?

Answer 11

1) Agreements often do not cover a wide range of goods and services, so the economic impact can be weak.
2) Reduced national sovereignty.

Question 12

What are 3 benefits of regional trade agreements?

Answer 12

1) Static benefits occur due to increased specialisation, such as reduced average costs for firms.
2) Dynamic benefits occur from increased competition within the trading bloc, such as increased innovation and knowledge transfer.
3) Increased trade between member states.

Question 13

What is the World Trade Organisation (WTO)?

Answer 13

An international organisation that sets the rules for trade between nations.

Question 14

What are the two main functions of the WTO?

Answer 14

1) To facilitate the removal/reduction of protectionist barriers between countries, aiming for trade liberalisation.
2) To ensure that countries obey the rules of their agreements, with the WTO acting as a negotiator to resolve any conflicts.

Question 15

When was the WTO established?

Answer 15

1995.

Question 16

What are 2 possible contradictions between the WTO and regional trade agreements?

Answer 16

1) A common external tariff contradicts WTO principles, as it involves imposing protectionist measures on non-members.
2) Setting up a free trade agreement or a customs union can contradict the WTO’s principle of equality between trading partners.

Question 17

What are 2 criticisms of the WTO?

Answer 17

1) The WTO is too powerful, favouring developed over under-developed countries, by forcing barriers to trade down.
2) Some argue the WTO adopts a materialistic American approach to trade, damaging native cultures.