Trading blocs and restrictions on trade Flashcards
What is the WTO?
World Trade Organisation
When was the WTO formed?
1995
Name two key roles of the WTO.
- framework for settling trade disputes
- reducing barriers to trade
Define a trading bloc.
when a group of countries in a region agrees to cooperate in international trade through free trade area or other organisation
Where is the trading bloc ASEAN?
10 countries in SE Asia
Where is the trading bloc MERCOSUR?
5 countries in Latin America
Where is the trading bloc ASEAN?
10 countries in SE Asia
What countries does the trading bloc USMCA cover?
USA, Mexico, Canada
What is a free trade area?
group of countries that agrees to trade without barriers between themselves, but having own individual barriers to trade with countries outside the area
What is a customs union?
group of countries that agrees to trade without barriers between them and a common tariff barrier with countries outside the union
What is trade diversion?
replacement of cheaper imported goods by goods from less efficient gtrading partner within a bloc
What is trade creation?
replacement of more expensive domestic production or imports with cheaper output from partner within trading bloc
What six things will a common market do?
- remove barriers to trade among them
- common barriers to external trade
- common tax rates
- common laws on economic activity
- free movement of factors of production between members
- common public sector procurement policies
What is a monetary union?
where countries share a common currency
Define an economic and monetary union.
common market plus common currency (or permanently fixed exchange rates between them) and common monetary policy
Is the Single European Market a common market?
no, as there aren’t common tax rates
What was the EEC?
European Economic Community, a customs union
What were two key economic arguments in favour of UK leaving EU?
- too many restrictions within EU
- couldn’t form trade agreements with rest of world
What was the EMU?
European Economic and Monetary Union, when exchange rates were permanently fixed between the participating countries
When was the Eurozone formed?
2002
How many countries were in Eurozone in 2002 and now?
2002: 12
2025: 20
Define an optimal currency area.
when a group of countries is better off with a single currency
Give four benefits of a single currency area.
- increased trade
- increased competition
- increased economies of scale
- increased efficiency
Why is a single currency area more efficient than different currencies?
reduced transaction costs
reduced uncertainty
What are the costs of a single currency area?
- can’t use own monetary policy to stabilise economy
- economy more affected by those of other countries in the currency area
If countries are well integrated with each others, will single currency area be more or less successful?
more
Give three reasons why international trade is beneficial to consumers.
- access to products not produced in home country
- competition and economies of scale lead to cheaper or higher quality products
What is protectionism?
measures taken by a country to reduce international trade
What is a sunset industry?
industry in decline that needs protection for its displaced workers
What is an infant industry?
industry that needs protection from international competition in short run so can learn to become competitive
Give three key arguments for protectionism.
- ensures non-dependence on others, eg food or weapons if there is a war
- protects country from high unemployment from declining sectors
- protects infant industries until they can compete
What is dumping?
when a country or large firm sells its product in another country below cost price to gain a foothold
What is a tariff?
tax imposed on imported goods
What effect will tariff have in demand?
reduced demand as price is higher
What effect will tariff have on domestic supply?
increases as price higher
Why are consumers worse off if tariff imposed?
higher prices
Does imposing a tariff increase or reduce consumer surplus?
reduces consumer surplus
What is a quota?
voluntary export constraint, ie agreement by country to limit its exports to another country to a given quantity
What are non-tariff barriers?
measures imposed by government that inhibit international trade
Do consumers and domestic producers win or lose from protectionist policies?
consumers: lose
domestic producers: gain
What effect does a tariff have on living standards?
deadweight welfare loss so falls
