Trading blocs and the WTO (MAC) Flashcards
What are trading blocs?
They are groups of countries that agree to reduce or eliminate trade barriers between themselves.
Examples for trading blocs?
The Common Market for Eastern and Southern Africa
The Southern African Development Community
The Comprehensive and Progessive Agreement for Trans pacific Partnership
Association of Southeast Asian Nations
What are free trade areas?
In these trading blocs trade barriers are removed between member countries but each member can impose trade restrictions on non members.
What are custom unions?
There is free trade between member countries combined with a common external tariff on goods from countries outside the customs union
What are common markets?
These have the same characteristics as customs unions but include the free movement of FOPs between member countries
What are monetary unions?
These are customs unions that adopt a common currency.
What are the costs of trading blocs?
Trade diversion
Distortion of comparative advantage
Transition costs
Loss of independent monetary policy
Loss of exchange rate flexibility
What are the benefits of trading blocs?
Trade creation
Increase in foreign direct investment
Increase in economic power
What is the role of the World Trade Organisation?
To promote free trade
To settle trade disputes between members
