Trading Blocs and WTO

Question 1

Main 3 ways trade can be liberalised

Answer 1

Globally
Regionally
Unitlaterally

Question 2

What is the GATT

Answer 2

General Agreement on Tariffs and Trade

Question 3

Problems with the GATT

Answer 3

Only a treaty so it’s not permanent
Trade dispute mechanism was flawed

Question 4

Problems with international trade in the first half of the 20th Century

Answer 4

High degree of protectionism
No trade dispute settlement mechanisms

Question 5

Trade Blocs in order from Most Integrated to Least Integrated

Answer 5

Currency/Monetary Union
Single/Common Market
Customs Union
Free Trade Agreement

Question 6

Trade Blocs in order from Highest Trade Barriers to Lowest Trade Barriers

Answer 6

Free Trade Agreement
Customs Union
Single/Common Market
Currency/Monetary Union

Question 7

What is NAFTA

Answer 7

North American Free Trade Agreement focused on the removal of tariffs and reduce admin barriers involving Canada, Mexico and the USA

Question 8

Mexican and US Economy Strengths

Answer 8

Mexican:
Textiles
Meat

US:
Machinery
Corn

Question 9

What is a Trade Bloc

Answer 9

Group of countries that agree to mutually reduce or remove trade barriers

Question 10

Describe FTAs

Answer 10

FTAs can be bilateral or multilateral
FTAs reduce trade barriers below WTO levels
Tariffs and Quotas are reduced or removed in a FTA

Question 11

Advantages of FTAs and Trade Blocs

Answer 11

Competitive sectors benefit
Improved choice for consumers and firms
Lower administration costs for governments and firms
More attractive to FDI
Trade Creation
Potentially more efficient allocation of resources if trade creation > trade diversion

Question 12

Disadvantages of FTAs and Trade Blocs

Answer 12

Uncompetitive sectors struggle
Structural unemployment
Trade Diversion
Potentially less efficient allocation of resources of resources if trade diversion > trade creation

Question 13

When does Trade Diversion occur

Answer 13

When trade moves from a low cost producer to a high cost producer due to the formation of a trade bloc

Question 14

When does Trade Creation Occur

Answer 14

When trade moves from a high cost producer to a low cost producer due to the formation of a trade bloc

Question 15

Issues with FTAs

Answer 15

Individual countries lack bargaining power which makes it hard to obtain advantageous trade deals

Other members of a trade bloc may set trade policy in a way that improves the competitiveness of rival firms/industries

Question 16

What is a Customs Union

Answer 16

Free Trade Area + Common External Tariff

Question 17

What is a Customs Union

Answer 17

Free Trade Areas that impose uniform trade restrictions on non-members

Question 18

What is Common External Tariff

Answer 18

A trade policy agreed by the `member of a customs union that sets identical restrictions on trade to non-members

Question 19

Define Soverignty

Answer 19

The power or authority to rule

Question 20

Advantages of a Customs Union

Answer 20

Increased bargaining power when negotiating trade deals
Ability to set common external tariff to protect industries

Question 21

Disadvantage of a customs union

Answer 21

Loss of independent trade policy

Question 22

Downside to a single market

Answer 22

Loss of sovereignty over decision making

Question 23

Remaining Trade Restrictions in FTAs and CUs (Goods)

Answer 23

Firms have to modify products based on different countries standards and packaging requirements

Checks of goods and paperwork are still required at customs/borders

Question 24

Remaining Trade Restrictions in FTAs and CUs (Services)

Answer 24

Workers still need visas to work throughout the bloc
Countries set different standards on qualifications