Trading Blocs and WTO Flashcards
What is a trading bloc
associations between governments that manage and promote trade
Bilateral agreement
Between two countries or trading blocs eg. EU and other country
Multilateral agreement
between multiple countries or trading blocs
Trading Bloc - Free trade areas
All barriers of trade are removed between, but individual members can still impose barriers on other countries
Trading Bloc - Customs Unions
Free trade areas where there are also standard tariffs imposed on non-members
Regional trade agreements
Agreements between countries to ensure free movement of goods and services across their borders
Trading Bloc - Common markets
Customs unions with the addition of free movement of CELL between countries
Trading Bloc - Monetary unions
Members implement a single common currency so have the same monetary policy and a central bank
What is the WTO and what does it do
World trade organisation that uses trade rules to provide a base for countries to discuss trade agreements and disputes
2 WTO conditions
- low barriers to trade to promote competition
- Countries must treat all trading partners equally
Advantages of regional trade agreements
- promotes easier and more profitable trade to increase economic growth
- Improves regional integration like infrastructure
- Attract FDI as it ensures a more stable and predictable economy
- Access to new markets so especially smaller firms can expand customer base
- Encourages specialisation and innovation through increasing competition which can help with productivity
Disadvantages of regional trade agreements
- Trade diversion towards less efficient member nations could hurt efficiency of world trade
- Complex rules to stop exploitation can hamper productivity and efficiency of firms
- Can hurt multilateralism as different countries trade agreements may contradict with others
- Potential for regional imbalances as some countries gain more than others
- Tend to only focus on trade in goods neglecting other factors like services or labour rights
- Brain drain
How can trading blocs help with WTO objectives
Leads to trade creation as barriers are removed so products become cheaper, also leads to specialisation so helps WTO by opening up trade improving efficiency and encouraging competition
How can trading blocs conflict with WTO objectives
Trade diversion as imposing trade barriers on non member nations with cheaper goods means they will receive less trade and won’t fully utilises specialisation, so hampers WTO as it interferes with competition preventing lowest cost most efficient products being traded
Tariff diagram - what are the two side triangles
net welfare loss