Trading Blocs and WTO

Question 1

What is a trading bloc

Answer 1

associations between governments that manage and promote trade

Question 2

Bilateral agreement

Answer 2

Between two countries or trading blocs eg. EU and other country

Question 3

Multilateral agreement

Answer 3

between multiple countries or trading blocs

Question 4

Trading Bloc - Free trade areas

Answer 4

All barriers of trade are removed between, but individual members can still impose barriers on other countries

Question 5

Trading Bloc - Customs Unions

Answer 5

Free trade areas where there are also standard tariffs imposed on non-members

Question 6

Regional trade agreements

Answer 6

Agreements between countries to ensure free movement of goods and services across their borders

Question 7

Trading Bloc - Common markets

Answer 7

Customs unions with the addition of free movement of CELL between countries

Question 8

Trading Bloc - Monetary unions

Answer 8

Members implement a single common currency so have the same monetary policy and a central bank

Question 9

What is the WTO and what does it do

Answer 9

World trade organisation that uses trade rules to provide a base for countries to discuss trade agreements and disputes

Question 10

2 WTO conditions

Answer 10

• low barriers to trade to promote competition
• Countries must treat all trading partners equally

Question 11

Advantages of regional trade agreements

Answer 11

• 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

Question 12

Disadvantages of regional trade agreements

Answer 12

• 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

Question 13

How can trading blocs help with WTO objectives

Answer 13

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

Question 14

How can trading blocs conflict with WTO objectives

Answer 14

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

Question 15

Tariff diagram - what are the two side triangles

Answer 15

net welfare loss

Question 16

How is the tariff diagram drawn

Answer 16

as a normal supply and demand diagram but for domestic supply and demand

Question 17

Tariff diagram - where is the tariff put in

Answer 17

straight line across at p1 showing world supply with tariff and at p is normal world supply

Question 18

What kind of union is the European Union

Answer 18

Customs Union

Question 19

What is the ECB

Answer 19

European Central Bank that manages the euro and tries to keep prices stable