Trading Blocs And WTO Flashcards
List the type of trade blocs
- Free trade organisation
- Custom Union
- Common market
- Monetary Union
Define free trade area
Removes all trade barriers between member countries.
but free to set their own trade barriers against non-members countries
Define customs Union
Removes all trade barriers between members and a common external tariff on non-member countries.
Define common market
Removes all trade barriers between member countries, a common external tariff, and free movement of factors of production
Define monetary Union
Group of countries which share a common currency
Define trading bloc
Agreement between a group of countries to remove trade barriers between themselves.
definition of multilateral/bilaterial trade agreement
agreement to reduce trade barriers between two/more countries.
define economic integration
When countries coordinate to reduce trade barriers and harmonise fiscal and monetary policy.
Define trade creation
switch from buying products from a high cost producers to a low cost producer
Define trade diversion
Switch from buying products from a low cost producer to a high cost producer
What might trade creation depend on
- Size of tariff
- Non price factors
- Exchange rate
- State of the global economy
- PED eg brand loyalty
- Cost difference between members of regional trade area
Benefits of trading blocs and evaluate
- economic growth (specialisation -> output -> economies of scale)
- firms grow from larger customer market
- Increased choices and consumer surplus for consumers
EV
1. Diseconomies of scale may occur
- trade diversion may occur due to efficient producer outside of bloc
- brain drain may occur for poorer countries
Conditions for successful monetary Union
- Same economic cycle
- Automatic fiscal transfers when countries perform poorly
- Free movement of labour
- Free financial and price flow
Possible conflicts between RTA and WTO
- RTA rules contradict WTO principles
- tariff on non members
- dispute settlement contradicts WTO’s rules/procedure
eg . Protectionism policy against non-members, causing trade diversion
Developed countries may use their influence very trade rules to maximise their own benefits, while not benefiting the developing countries
what are the main roles of WTO
- Negotiate/implement trade agreements
- Platform for trade negotiations
- Monitor trade policies on country
define Optimum Currency Area
a geographic region where its the most beneficial for countries within it to adopt a single currency
