Trading Blocs And WTO Flashcards
MAXIMISE YOUR BRAIN POWER
List the type of trade blocs
- Free trade area
- Custom Union
- Common market
- Monetary Union
Define free trade area
Members remove all trade barriers with each other.
but able to set trade barriers against non-members
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
Countries who share a common currency, monetary and fiscal policy.
Define trade creation
switch from buying products from a high cost producers to a low cost producer
Define trade diversion
When country switches from buying products from a
low cost producer to a high cost producer
What might trade creation depend on
- Time and Size of removal of trade barriers
- Non price factors (loyalty, quality)
- Other factors - Exchange rate/State of the economy
Benefits of trading blocs and evaluate
- economic growth (exports more price competitive -> improvement in (X-M) -> AD rises -> Real GDP rises)
- Employment rises due to rise in export demand
EV
1. 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
- trade discrimination/ tariff on non members
- leads to trade diversion
eg . Protectionism policy against non-members, causing trade diversion
what are the main roles of WTO
- Negotiate/implement trade agreements
- Platform for trade negotiations
- Monitor trade policies on country
Difference between regional trade agreements and bilateral trade agreements
Regional is a trade agreement with members within a region
Bilaterial: agreement between 2 countries