Trading Blocs & World Trade Organisation Flashcards
Monetary union
Deep form of econ integration
Countries give up own domestic & monetary policy & share single currency w/ central bank setting uniform policy IR for all nations
EU requirements (convergence criteria)
●stable prices
- inflation can’t be 1.5%> than avg in 3 members countries w/ best price stability … low inflation
●stable ex rate
- national currency must be stable relative to other EU currencies for a period of 2yrs b4 entry into union
Real economic convergence criteria indicators
-trend rate of growth of GDP … rate of productivity growth & capital I
- labour market flexibility … flexible skills/geographical mobility & flexible wages
-vulnerablitiyy of external shocks … countries respond systemic ways to D&S shocks.
Reasons to join EU Monetary union
● currency risk
- euro more stable than foreign currencies … decrease currency risk so cheaper borrowing for smaller countries
● Trade
- euro enhances gains from being in EU single market .. encourage cross border trade in g/s
●I
- membership of EU … inward I into industries
● Competition
- 1 currency … increase transparency & market Competition so helps C to find g/s at better price
●Transactions
- shared currency … eliminates costly erosion of money … improve labour mobility w/in EU single market
Risks if joining EU Monetary union (4)
• loss of monetary autonomy
- can’t pick & chose IR that align w/ economic condition … limit ability to respond to change in inflation / unemployment / econ shocks
• Inability to devalue currency
- can’t improve competitiveness
• Transition cost
- Need administrative & logistical change
• Dependence on the health of the Eurozone
- Econ health linked to overal performance of Eurozone
Trade blocks
countries w/ in geographical region protect themselves
from M from non-members … sign agreement to lower I eliminate protectionism barriers
Types of trade blocks (5)
• preferentials trading areas (PTA)
• free trade areas (FTA)
• Custom unions
• Custom markets
• Economic Unions
Preferential areas (PTA)
- Trade barriers lowered on some but not all gs traded between member
Free tradrbareas FTA
- Trade barriers removed on all gs between member countries
- country able to impose own tariff/ quotas on gs it M from outside trading bloc
Custom unions
-free trade w/in trading bloc & common external tariff on Mgs outside trading bloc
- CET negotiate as external bloc w/ 3rd parties eg other bloc
Common markets
- custom unions w/ free movement of labour & capital
- product standards & laws concerning free movement of gis are common between countries
SO → Need common policies affecting key industries eg agri
SO_→ neeg sig lul of humanisation
Economic union
- Economies of member countries fully intergrated
→ Need degree of fiscal union (Central body having power over taxation & spending)
→ Need degree of Monetary union (Member countries share single currency cw/ Ex R monitored & controlled by CB
Trade block pros (6)
• freetrade … increase specialisation & increase output bc comp adv … benefits from Eof S - decrease price & costs
• Larger customers market … increased growth of firms
• firms inside bloc protected from cheaper M
• No barriers … increased competition w/ domestic ind … innovation & decreased prices … increased production & AE
• increase trade … Jobs
• increased C choice
Trade block cons
• RTA weak bc cover free trade in limited range of gs … econ benefits small
• Creating Trade bloc → trade diversion not creation … lower econ Output even it some members of trading bloc are ned gainers
• Regional trade agreement distribute gains unequaly
• Creating & maintaing bloc distracts you from larger gains ( made by signing free trade agreements )
- Bilateral trade agreements bring little gain - take up you resources
EVAL
’ • Hard to be presis abt size of costs/benefits
- trade block don’t lead to growth but don’t kno it couldn’t grown more w/bilateral TA
