4.1.5 Trading Blocs and world trade organisations Flashcards
What are trading blocs?
A trading bloc is a formal agreement between two or more regional countries that remove trade barriers between the countries in the agreement while keeping trade barriers for other countries.
How do trading blocs result in trade diversion?
When bloc’s Tarrif is high, it leads to a reduction of price of the goods imported from another country
How do trading blocs result in trade creation?
it allows countries to remove trading restrictions which helps create trade.
What is a free trade area? Give examples.
Free Trade Area is trade agreements that can be undertaken on a regional basis or as trading blocs under which there is no barrier to import defined goods and services
What is a customs union? Give examples.
a group of states that have agreed to charge the same import duties as each other and usually to allow free trade between themselves.
What is common market? Give examples.
a group of countries imposing few or no duties on trade with one another and a common tariff on trade with other countries.
What are monetary unions? Give examples.
a fixed exchange rate between different currencies
What are the benefits of trading blocs?
- increased competition, firms act more efficiently
- more cheaper available goods
- Competition reduces price
- Different countries have different strengths, they can specialize
- specialization causes firms to develop large economies of scales
- Growth in trade leads to growth jobs
What are the drawbacks of trading blocs?
- Trading blocs are likely to distort world trade, and reduce the beneficial effects of specialization.
- loss of benefits
- trading blocs may retaliate by raising tariffs
What are the benefits of monetary unions?
- reducing transaction costs
- increase price transparency
What are the drawbacks of monetary unions?
- language barrier is a major roadblock for labour mobility
What is the World Trade Organisation (WTO)?
an international body founded in 1995 to promote international trade and economic development by reducing tariffs and other restrictions.
What is the role of the WTO?
- to promote trade
- promote economic development
- reduce tariffs
How do trade blocs create conflict with the WTO?
- there are trading agreements between certain countries, which may exclude other countries
