Chapter 15.2 Flashcards
Economic integration
Economic co-operation between countries and co-ordination of their economic policies
Preferential trade agreement (PTA)
An agreement between two or more countries to lower trade barriers on particular products in trade between each other
Bilateral trade agreement
A PTA between two countries
Multilateral trade agreement
A PTA between many countries
Regional trade agreement
Trade agreements between a group of countries that are within a geographical region
Trading bloc
A group of countries that have agreed to reduce tariff and other barriers to trade for the purpose of encouraging free or freer trade and co-operation between them
Free trade area
A group of countries that agree to gradually eliminate trade barrier between themselves
Customs union
A group of countries that fulfills the requirements of a free trade area and in addition adopts a common policy towards all non-member countries
Common market
When countries that have formed a customs union eliminate any further remaining tariffs in trade between them
Possible advantages of trading blocs
Trade creation
Increased competition
Expansion into larger markets
Economies of scale
Lower price for consumers and greater consumer choice
Increased investment
Better use of factors of production
Improved efficiency in production and greater economics growth
Stronger bargaining power
Political advantages
Trade creation
The situation where higher cost products are replaced by lower cost imports
Possible disadvantages of trading blocs
Trade diversion
May be a challenge to multilateral trading negotiations
Unequal distribution of gains and possible losses
Economic integration involves a loss of sovereignty
Trade diversion
The situation where lower cost imports are replaced by higher cost imports from a member after the formation of a bloc
