4.2.5 Trading Blocs ✅

Question 1

What are the types of trading blocs?

Answer 1

• Free trade ares.
• Customs unions.
• Common markets.
• Monetary unions.

Question 2

Explain free trade areas? Example?

Answer 2

• Reduction of import tariffs/quotas between members.
• G/S can move freely.
  NAFTA (North America fta).

Question 3

Explain customs unions? Example?

Answer 3

• Remobes all trade barriers (like FTA) but also establishes a common external tariff.
  EU.

Question 4

Explain common markets? Example?

Answer 4

• Removes trade barriers + free movement of factors of production eg labour capitol.
• Higher economic integration.
  EU before eurozone.

Question 5

Explain monetary unions? Example? What are the conditions for success for these blocs?

Answer 5

• Common currency shared by all members. (As well as before stuff).
  Eurozone.
• Fiscal discipline (not too much debt = prevent imbalances).
• common monetary policy (implemented by central bank).
• political commitment (give up some economic control).
• convergence criteria (members will have similar inflation/interest and budget deficits.

Question 6

What are the benefits of regional trade agreements?

Answer 6

• Increased trade (boosts econ growth). 📈
• efficiency gains (reducing barriers means firms allocate resources more competitively). 📉
• economies of scale (due to larger market). ⚖️
• Political cooperation/peace amount countries. ☮️

Question 7

What are the costs of regional trade agreements?

Answer 7

• Complexity (compliance with rules can be confusing to businesses).
• exclusion (can cause tensions w others who are disadvantaged).
• loss of sovereignty in trade policy.

Question 8

What is trade liberalisation?

Answer 8

Removal/reduction of restrictions or barriers. Eg quotas, licensing, tariffs.

Question 9

What is the role of the WTO in trade liberalisation?

Answer 9

• Facilitates negotiations.
• Resolves disputes (through rule based system).
• Monitoring policies (ensure members apply with rules).
• Technical assistance to developing countries ensuring they participate in the global economy.

Question 10

What are possible conflicts between RTAs and the WTO?

Answer 10

• TRADE DISCRIMINATION of RTA members to non-members.
• Trade diversions goes against WTO aim of global reduction in trade barriers.
• common tariff on from RTA increases protectionism.

Question 11

What is trade diversion v trade creation? Example?

Answer 11

Diversion = buy g/s for higher price due to RTA. (Switch to less efficient producers in bloc). = NAFTA resulted in trade switch to inefficient Mexico.
Creation = buys g/s for lower price (domestic to other in bloc) increases trade due to specialising. =. Eu countries.

Question 12

Give example of trade creation? What would the graph be like?

Answer 12

Wine consumption when uk joined eu it switched to efficient french producers.
Opposite of tariff graph due to RTA removing tariffs.

Question 13

Example of trade diversion? What does it do? Why? Show diagram of the loss from the example?

Answer 13

Uk buying eu butter instead of NZ. (Only switched cuz tariff made eu one cheaper).
Reduce world wide efficiency. Not buying from most cost effective producer w best comparative advantage.