4.1.5 - Trading Blocs & The World Trade Organisation (WTO)

Question 1

What Is Economic Integration?

Answer 1

Process, whereby countries coordinate to reduce trade barriers.

Question 2

What Is A Trading Bloc?

Answer 2

Group of countries that join together and agree to increase trade between themselves.

Question 3

What Is A Regional Trading Bloc?

Answer 3

Group of countries, within a geographical region that protect themselves from imports from non-members.

Question 4

What Are Bilateral Trade Agreements?

Answer 4

Agreement to reduce tariffs and quotas between 2 countries.

Question 5

What Are Multilateral Trade Agreements?

Answer 5

Agreement to reduce tariffs and quotas between multiple countries.

Question 6

What Are The Types Of Trading Blocs?
(5 Points)

Answer 6

~ Preferential trading area (PTA).

~ Free trade areas (FTA).

~ Customs union.

~ Common markets.

~ Monetary unions.

Question 7

Describe Preferential Trade Areas (PTA)

Answer 7

Countries join together to elimate trade barriers between each other, but only on certain goods and services.

Question 8

Describe Free Trade Areas (FTA)
(3 Points)

Answer 8

~ Countries come together and eliminate all trade barriers between each other.

~ But, they are free to trade however with any country outside the free trade area.

~ E.g. NAFTA.

Question 9

Describe Customs Union
(3 Points)

Answer 9

~ Free trade area, but without the freedom of trade with non-members.

~ Common external tariffs are imposed on the non-member nations.

~ E.g. EU.

Question 10

Describe Common Markets
(2 Points)

Answer 10

~ Customs union, but with free flowing FOPs between member nations.

~ E.g. EU.

Question 11

Describe Monetary Unions
(3 Points)

Answer 11

~ Members enjoy the benefits of all the other trading blocs.

~ Counties within this union adopt the same currency, same central bank and the same monetary policy.

~ E.g. Eurozone.

Question 12

What Are The Essential Conditions Needed For A Successful Monetary Union?
(4 Points)

Answer 12

~ Free movement of labour.

~ Similar trade cycles, to avoid tensions with the union.

~ Complete mobility of finance.

~ Fiscal transfers, to countries that are performing poorly.

Question 13

What Are The Benefits Of Being Apart Of A Monetary Union, Such As The Eurozone?
(4 Points)

Answer 13

~ Non-fluctuating exchange rates, means more confidence from all areas.

~ Reduce costs from currency conversions, better for saving and increasing incomes.

~ Currency is more stable against speculation.

~ Price between member nations are easier to compare.

Question 14

What Are The Drawbacks Of Being Apart Of A Monetary Union, Such As The Eurozone?
(3 Points)

Answer 14

~ Loss of monetary policy autonomy, might not be suitable for your country.

~ No potential for countries to alter their exchange rates, to boost trade performance (Export led growth).

~ Cost of currency conversion is very high.

Question 15

What Are The Benefits Of Trading Blocs?
(5 Points)

Answer 15

~ Trade creation.

~ No tariff between member nations and common external tariffs to 3rd parties.

~ Encourages increased specialisation -> increases output -> EOS.

~ Increased domestic competition -> encouraging innovation -> more choice.

~ Increased trade means more jobs available.

Question 16

What Are The Drawbacks Of Trading Blocs?
(5 Points)

Answer 16

~ Trade diversion.

~ Loss of resources, as successful countries attract all capital and labour.

~ Retaliation.

~ Creating them can distract governments.

~ Lesson national sovereignty.

Question 17

Describe Trade Creation
(2 Points)

Answer 17

~ Occurs when a country joins a customs union.

~ It’s the movement from a high cost domestic producer, to a low cost producer inside the customs union.

Question 18

What Is Trade Diversion?
(2 Points)

Answer 18

~ Occurs when a country joins a customs union.

~ It’s the movement from a low cost foreign producer outside the union, to a high cost producer within the customs union.

Question 19

What Is The World Trade Organisation (WTO)?

Answer 19

International organisation, regulating global trade.

Question 20

What Does The WTO Argue That Ideal Trade Should Be?
(4 Points)

Answer 20

~ Non-discriminatory, not having strong protectionist measures with one and not another.

~ Trade should be free from trade barriers.

~ Trade should be predictable, to make effective decisions.

~ There should be fair competition between trade.

Question 21

What Are The Roles of The World Trade Organisation (WTO)?
(6 Points)

Answer 21

~ Set and enforce rules on international trade.

~ Resolve trade disputes.

~ Provide a forum, for negotiating trade liberalisation.

~ Monitor further trade liberalisation.

~ Increase transparency of the decision making process.

~ Help developing countries fully benefit from free trade.

Question 22

What Are Some Conflicts Between Regional Trade Agreements & The WTO?
(3 Points)

Answer 22

~ Regional trade agreements contradict WTOs principles of free trade.

~ Regional trade agreements can be beneficial for member countries, but may result in global inefficiency in the allocation of resources.

~ Some might argue that the WTO is too powerful or that it ignores the developing countries.