4.1.5 trading blocs & WTO

Question 1

what is a trading bloc?

Answer 1

• group of countries that have signed an agreement to reduce or eliminate tariffs, quotas and other protectionists barriers

Question 2

What is preferential trading area

Answer 2

• a group of countries that have signed a PTA lowering or abolishing some protectionists barriers such tariffs on trade between themselves

Question 3

What is free trade area?

Answer 3

• free trade amongst a group of countries, where countries are allowed to set their own tariffs amongst non-member countries

Question 4

What is customs unions?

Answer 4

Free trade on products which imposes a common external tariff on imported goods from non-member countries

Question 5

What is common market?

Answer 5

• labour and capital have freedom of movement - there are laws concerning free movement of goods

Question 6

What is economic union?

Answer 6

• a group of countries where the economies of member countries are as fully integrated economically as different regions within a single country

Question 7

What is regional trade agreement?

Answer 7

• an agreement between at least two countries to reduce or eliminate tariff, quotas and other protectionists barriers between themselves

Question 8

What is trade creations?

Answer 8

• trade creation occurs when a country enters a free trade area / agreement or becomes involved in a customs union in which there is a free trade between members but also a common external tariff

Question 9

What is trade diversion?

Answer 9

• switch from a lower- costs foreign source / supplier outside of a customs unions towards a higher costs supplier located inside the customers union
• once insider a customs union, the country must now adopt a common external tariff which will then increase the cost of importing from the 3rd party nation

Question 10

What are advantages of a monetary union?

Answer 10

• fixed prices
• reduced exchange rate costs
• greater price transparency
• more trade and greater economies of scale
• inward investment
• price stability

Question 11

What are the disadvantages of monetary union?

Answer 11

• loss of policy independence
• inability to change the value of a currency
• structural problems
• break up of the monetary union

Question 12

What is the WTO?

Answer 12

• it helps to promote free trade by persuading countries to lower their imports tariffs and other barriers to open market including widespread use of import licences, export subsides and other non-tariff barriers

Question 13

What are the aims of the wto?

Answer 13

• encourage countries to lower protectionists measure to increase trade ( trade liberalisation )
• ensure countries act accordingly to the trade agreement made

Question 14

What are the conflicts between RTA & WTO?

Answer 14

• if wto cannot produce multilateral agreements amongst countries, they will resort to RTA’s
• economic gains from specialisation predicted by the theory of comparative advantage

Question 15

What are criticism of WTO?

Answer 15

• allows rich countries to exploit developing countries’ workers, paying them low wages and making them work in conditions that are not suitable
• causing environmental catastrophe in developing countries as richer countries plunder resources
• forces poorer countries to lower their barriers, whilst richer countries keep theirs