Trading Blocs And WTO, Restrictions On Free Trade Flashcards
(26 cards)
Types of trading blocs
Free trade area
Custom Unions
Single Market
Monetary Union
Economic Union
What is Free trade area
Trade without barriers, including tariff and quota
What is custom union
Free trade and common external tariff on imports
- all members set the same rate of tariffs on goods coming from non-member countries
What are effects of custom unions
Trade Creation and Trade Diversion
Greater EoS as more competition, less monopolies, increase innovations and R&D
What is Trade Creation
Trade is created through lower prices as no tariff and increase consumer surplus
What is trade diversion
Due to tariffs, consumers less likely to buy from highly efficient producers outside the union, ‘diverting’ away from most efficient producers outside
Tariff Diagram
PL and output
Domestic supply and demand
World Supply and World Supply+tariff
Contraction in demand, extension in supply
What is a Single Market
Free movement of G+S and capital and labour
Common external tariff
Common product standards and regulations
E.g EU
What is Monetary Union
Single common currency
One central bank and common monetary policy
E.g Eurozone- freedom movement of G+S with common product standards and regulations+ sales tax of minimum of 15% VAT
What is Economic Union
Common economic policies, fiscal/ monetary
US- states
Advantages of Trading Blocs
Increase specialisation increases output, EoS
Larger customer market, EoS
Firms protected from cheaper imports from outside, China and India for the EU
Higher competition within trading blocs
More job opportunities as increased output
More choices
Disadvantages of Trading Blocs
Trade Diversion, less benefits of specialisation
Reduction in competition with countries not in trading blocs
Inequality- most developed countries attract more capital and labour
Role of WTO
Aim to reduce protectionism
1. Trade liberalisation
2. Countries act according to trade agreements
What do WTO do if countries don’t act according to trade agreements
Negotiate, resolve disagreements through panel of experts deciding the ruling, countries who win can impose trade sanctions- avoids trade wars
-Boeing allowed to impose tariff on Airbus for illegal subsidies in Europe
What are rounds and what are they for
To negotiate trade, and aim to lower barriers for trade, reduce protectionism
2001, Doha Round, cut protectionism on agricultural goods and reduce tariff on manufacturing goods
But all countries must agree
Reasons for protectionism
Infant industries- small firms needs time to grow and gain EoS, can’t compete with large firms initially
Dumping- prevent foreign firms selling goods cheaply to destroy domestic industry
Deficit in balance of payments- reduce imports
Protect the way of life- farming, essential and historical, vulnerable to cheaper imports
Need own farming and defence- in case of war- no overdependence
Sunset industries- slow down rate of decline- manufacturing in UK
Methods of Protectionism
Quotas
Tariffs
Export Subsidies
Embargoes
Voluntary agreements
Non tariff barriers
Currency devaluation
What is tariff
Tax on foreign G+S, discourages consumer
What is Quotas
Limit on number of foreign G+S allowed in a country
What is Export Subsides
Lower cost of production for domestic firms to increase competitiveness
What is embargo
No trade is allowed for good/ country
What is voluntary agreement
When one government requests another to reduce its exports
What are non tariff barriers
Administrative procedures making it harder for foreign firms to sell goods in the country
What is currency devaluation
Deliberately lowering value of currency making exports cheaper
