4.1.5 Trading blocs and the World Trade Organisation (WTO)

• What are trading blocs?

  Groups of countries that agree to reduce or eliminate trade barriers within themselves
• What are characteristics of trading blocs?

  • Agree to promote trade and economic cooperation 
  • Often involve reducing or eliminating barriers to trade (import tariffs, quotas)
• What are the types of trading blocs?

  • Preferential Trading Area (PTA) 
  • Free Trade Area (FTA) 
  • Customs Union (CU) 
  • Single Market (SM) 
  • Monetary Union (MU) 
• What is the PTA trading bloc?

  Such as trade agreements between the EU and the less developed countries
• What is the FTA trading bloc?

  Where a group of countries agree zero import tariffs and removing non-tariff barriers
• What is the CU trading bloc?

  • This is a combination of a free trade area plus a common external tariff (CET)
• What is the SM trading bloc?

  • This is built around the four freedoms of movement of goods, services, labour and (financial) capital
• What is the MU trading bloc?

  • Involving a common currency, one monetary policy interest rate and a single central bank, may include a banking union
• What is a trade diversion?

  Occurs when trade is diverted from a more efficient exporter towards a less efficient producer
• What are costs all trading blocs cause?

  • Trade diversions
  • Distortion of comparative advantage
• What are costs that the monetary union cause specifically?

  • Transition costs
  • Loss of independent monetary policy
  • Loss of exchange rate flexibility
• What are benefits to trade blocs?

  • Trade creation
  • Increase in foreign direct investment
  • Increase in economic power
• What are benefits to the monetary union specifically?

  • Elimination of transaction costs
  • Price transparency
  • Elimination of currency fluctuations between member countries
• What is a free trade area?

  Where there are no import tariffs or quotas on products from one country entering another. 
• What is trade creation?

  Trade created as a result of the formation of a free trade agreement between a group of countries that have established a trading bloc
• What does the customs union agree to do?

  • Abolish import tariffs and quotas between member nations to encourage free movement of goods and services.
  • Adopt a common external tariff (CET) on imports from non-members countries.
• What is a single market?

  Refers to a regional or supranational economic arrangement where participating countries eliminate most barriers to trade
• What does the single market create?

  • A unified economic space where goods, services, labour, and capital can move freely across national borders
• What is the monetary union?

  Deep form of economic integration in which countries give up their own domestic monetary policy and share a single currency with a central bank setting a uniform policy interest rate for all participating nations
• What are risks of joining the monetary union?

  • Loss of Monetary Policy Autonomy
  • Inability to Devalue Currency
  • Transition Costs
  • Dependence on the Health of the Eurozone
• What are the aims of the World Trade Organisation?

  • International organisation that governs global trade
  • Ensure trade in goods and services flows freely
  • Seeks to promote free trade by persuading countries to lower import tariffs and other barriers to open markets including less use of import licences, export subsidies and other non-tariff barriers including state aid.
• What are the roles of the WTO?

  • Conductor role
  • Tribunal role
  • Monitor role
  • Training role
• What are challenges for the WTO?

  • Multilateral Negotiations Gridlock
  • Rise of Bilateral and Regional Agreements
  • Diverging Development Goals
  • Digital Trade and E-Commerce