4.1.5- trading blocs

• What is a trading bloc?

  A group of member countries that have agreed to have a free trade area with each other.
• What do member countries of a trading bloc do to protect themselves?

  They reduce or remove trade barriers affecting member countries.
• How does a trading bloc shape world trade?

  It is a form of economic integration that increasingly shapes the pattern of world trade.
• What are the types of trading blocs?

  • Preferential Trade Area (PTA)
  • Free Trade Area (FTA)
  • Customs Union
  • Common Market
  • Monetary Union
• What is a Preferential Trade Area (PTA)?

  Countries agree to reduce or eliminate tariff barriers on selected goods imported from other members.
• What is an example of a Free Trade Area (FTA)?

  NAFTA, which includes the USA, Canada, and Mexico.
• What characterizes a Customs Union?

  Free trade between member countries combined with a common external tariff on goods from non-member countries.
• What is the difference between a Common Market and a Customs Union?

  A Common Market includes the free movement of factors of production between member countries.
• What is a Monetary Union?

  A customs union that adopts a common currency.
• What is an example of a Monetary Union?

  The Eurozone, which uses the Euro as its common currency.
• What are the four main categories of conflicts between trading blocs?

  Size of tariffs, dumping, subsidies on home producers, and non-tariff barriers.
• What are the two significant consequences of trading blocs?

  • Trade creation: Increased specialization and trade due to removal of barriers.
  • Trade diversion: Shift to higher-cost goods from member countries instead of lower-cost goods from non-members.
• What is trade creation?

  Member countries benefit from the removal of trade barriers, leading to increased specialization and trade.
• What is trade diversion?

  Trade is diverted from lower-cost countries outside the bloc to higher-cost countries inside the bloc.
• What are the economic effects of trade creation?

  It leads to increased exports and positive impacts on real output/GDP.
• How does greater competition affect firms in a trading bloc?

  More efficient firms compete more fairly and successfully in a bigger market.
• What is the impact of increased Foreign Direct Investment (FDI) in trading blocs?

  TNCs have unrestricted access to sell and invest in member countries.
• How do trading blocs increase economic power?

  As trading blocs grow economically, they can influence negotiations with other countries and improve terms of trade.
• What are the negative effects of trade diversion?

  It causes misallocation of resources and reduces specialization, leading to inefficiency.
• What are the conditions for success of a monetary union?

  Free movement of labor, capital mobility, flexibility of economies, automatic financial transfers, and same trade cycle.
• What is the EU’s Convergence Criteria?

  Criteria include price stability, sound public finances, sustainable public finances, durability of convergence, and exchange rate stability.
• What is the impact of a single monetary policy in a monetary union?

  It is based on what is appropriate for the region rather than individual countries.
• What are the economic effects of withdrawing from the EU?

  Changes in trade patterns, potential unemployment, impacts on FDI, agriculture, and public finances.
• What are the arguments for the UK leaving the EU?

  Reduced government spending, successful examples of countries outside the EU, job creation, and freedom to establish bilateral trade agreements.
• What are the arguments against the UK leaving the EU?

  Magnitude of budget contributions, loss of access to the EU market, increased costs from CET, and loss of influence over EU rules.
• What is the significance of FDI for the UK outside the Eurozone?

  The UK has attracted more FDI than any other EU country despite being out of the euro.
• How does the UK’s flexible labor market affect FDI?

  It attracts FDI due to significant cost-savings and efficiency gains.
• What are the potential impacts of lower food prices after leaving the EU?

  Lower food prices due to not paying the CAP, but UK farmers may face higher production costs.
• What could happen to public finances if the UK leaves the EU?

  Public finances might improve by not contributing to EU finances, but could worsen due to rising unemployment and separation costs.
• What are the economic effects of monetary unions?

  • Reduced transaction costs
  • No exchange rate risk
  • Economies of scale
  • Price transparency
  • Inward investment
  • Single monetary policy
• What are the negative effects of monetary unions?

  • Transition costs
  • Single monetary policy may not suit all countries
  • Strict inflation targets
  • Interest rate sensitivity
  • Reduced control over fiscal policies
  • Structural inequalities among member countries
• What does WTO stand for?

  World Trade Organization
• How many countries are members of the WTO?

  164 countries
• What is the primary function of the WTO?

  Regulates world trade
• What is a round of talks in the context of the WTO?

  Meeting where trade agreements are made
• How often is the ministerial conference held?

  Every two years
• What is the purpose of the ministerial conference?

  To reduce or remove trade barriers for poorer countries
• What was the Bali Package in 2013?

  Reduce barriers on poorest countries
• Which countries benefited from reduced cotton tariffs in the Bali Package?

  Uzbekistan and Benin
• What is the effect of reduced cotton tariffs on the UK market?

  Increases quantity of cotton imported into the UK