Trade policies & negotiations

• What is a customs union?

  Removal of tariffs and common external tariff
• What is an economic union?

  A common market with a customs union
• What are embargos?

  Complete ban on trade with a country
• What is free trade?

  Trade with no barriers or restrictions
• What are free trade areas?

  Countries trade without protectionist barriers
• What is a monetary union?

  Two or more countries with a single currency
• What is protectionism?

  Policies to restrict imports into a country
• What are quotas?

  Limits on the level of imports allowed
• What are tariffs?

  Taxes on imported goods to limit purchases
• What is trade creation?

  Switching from high-cost to lower-cost producers
• What is trade diversion?

  Switching from low-cost to high-cost producers
• What are the different methods of protectionism?

  1. Tariffs: Increase domestic demand, decrease imports.
  2. Quotas: Limit foreign goods, raise prices for consumers.
  3. Export subsidies: Encourage exports over domestic sales.
  4. Embargoes: Complete trade bans with specific countries.
  5. Excessive admin burdens: Increase costs, harm developing countries.
• What are the stages of economic integration?

  1. Free trade areas: No protectionist barriers, e.g., NAFTA.
  2. Customs union: Free trade and common external tariff, e.g., EU.
  3. Monetary union: Shared currency and interest rates, e.g., Eurozone.
  4. Economic union: Common market with free movement and trade policy, e.g., EU.
• What are the consequences of economic integration?

  1. Trade creation & diversion: Increased trade among members, reduced trade with non-members.
  2. Reduced transaction costs: Cheaper and simpler trade.
  3. Economies of scale: Larger markets lead to efficiency.
  4. Enhanced competition: More efficient firms and better resource allocation.
  5. Migration: Increased labor supply, potential loss of skilled workers.
• What are the benefits of protectionism?

  1. Trade deficit reduction: Less imports due to tariffs.
  2. Support for infant industries: Temporary protection until maturity.
  3. Correcting market failure: Protect society from demerit goods.
  4. Improving current account: Measures to enhance balance.
  5. Protecting domestic jobs: Safeguarding employment opportunities.
• What are the costs of protectionism?

  1. Market disruption: Reduced efficiency and consumer welfare.
  2. Extra costs: Increased costs for exporters.
  3. Low income impact: Tariffs harm low-income individuals.
  4. Retaliation risk: Potential hostility from other countries.
• What are the benefits of free trade?

  1. Comparative advantage: Higher output with fewer resources.
  2. Increased efficiency: Competitive markets lower production costs.
  3. Trade creation: More consumption and economic welfare.
  4. Economic growth: Higher exports lead to growth.
  5. Economies of scale: Specialization lowers average costs.
• What are the costs of free trade?

  1. Job losses: Lower labor costs lead to unemployment.
  2. Environmental damage: Increased manufacturing harms the environment.
• What is the role of the WTO in promoting free trade?

  Reduces trade barriers and settles disputes
• What is a challenge faced by the WTO regarding external tariffs?

  Conflict between blocs may raise protectionism
• What is a disadvantage of the WTO for developing countries?

  It may ignore developing countries' issues
• How does a customs union violate WTO principles?

  It treats trading partners unequally with tariffs
• How can a customs union complement the WTO system?

  Ensures non-members can trade freely with members
• Trade diversion

  • Country stops buying from a more efficient non-member due to common external tariffs
  • Instead, buys from less efficient member country