Trading blocs & WTO

• What is a trading bloc?

  Group of countries whom agree to reduce or eliminate barriers to trade that exist between them ex: USA-CANADA-MEXICO
• What are free-trade areas?

  When countries agree to abolish trade restrictions amongst themselves, but maintain their own restrictions with other countries. Ex: Canada, Mexica, Cuba and USA
• What is a customs union?

  Agreement between countries in which all goods produced by members are traded tariff-free. Countries agree on common tariff rates on imports from external countries. Ex: EU and UK
• What are common markets?

  • Tariff-free trade of goods
  • Free flow of factors of production
• What is the goal of common markets?

  Improve allocation of resources between members and lower costs of production
• What is a Monetary union?

  Members whom share the benefits of a customs union and common market, but also establish a central bank which issues a common currency
• What conditions are needed for a successful monetary union?

  • Free movement of labour
  • Similar trade cycles to avoid tensions
  • Mobility of finance with ability to adjust based on market conditions
  • Automatic fiscal transfers to members performing poorly
• Benefits of trade agreements

  • Trade creation improves efficiency and generates higher income
  • Tariffs between member states are eliminated
  • A monetary union simplifies trading costs and provides pricing transparency
  • less uncertainty surrounding exchange rates
• Costs of trade agreements

  • Trade diversion = worse global efficiency
  • Structural unemployment
  • Negative externalities of production
  • Transitioning to a monetary union can be expensive
  • Loss of sovereignity
• What is trade liberalisation?

  process of rolling back the barriers to free trade
• Roles of the WTO

  • It brings countries together at conferences and encourages them to reduce or eliminate protectionist trade barriers between themselves e.g. The Doha Round conferences
  • It acts as an adjudicating body in trade disputes.
• Conflicts between trade agreements and the WTO

  • Encourages trade barriers towards non-members
  • Global inefficiency