4.1.5 trading blocs + WTO

free trade areas

• FTAs involve the elimination or reduction of M tariffs + quotas on trade between member countries.

• g/s can move freely within the bloc w/o customs duties.

custom unions

• They go beyond FTAs by removing trade barriers + establishing a common external tariff on Ms from non-member countries.

• Member countries coordinate their trade policies with respect to non-members.

common markets

• They remove trade barriers + allow for the free movement of FoPs (capital, labour + sometimes, tech).

• It results in a higher degree of econ integration.

monetary unions + conditions for success

• A monetary union involves a common currency shared by member countries.

• Fiscal discipline: Member countries need to maintain responsible fiscal policies to prevent econ imbalances.

• Convergence criteria: Ensuring member countries have similar inflation rates, IRs + budget deficits.

• A common monetary policy: Implemented by a central bank.

• Political commitment to the union: Member states must be willing to cede some econ sovereignty.

benefits of regional trade agreements

• They lead to more trade among member countries, boosting EG.

• By reducing trade barriers, resources r allocated more efficiently.

• Larger markets allow for EoS, reducing CoPs.

• RTAs can promote political cooperation + peace among member countries.

costs of regional trade agreements

• RTAs can lead to trade diversion, where members start trading more w each other but less w non-members.

• Compliance w diff rules + regulations within the RTA can be complex for businesses.

• Non-member countries can face trade disadvantages due to exclusion, potentially causing international tensions.

• Deeper integration may require members to cede some sovereignty in trade policy.

role of the WTO in trade liberalisation

• Facilitating trade negotiations among member countries to reduce trade barriers.

• Resolving trade disputes thru a rules-based system.

• Monitoring trade policies + practices of member countries to ensure they comply with WTO rules.

• Providing tech assistance to developing countries to help them participate in global trade.

possible conflicts between the RTA + WTOs

• RTAs may discriminate against non-members, potentially violating WTO's most-favored-nation principle.

• If RTAs lead to trade diversion, they can be seen as contrary to the WTO's goal of reducing trade barriers globally.

• Inconsistent rules between RTAs and WTO agreements can create legal + practical challenges.

• WTO rules generally favor non-discrimination, while RTAs provide preferential treatment to member countries.

• Disputes can arise when WTO + RTA rules conflict, requiring resolution mechanisms to reconcile differences.