the global economy (4.4)

preferential trade agreements

a trade treaty between 2+ countries

giving special/favorable terms & conditions of trade to member countries

bilateral trade agreement

a contractual trade agreement between 2 countries, usually by mutual agreement to reduce/remove barriers of trade

regional trade agreement

a reciprocal trade agreement between 2+ countries typically belonging to the same geographical region

multilateral trade agreement

a legally binding preferential trade agreement between more than 2 countries/trade blocs, under WTO guidelines

trading blocs

a group of countries that agree to economic integration and freer international trade by reducing/removing trade barriers with one another

free trade area

trading bloc between member states that agree to trade freely with each other

can impose separate trade restrictions on non-member countries

customs union

member countries in a trading bloc, which engage in free trade with each other but impose a common external tariff when trading with non-member states

common market

(or single market)

the most integrated trading bloc

consisting of a customs union that allows free movement of factors of production between member countries

monetary union

the monetary system in a common market that requires the convergence of monetary policy that is governed by a common central bank

requires the convergence of interest rates within the single market, so member states do not have the flexibility in exercising their own monetary policy

advantages of trading blocs

• access to larger markets and the potential for economies of scale

• greater employment opportunities

• stronger bargaining power in multilateral negotiations

• greater political stability and cooperation

disadvantages of trading blocs

• loss of sovereignty/economic independence

• changes to multilateral trading negotiations

World Trade Organization

a global organization that exists to:

• promote trade liberalization

• oversee multilateral agreements

• resolve trade disputes between member states

objectives of WTO

1. non-discrimination: a WTO member country cannot discriminate between its trading partners

2. more open: the WTO is to encourage free international trade by being more open as an economy

3. predictable and transparent

4. more competitive

5. more beneficial for ELDCs

6. protect the environment

functions of WTO

1. trade negotiations

2. implementation & monitoring

3. dispute settlement

4. building trade capacity (special provisions granted to facilitate growth/development)

5. outreach (activities increase global awareness of WTO’s objectives & functions)

factors affecting the influence of the WTO

• difficulties on reaching an agreement on services/primary products

• unequal bargaining power of members