Economics - Trading blocs

What is a regional trading bloc

A group of countries which at a minimum, have agreed to reduce some protectionist barriers to trade between themselves to trade

What is a free trade area

Where countries agree to trade goods with other members without protectionist barriers

eg European Trade Association

What is a customs union

countries have established a common trade policy with the rest of the world also have free trade between member countries

eg The European Union

What is a common market

members remove all trade barriers between member countries

all require to adopt a ‘common external tariff’

factors off production can move freely between countries

eg European Single Market

What is a monetary union

remove all trade barriers between member countries and are all required to adopt ‘common external tariffs’

all members share a common currency

eg Eurozone

What are the trade barriers

tarrifs

quotas

subsidies

non-tariff barriers

When are trading blocs formed?

When countries join together to form a block of countries and all agree to remove trade barriers

What are the main drivers of economic integration

increased trade partners

easier trade with existing trade partners

increasing investment FDI

access to wider pool of labour

stronger rates of economic growth and development

What is a bilateral trade agreement

A regional trade agreement between two countries

What is a multilateral trade agreements

A regional trade agreement between three or more countries or trading blocs

Advantages for members of trading blocs

Free trade within the bloc

market access and trade creation

economies of scale

jobs

protection

competition

Disadvantages for members of trading blocs

trade diversion

output reduces even if certain members experience a net gain

unequal distribution of gains from trade

Advantgaes of leaving the EU

negotiate new free trade agreements with major EU trading partners

food prices could possible be lower if left the common agricultural policy

retain greater control over fiscal and monetary policy and gain more freedom over labour market

Disadvantages of leaving the EU

risk of losing trade benefits

UK will lose tariff-free access to its largest export market

extra costs for businesses as they adjust to new legal frameworks

Europe might retaliate and precent favourable trade deals with UK

Advantges of free trade

lower trade barriers, reduced tariffs

increased access to goods and services

stimulates economic growth

cuts costs of trade and businesses

Disadvantages of free trade

infant industries may not be protected

risk of structural unemployment in some countries if consumers switch to cheaper imports

loss of import tariff revenue

exploitation of the environment

Evaluation of trading blocs

likely to bring less welfare gains than a situation where all trading countries sign a common agreement

might be larger gains from signing trade agreements with ALL members of WTO

bilateral agreements have limited gian but require significant government resources to signing agreements

if Trade Creation is greater than Trade Diversions it is not a good option for an economy

Key institutions of the EU

European Central Bank, European Commission, EU Parliament, European Investment Bank

Two main aims of the WTO

to bring about trade liberalisation and to ensure countries act according to the trade agreements they have signed

What is the role of the WTO in trade liberalisation

promotes world trade through reducing barriers and policing existing agreements, settles trade disputes by acting as the judhe, organises trade negotiations

Possible conflicts between regional trade agreements and the WTO

Trading bloc might distort world trade - there could be inefficient allocation of resources

lead to a rise in protectionism

argue the WTO is too powerful, ignores problems of developing countries