4.1.5 Trading blocs and WTO

What is a trade bloc?

A group of countries forming agreements to promote trade and economic cooperation.

Barriers removed by trade blocs

Tariffs, quotas, sanctions, different food standards, and trade restrictions.

Preferential Trading Area

Trade agreement that may reduce tariffs, such as between the EU and developing nations.

Free Trade Area

A group of countries that agree to zero import tariffs.

Customs Union

A free trade area combined with a common external tariff.

Single Market

Allows freedom of movement for goods, services, labour, and financial capital.

Monetary Union

Involves a common currency, a single central bank, and unified monetary policy.

Trade creation

The expansion of quantity supplied of trade through removing trade barriers to increase trade.

Trade diversion

When trade worsens because a trade bloc shifts imports away from more efficient non-member countries.

Impact of customs union on FDI

Firms from outside the trade bloc invest FDI into the bloc to avoid paying tariffs.

Advantages of joining the EU

Import tariff-free access, FDI, EU structural funds, access to capital markets, and intense competition.

Advantages of a monetary union

Reduced currency risks, encourages cross border trade, stimulates inward investment, increases price transparency, and eliminates conversion costs.

Downsides of a monetary union

Loss of control of monetary policy and interest rates, one-size-fits-all approach, and inability to devalue currency.

World Trade Organisation (WTO)

Acts as a referee for global trade to promote free trade, reduce protectionism, and settle trade disputes.