Trade Blocs, Patterns of Trade

T4 CC3 (keywords)

Bilateral trade agreement

Trade agreement between two countries to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves.

Customs union

Group of countries between which there is free trade in products and which imposes a common external tariff on imported goods from outside the market.

Fiscal union

Group of countries where a central body has some powers over government borrowing, government spending and setting uniform rates of taxation in member countries.

FDI

Investment undertaken in one country by companies based in other countries, e.g. Coca Cola setting up a plant in Nigeria to manufacture soft drinks.

Free trade area

Group of countries between which there is free trade in goods and services but where member countries are allowed to set their own level of tariffs against non-member countries. E.g. USMCA.

Monetary union

Group of countries which share a common currency such as the euro.

Multilateral trade agreement

Trade agreement between three or more countries or trading blocs to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves.

Preferential trade agreement

A treaty between two or more countries to lower or abolish some protectionist barriers such as tariffs on trade between members.

Common or Single market

A customs union where in addition both labour and capital have freedom of movement within the area and where product standards and laws concerning free movement of goods and services are common between countries.

Trading bloc

A group of countries which have signed an agreement to reduce or eliminate tariffs, quotas and other protectionist barriers between themselves.

Trade creation

The switch from purchasing products from a high-cost producer to a low-cost producer.

Trade diversion

The switch from purchasing products from a low-cost producer to a higher cost producer.

World Trade Organisation (WTO)

International organisation based in Geneva, Switzerland, and consists of 166 member states. It acts as a forum to negotiate trade agreements and to help settle disputes.

Pattern of Trade

A country’s pattern of trade refers to the mix of goods and services that it imports and exports in international trade i.e. commodity pattern or trade.

It also refers to the mix / range of which countries that are most important for a nation in their trade relationships – for example, the UK and the EU i.e. geographical pattern of trade.