| What does Free Trade mean? | -This Refers to International Trade without Restrictions like Tariffs or Quotas. Free Trade gives Benefits from Specialisation, More Competition and the Ability to Transfer Resources |
| What does the WTO aim to do? | -This aims to make Trade as Free as possible.
-WTO is an International Organisation that allows Member States (150) to settle Disputes, Trade Agreements, and Trade Rules
-The WTO has Set Principles all Nations must comply with, such as
-Treating Trading Partners, Foreign or Domestic, Fairly and Encouraging Competition and Discouraging Trade Barriers - like Subsidies |
| Why may Governments impose Trade Barriers? | -Protect Jobs: Risk that Job Losses become too Great if Domestic Firms are Outcompeted by Foreign Firms
-Protect Infant Industries: They are just starting out in Developing Economies, and may not have the Resources and Experience to stand up to Foreign Competition
-Ban Certain Goods, as due to Security or Culture
-Avoiding Overdependence, as it can lead to Economic Instability
-Protecting against Dumping - Firms sell Goods abroad at a Price that's Below Production of Costs to force Domestic Firms into Bankruptcy
-Correcting Imbalances in the Balance of Payments |
| How can Governments protect Domestic Industries? | -Tariffs: Form of a Tax on Selected Imports. Raising the Price leads to less Demand and helps Domestic Manufactures
-Quotas: Fixed which Limits the Quantity of a Good that is Imported
-Embargoes: Bans on Certain Products, which are usually for Extreme Goods or Political Reasons. Embargoes usually are more Political
-Value of a Currency is Reduced, making Imports more Expensive and Exports Cheaper
-Product Standard Regulations: Foreign Firms must comply with a set of Standards before Selling. It can even be about Environment Standards or Animal Welfare
-Subsides given to Domestic Industries to give them a Boost |
| How can Trade Disputes occur? | -This occurs when 1 Nation or Trading Bloc is acting Unfairly when Trading Internationally. This may be caused by Protectionist Policies or Embargoes in unfair Use |
| What is a Tariff? | -They impose a Tax on certain Imports. It can be a Fixed Amount of Ad Valorem (Percentage) |
| Showing a Domestic Supply and Domestic Demand Diagram, how can a Tariff lead to more Domestic Supply and Less Domestic Demand? | -The Price, with a Tariff, will be raised
-This leads to a Contraction in Domestic Demand, and thus a Consumer Surplus being reduced too
-But the Domestic Supply will Increase, and thus Producer Surplus will Expand too
-Governments get Tax Revenue of Rectangle with Width being Difference in Quantity Demanded and Supplied and Length being Difference in Price with Tariff and Price without Tariff |
| Why may Protectionism not be the Greatest Policy? | -If you Restrict Imports, you risk Reducing Specialisation and Divert Resources away from their most Efficient Use. This affects Allocative and Productive Efficiency
-Prices will usually be higher for Consumers and Producers, due to a lack of Specialisation and Competition.
-Big Impact on the poorest of Society, potentially leading to Increases in Inequality
-Once Trade Barriers are set up, can be hard to Remove them. May have led to a Dependence on the Barriers
-Trade Barriers may also lead to Trade War and reduce overall World Trade and Exacerbate the other problems mentioned |
| What is a Trading Bloc? | -Refers to Associations between National Governments that Promotes and manage trade
-Members make Agreements to Remove or Reduce Protectionist Policies n |
| What is a
1. Bilateral Agreement
2. Multilateral Agreement | 1. Agreements between 2 Nations or Trading Blocs. Such as the EU and another Nation
2. Agreements between more than 2 Nations, or Trading Blocs |
| What is a Free Trade Area? | -Type of Trading Bloc.
-All Barriers to Trade are Removed between Members. Individual Members can set their Barriers on Outside Nations. The USMCA is an Example |
| What is a Customs Unions? | -Type of Trading Bloc
-Free Trade Areas which also have Standard Tariffs imposed on Non-Members, such as Mercosur (South American Nations) |
| What is a Common Market? (Single Market too) | -Type of Trading Bloc
-Custom Unions that add to the Free Movement of Factors of Production between Member States. An Example can be the Single European Market (SEM) |
| What is a Economic Union and Monetary Union? | -Type of Trading Blocs
-Where the Trading Bloc has their Economies more Integrated via similar Economic Policies, Regulations, and Rules. The EU can be an Example
-Monetary union is where Members will implement a Single, Common Currency and share the same Monetary Policy and Central Bank. The Eurozone |
| What is Trade Creation? | -This refers to the Economic Benefits that come about when Nations replace Higher Cost Domestic Production with Lower Cost Imports from Trading Partners due to the Removal of Trade Barriers, or a Trade Agreement |
| How can Trading Blocs help lead to Trade Creation? | -Assume there are 2 Nations: Countries A and B. B is the most Efficient Producer of Tea
-A is part of a Customs Union that imposes a Tariff on Importing Tea. The Price of Tea in A is P1 which is the Price of Tea that B Exports for + Tariff
-If B joins Custom Union, the Tariff will be removed and the Price will fall. Consumption Rises and Domestic Producer.
-A is now importing more Tea from the Most Effieicny Producer. Hence, trade has been Created.
-The government does lose taxation, but Consumer Surplus does Increase. The Overall gain for the Nation is just more Consumer Surplus |
| What is Trade Diversion? | -Refers to when a Preferential Trade Agreement leads to a Substitution of Imports from a more efficient Non-Member Nation with Imports from a Less Efficiency Nation
-Diversion can occur due to Tariffs or quotas being introduced that favour Member Nations, which can disrupt the Flow of Trade. |
| How may Trading Blocs lead to Trade Diversion? | -3 Nations: C, D and E. D is most Efficient at making Pens
-C isn't part of any Trade Agreement and introduced a Tariff on Importing Pens. D is willing to supply Pens at a Price of P1.
-C Joins a Custom Union and the Tariff on Importing Pens from other Members is Removed. Country E also is here and supplies Pens at P2, which is more expensive (when removing the Tariff on D's Pens)
-C switches from Importing Pens from D to E, and so, Trade has been Diverted away from the most efficient producer of Pens
-Still, there is a consumer Surplus but a loss of Government Revenue |
| How has the EU's Common Agricultural Policy (CAP) cause Disputes between the EU and other Nations? What can it say about Developing Nations impact from WTO and Trading Blocs? | -Sometimes, Trading Blocs limit the Development of Nations that aren't Members and can not trade on Equal Terms
-The CAP used Measures like Subsidies, and Import Restrictions on goods outside the EU to allow a Minimum Price for Agriculture Products
-When the Stock had built up, the Government would sell them at Low Prices outside the EU. This harmed Farmers outside the EU who couldn't compete with such Prices
-The EU has reformed the CAP, and Prices have moved closer to the Market Price, but policies Remain |
| Overall, do WTO and Trading Blocs prevent Development in Developing Nations? | -Developing Nations may be not allowed to Protect Infant Firms due to WTO Policies. This can make it hard for Nations to diversify from agriculture and essential Development. May even Prevent Worldwide Improvements in Efficiency due to a lack of Specialisation
-Free Trade however has allowed China, India, Vietnam, South Korea, Brazil, Bangladesh, and more to Rapidly Develop. It depends really on more than just Free Trade |
