19/01/16
Lesson 1: Trading Blocs
Learning Objective: I can distinguish between bilateral and multilateral trade agreements
DA: List a trading bloc and explain/hypothesize the purpose.
Economic integration is a process whereby countries coordinate and link their economic policies.
- Increase in economic integration = decrease trade barriers between countries and fiscal/monetary policies more closely connected.
Bilateral trade agreement = Trade between two countries; reduce protectionism.
Multilateral trade agreement = Trade between multiple countries; reduce protectionism between multiple countries.
Trading Blocs: Group of countries that join together in some form of agreement in order to increase trade themselves and gain economic benefits. There are six stages of economic integration:
1. Preferential trading areas (PTA): Gives preferential access to certain products from certain countries; reducing but not eliminating tariffs.
- Ex: Between EU and the African, Caribbean, and Pacific Group of States (ACP).
- This is an agreement between the EU and 78 countries in the ACP. No surprise that the connection is a result of former colonization.
- Enables EU to guarantee raw materials and the ACP countries to gain tariff preferences. Raw materials from ACP and EU exports. Least developed countries most likely will opt for other arrangements to protect domestic industries.
2. Free trade areas: Agreement made between countries, trading freely among themselves, and are also able to trade outside the area.
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3. Customs unions: Agreement made between countries, trading freely within the union, and also agree to adopt common external barriers against any country attempting to import into the customs union. 4. Common markets: Custom unions with common policies on product regulation, and free movement of goods, services, capital, and labor.
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5. Economic and monetary union: Economic and monetary union is a common market with common currency and common bank.
- Ex: Eurozone, all countries use the euro currency and have the European Central Bank (ECB)
- Pros: Exchange rate fluctuations disappear, less speculation, improved business confidence, currency transaction costs eliminated.
- Cons: Interest rates are decided by the ECB. Therefore, eliminating a country's ability to apply monetary policy. lack of fiscal integration and my be exposed to fiscal irresponsibility from countries, thus threatening the stability of the union. not able to change currency, costs of switching currencies.
6. Complete economic integration: Individual countries involved would have no control of economic policy. this is what the Eurozone is moving towards.
Activity:
Klik her for at redigere.