Trade institutions Notes

How Do Trade Institutions Set The Rules Of Global Exchange?

1. Trade institutions typically aim to:
   1. reduce uncertainty (clear rules for tariffs, standards, and border checks)
   2. lower transaction costs (faster customs procedures, fewer documents, fewer inspections)
   3. create trust between countries (agreed procedures for negotiations and disputes)
   4. balance competing goals (economic growth, protecting jobs, national security, environmental and social concerns)

What Are Some Barriers To Trade And Why Do They Exist?

1. To understand trade institutions, you need to understand what they often try to change: trade barriers.
2. A trade barrier is anything that makes cross-border trade harder or more expensive. Barriers can be:
   1. Tariffs: taxes on imported goods
   2. Quotas: limits on how much can be imported
   3. Regulations and standards: rules about safety, labeling, or product requirements (these can be necessary, but can also be used to restrict trade)
   4. Administrative barriers: slow customs procedures, complex paperwork
3. Protectionism may be justified using arguments like:
   1. Protecting "infant industries"
   2. Safeguarding national security
   3. Responding to unfair competition.
4. However, it can also raise consumer prices, reduce choice, provoke retaliation and create severe tension between countries
   1. During the Great Depression in the 1930s, widespread protectionism is often linked by historians to worsening international relations before the Second World War.

How Do Trade Agreements Create Different Levels Of Integration?

1. Countries form trade agreements to manage trade relationships.
2. These agreements can be limited (reducing barriers on specific goods) or deep (coordinating many areas of economic policy).

Why Do Preferential Trade Agreements Reduce Barriers For Selected Goods?

1. PTAs are limited by design.
2. They might apply only to certain products (for example, agricultural goods), or only to certain types of tariffs.
3. This makes them politically easier to negotiate, but their economic impact may be smaller than deeper agreements.

How Do Free Trade Areas Remove Internal Barriers While Keeping External Independence?

1. A free trade area (FTA) goes further.
2. Member states promise to remove barriers to trade in goods and services between participating countries.
3. A key feature from the source is that membership in an FTA is not necessarily restrictive in external relations: countries can still negotiate separately with non-members and can set different barriers toward different outside countries.

How Do Customs Unions Add A Common External Trade Policy?

1. A customs union builds on an FTA by requiring members to adopt the same trade policy toward non-members.
2. This is a major institutional shift: member states give up some independence in trade policy. If the bloc decides to place a barrier against a non-member, all members must apply it.
   1. It promotes free trade inside the bloc.
   2. It may be seen as less supportive of free trade with the outside world, because the bloc can act as a single protectionist unit.
   3. It also creates a practical advantage for non-members: negotiating with one bloc can be easier than negotiating separate agreements with each member country.

How Do Common Markets Enable Movement Of People And Services Across Borders?

1. A common market includes the features of an FTA and a customs union, and adds freer movement across borders.
   1. fewer border controls (often reduced passport checks within the bloc)
   2. trucks and goods vehicles can cross borders more freely
   3. workers and students can live, work, or study in other member countries with fewer visa restrictions
   4. costs for businesses can be significantly reduced

Why Do Monetary Unions Share A Currency And Require Deeper Coordination?

1. Some regions integrate further into a monetary union, where member countries share a common currency and coordinate monetary policy.
2. A shared currency can reduce exchange rate uncertainty and lower transaction costs for trade.
3. However, it also reduces national control over interest rates and other monetary tools, which can be challenging when countries experience different economic conditions.

In What Ways Do Trade Institutions Influence Fairness, Power, And Conflict?

1. Bargaining power matters: larger economies or strategically important markets may influence the rules more.
2. Distribution matters: even if trade increases overall wealth, the benefits may be uneven across regions and social groups.
3. Retaliation and escalation are risks: tariffs can trigger counter-tariffs and political conflict.