trading blocs, monetary unions and free trade agreements

Trade agreements

• Free trade agreements (or trade agreements) are :: formal agreements between countries designed to break down barriers to trade between those nations.
• types of trade agreements:
  • bilateral : when between two countries
    • e.g. Closer Economic Relations Trade Agreement (CERTA) (AUS & NZ)
  • multilateral : when between three or more countries
    • a.k.a. regional when established under the premise of geographical location
      • e.g. Trans-pacific partnership
      • e.g. The European Union (EU) - regional
  • Global agreement :
    • The WTO
• can cause trade diversion
• trade diversion is where :: a countries imports switch from the most efficient producer to a less efficient producer whom they have a trade agreement with

Trading blocs

• A trade bloc occurs when :: a number of countries join together in a formal preferential trading arrangement, to the exclusion of other countries
  • such as the European Union (EU)
  • United States-Mexico-Canada Agreement (USMCA)

Monetary unions

• Monetary unions are formed when :: groups of countries share a common currency and monetary policy.
  • This creates an increasingly integrated regional market, boosting financial efficiencies.