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Trading blocs, the WTO and trade patterns
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Countries form groups to trade more freely. The WTO sets rules for world trade. Trade patterns differ between developed and developing countries.
Trading blocs
A trading bloc is a group of countries that agree to reduce or remove trade barriers between themselves.
Examples include the European Union (EU), ASEAN (South-East Asia), USMCA (USA, Mexico and Canada) and Mercosur (South America).
Members: tariff-free trade, bigger markets and more competition.
Non-members: may face tariffs, so their exports to the bloc are less competitive (trade may be diverted to members).
Examples include the European Union (EU), ASEAN (South-East Asia), USMCA (USA, Mexico and Canada) and Mercosur (South America).
Members: tariff-free trade, bigger markets and more competition.
Non-members: may face tariffs, so their exports to the bloc are less competitive (trade may be diverted to members).
The World Trade Organization
The WTO (set up in 1995) aims to promote free and fair trade.
It negotiates agreements to reduce trade barriers, sets rules for international trade and settles disputes between member countries.
It negotiates agreements to reduce trade barriers, sets rules for international trade and settles disputes between member countries.
Trade patterns
Developed countries export many manufactured goods and services, such as finance and technology.
Developing countries often rely more on exports of primary products (crops, minerals, oil), though many emerging economies now export large amounts of manufactured goods.
Trade between developing and emerging economies has been growing.
Developing countries often rely more on exports of primary products (crops, minerals, oil), though many emerging economies now export large amounts of manufactured goods.
Trade between developing and emerging economies has been growing.
A country outside a trading bloc faces tariffs on its exports to members. How might its exporters respond?
- Tariffs make their goods dearer inside the bloc.
- Producing inside the bloc avoids the tariff.
Answer: Set up production inside the bloc (FDI) or find other markets.
Trading blocs remove barriers between members, benefiting members but possibly harming non-members. The WTO negotiates agreements, sets rules and settles disputes. Developed countries export more manufactures and services; developing countries rely more on primary products.
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