Cambridge International as and a level Economics Ebook

Free trade areas
In this type of trade bloc, the governments of the member 
countries agree to remove trade restrictions between each 
other. Th
e members are allowed to determine their own 
external trade policies towards non-members. An example of a 
free trade area
is the North American Free Trade Agreement 
(NAFTA). Th
is consists of the USA, Canada and Mexico.
Customs unions
Customs unions
go a stage further in terms of economic 
integration than free trade unions. As well as removing 
trade restrictions between members, members of a 
customs union agree to impose a common external tariff
SELF-ASSESSMENT TASK 
4.10
Canada’s changing current account position
Canada’s international trade is mainly with its neighbour, 
the USA – 72% of Canada’s exports are sold to the USA 
and the country buys 58% of its imports from the USA.
Canada is a member of a trade bloc, NAFTA. Denmark is 
also a member of a trade bloc, the European Union. 
Denmark’s international trade is less reliant on 
one country. Germany is its main source of imports 
(supplying 17%) and the main destination of its exports 
(buying 20%).
Read the feature below and answer the questions that follow.
1 
Explain one advantage and one disadvantage of 
trading mainly with one country.
2
Identify one diff erence between a free trade area, such 
as NAFTA, and an economic union, such as the EU.
3
Compare the changes in Canada’s and Denmark’s 
current account positions over the period shown.
Year
Canada’s current 
account position 
US$bn
Canada’s current 
account position as 
% of GDP
Denmark’s current 
account position