1.3 - Trade Blocks Flashcards
What are some examples of Trade Blocks around the world?
NAFTA, EU, CARICOM, MERCOSUR, ASEAN
What is FDI?
Ownership of a business in one country that is based in another, making it legal for foreigners to own and control businesses and property in another country
What is an example of inorganic FDI?
Kraft Foods buying Cadburys (can sometimes lose jobs)
What is an example of organic FDI?
Expanding operations into a new country - Nissan into Sunderland (can create jobs and sustain a much larger supply chain)
How is TNC growth encouraged?
Free market liberalisation - Reagan and Thatcher in 1980s believed governments prevented economic development and this led to the trickle down effect, which led to London becoming a financial hub
How are free trade blocks growing?
Encouraged by removal of tariffs as this causes market growth
What is an example of a company growing due to free trade blocks?
Tesco gained 75 million more customers in 2004 when 10 new countries were introduced to the EU
Why doesn’t everyone want FDI?
- imports can threaten industries
- migrants can change cultural diversity so countries protect themselves from FDI
How does NAFTA allow the USA and Mexico to work together?
Mexico provides cheap labour in the Maquiladoras and the USA take advantage of this as it is a large consuming nation
Why do countries want FDI?
Capital / money is coming into the country
If capital and money are coming into a country, what does this create?
- Employment, income and both taxes revenues and spending power in a society
- FDI might also build infrastructure that other British companies might benefit from
Why can FDI be a threat to other companies?
More competition for companies already in the UK - have to find more efficient ways to produce their goods and might mean finding new tech that others can benefit from
What are different types of FDI?
Offshoring, foreign mergers, foreign acquisitions and transfer pricing
What is offshoring?
TNCs building their production facilities in ‘offshore’ low wage economies
What are foreign mergers
Two firms in different countries join forces to create a single entity
e.g. Shell has HQs in the UK and the Netherlands
What are foreign acquisitions?
When a TNC launches a takeover of a company in another company
e.g. UK’s Cadbury taken over by US’s Kraft
What is transfer pricing?
Some TNCs, such as Starbucks and Amazon, have sometimes channeled profits through a subsidiary company in a low tax country such as Ireland. The OECD is now attempting to limit this practice.
What is a SEZ?
- Special Economic Zone
- area in which trade laws are different from the rest of the country to increase investment and attract FDI
- China, India, Indonesia - changed attitudes and have embraced SEZ’s
- World Bank helped fund infrastructure
When did Indonesia open its markets and who did it become an offshore location for?
1960s and for GAP and Levis
What is the EU?
- world’s largest trade block
- multi-governmental organisation with its own currency (Euro)
- introduced the capital of culture award
- member states have freedom of movement
What does Common Agricultural Policy in the EU ensure?
With shared legislation , countries become eligible for funds including farming subsidies under CAP
What is ASEAN?
- The Association of SE Asian Nations
- 10 member states with a total 6 million people
- promoted free trade and helped develop manufacturing and created jobs such as the call centre workers in the Philippines
What does privatisation allow?
- Allowing FDI to have stakes in privatised services and infrastructure
- encouraging business start ups through low taxes, changes in laws such as Sunday trading in 1994
What are some positives of a trade bloc?
- bigger market with no extra taxes
- countries can expand into other countries and source materials more cheaply within the trade bloc
- firms could merge together - creates economies of scale - lower costs, higher profits, more investment
- you protect yourself from other parts of the work e.g. cheap Chinese clothes can’t easily be imported once over the quota. This forces consumers to buy locally sourced goods - confrontation or political instability?
What are some negates of a trade bloc?
- lose some sovereignty e.g. human rights legislation is introduced, consumer protection, greenhouse gases etc
- countries depend on each other so economic problems in one country spreads to another
- have to compromise and concede - benefit from foreign markets and companies but have to compete with them too. Lower prices but some of your own companies could go out of business
