3.1. Trade flows and trading patterns

Question 1

Define trade

Answer 1

refers to the exchange of goods and services for money

Question 2

Define visible trade

Answer 2

involves items that have a physical existence and is tangible

Question 3

Define invisible trade

Answer 3

trade in services which include travel, tourism, business and financial services

Question 4

Define balance of trade

Answer 4

the difference between the value of country’s exports and imports

Question 5

Define trade deficit

Answer 5

when the value of the country’s imports exceeds the value of its exports

Question 6

Define trade surplus

Answer 6

when the value of the country’s exports exceeds the value of its imports

Question 7

Factors affecting the balance of trade

Answer 7

• Prices of goods manufactured in the domestic markett
• Exchange rates
• Trade agreements/barriers/ trade blocs
• Other tax, tariff and trade measures such as quotas

Question 8

Factors affecting global trade

Answer 8

• Resource endowment
• Comparative advantage
• Locational advanatage
• Investment
• Historical factors
• Terms of trade
• Changes in the global market
• Trade agreements
• Protectionism

Question 9

Resource endowment (2)

( các nguồn cấp vốn)

Answer 9

1. For example, Middle East, Venezuela and Nigeria dominate the export of oil => form OPEC (Organisaton of Petroleum Exporting Countries) to coordinate and unify the petroleum policies and ensure the stabilisation of oil markets
2. Criticised for the allegedly political nature of some decisions - wanting to put pressure on USA and other Western countries

Question 10

Comparitive advantage (1)

Answer 10

Each country will specialise in producing certain goods and services => then trade a proportion of these goods and services with other nations to obtain goods and services that it needs but for which it is not favourably endowed

Question 11

Locational advantage (4)

Answer 11

1. Location of market demand influences trade patterns
2. Advantageous for an exporting country to be close to markets for its products since it reduces transport costs
3. e.g. France benefits from large populations of neighbouring countries that can reach France quickly and cheaply
4. Some countries and cities are strategically located along important trade routes. e.g. Rotterdam located near the mouth of river Rhine

Question 12

Investment (3)

Answer 12

1. FDI
2. China, Brazil, India and Mexico have increased their trade-to-GDP ratios
3. On the other hand, 2 billion people live in countries that have becomess less rather than more globalised as trade has fallen in relation to national income (mainly African nations)

Question 13

Historical factors (3)

Answer 13

1. Often based on colonial ties
2. e.g. UK still maintains significant trading links with Commonwealth
3. Colonies play a subordinate (cấp dưới) role which brought them very limited benefits due to trade dependency

Question 14

The terms of trade (2)

Answer 14

1. If countries rely on the export of stock that are low in price and need to import expensive items, they need to export large quantities
2. Primary products are generally low and subject to considerable variation making economic and social planning difficult

Question 15

Changes in the global market (3)

Answer 15

1. Rapid growth of NICs and the Pacific Rim countries brought about major changes
2. Developed world grew by an average 2.1%/ year, the emerging markets (BRICS) expanded by 4.2%
3. In 1990, MEDCs controlled about 64% of global economy as measured by GDP which fell to 52% in 2009

Question 16

Trade agreements/trade blocs (4)

Answer 16

1. Trade blocs = where several countries group together for the purpose of trying to increase the volume and value of their trade.
2. They create trade barriers for non group countries
3. These barriers are to protect the industry within the group but also mean of LEDCs find it even harder to sell products in the world market => form trade and development gap between MEDCs and LEDCs
4. 4 types of trade blocs:
   
   1. Free trade areas
   2. Custom unions
   3. Common markets
   4. Economic union

Question 17

Define Free Trade Areas

Answer 17

members abolish trade barriers but independently restrict imports from outside country. e.g. NAFTA

Question 18

Define Customs unions

Answer 18

free trade between members exist but a common restriction on imports from outside countries are maintained. e.g. Mercosur

Question 19

Define Common markets

Answer 19

Same as customs unions, however, also allow the free movement of labour and capital

Question 20

Define Economic union

Answer 20

Same characteristics as common market but also require members to adopt common economic policies. e.g. EU

Question 21

3 Facts about regional trade agreements

Answer 21

1. In 1990, there were < 25, by 1998 there were > 90
2. Most notable are the EU, NAFTA, ASEAN and Mercosur
3. One common characteristic is that all arrangements, the preferential terms (điều kiện ưu đãi) that trade participants enjoy more than non-participating countries

Question 22

3 Concerns about regional trade agreements

Answer 22

1. Can divert trade (chuyển hướng thương mại) , cause a country to import from a memeber of its trading bloc (khối thương mại) rather than cheaper supply
2. Raise barriers, creating protectionist blocks
3. Regional trade rules may complicate the establishment of new global regulations

Question 23

5 facts about EU and bilateral trade (thương mại song phương) agreement with ACP banana growers

Answer 23

1. Trade agreement provided a 775k tonne tariff-free quota for ACP bananas
2. UK, France have close political, historic and economic ties with countries in ACP (Africa, Carribean and the Pacific) which depend heavily on banana exports
3. Latin American countries complained these arrangements were unfair, should have the same access to EU market as ACP
4. Growing conditions in Latin American countries are more favourable => larger scale of production (with large plantations owned by US TNCs) => low costs => free trade means = unfair competition for ACP
5. 2007 - WTO said that this agreement violated (vi phạm) global trade rules, giving unfair advantage to ACP

Question 24

What is the WTO?

Answer 24

• It is the only global international organization dealing with the rules of trade between nations.
• At its heart are the WTO agreements, negotiated and signed by the majority of the world’s trading nations and ratified (phê chuẩn) in their parliaments (Quốc hội)
• The goal is to help producers, exporters, and importers control their business.

Question 25

4 Goals of the WTO

Answer 25

1. Set up free trade across the world
2. To make trade fairer
3. Expand all trading to all members
4. To make trade more competitive

Question 26

10 Benefits of the WTO

Answer 26

1. The system helps promote peace
2. Disputes are handled constructively
3. Rules make life easier for all
4. Freer trade cuts the costs of living
5. Provides more choice of products and qualities
6. Trade raises incomes
7. Trade stimulates economic growth
8. The basic principles make life more efficient
9. Governments are shielded from lobbying
10. The system encourages good government

Question 27

Out line The role of WTO (dài vcl)

Answer 27

The role of the WTO is to supervise world trade and to liberalise it to promote economic growth. This it does for the 153 member countries (2008). WTO deals with the rules of trade between nations. Responsible for negoitating and implementing new trade agreements and for policing member countries’ aherence to exisiting ones. Has 6 objectives.

1. Free trade
2. Non- Discimination
3. Negotiations to ensure free trade
4. Predictability
5. Fair competition
6. Development

Furthermore, in order to keep interest of countries in the group. WTO also provide 8 benefits for fellow countries.

1. Helps promote peace
2. Disputes are handles constructively
3. Rules make life easier for all
4. Provide more choice of product & higher quality
5. Trade raises income
6. Stimulate economic growth
7. Government are protected from lobbying
8. System encourage good goverment

​( xem qua essay 15đ)

Question 28

How does fair trade operate? (4)

Answer 28

1. Small-scale group producers come together to form a co-operative or other democratically run association with high social and environmental standards
2. These co-operatives deal directly with companies, cutting out middlemen
3. MEDCs (through their customers) pay significantly higher the world market price for the products traded. Price difference can be as large as 100%
4. The higher price achieved by LEDC co-operatives provides both a better standard of living and reinvest in farms of producers

Question 29

What is fair trade? (2)

Answer 29

1. A social movement whose stated goal is to help producers in LEDCs achieve better trading conditions and to promote sustainability.
2. Members of the movement agree pay higher prices to exporters, as well as improved social and environmental standards

Dịch: Các thành viên của phong trào ủng hộ việc trả giá cao hơn để xuất khẩu, cũng như cải thiện các tiêu chuẩn xã hội và môi trường.

Question 30

2 Facts about fair trade

Answer 30

• System first implemented in the 1960s where the Dutch consumers support Nicaraguan farmers.
• Now a global market worth 315million pounds/year, involving 400 MEDC companies and an estimated 500 000 small farmers in the poorest countries

Question 31

Examples of fair trade (5)

Answer 31

1. 1993 - group of farmers in Ghana formed a co-operative called Kuapa Kokoo Farmers to sell their own cocoa. Supported by SNV, a Dutch NGO, and the UK department for international development
2. Consists of 2 main sub-departments:
3. Kuapa Kokoo Farmer’s Union: made up of 45 000 cocoa farmers who elect representatives
4. Kuapa Kokoo Farmer’s Trust: responsible for distributing money for community projects generated from Fairtrade Premium. e.g. clean water, mobile health clinics, sanitation and schools
5. In 2008, sold 4250 tonnes of cocoa. Received a guaranteed price => even if world price says $1000/tonne, Fairtrade guarantees $1600/tonne