3.1.3 Trading blocs Flashcards
What is a trading bloc?
A formal agreement between a group of countries who trade with each other.
Different types of trading bloc include: free trade area, preferential, common markets, customs union and economic unions.
What is the EU?
The EU is an example of a customs union where the countries within the european union share a common external tariff when trading between countries outside the bloc. EU is a large trading bloc with many countries and so the fast growth of the customs union has attracted many countries over time. Advantage as forces them to be more competitive and efficient reducing average costs.
What is the ASEAN?
The association of the south east asian nations is another form of trading bloc. ASEAN is a fast pace growing economy/trading bloc with China being its number one trading partner. Seeing a huge inflow of capital as MNC’s look to diversify their investmerns away from China as its costs of production is rising. Also with economies such as Singapore in the bloc, low income developing countries such as brunei will benefit and see greater inflows and FDI’s from advanced countries. Singapore are ranked the no.2 country for highest GDP per capita (real at PPP).
What is NAFTA?
Free trade agreement between north america, mexico and canada. About 25% of all imported goods by the USA come from Mexico and Canada. The main aim was for it to be cheaper to do business in Mexico and Canada for the USA.
Trading blocs impacts on frims?
Since firms are competing in more competitive markets, it forces them to be more competitive and efficinet helping to reduce their avergae costs and operate closer towards the MES. Customs unions and common markets which focus on the movement of FoP such as labour and capital helped reduce labour shortages. Also they can take advantage of economies of scale through specialisation and supplying to thrse larger markets such as the EU taking exploiting their comparitave advantage over the more advanced high wage economies.
What has trading blocs led to?
Increased interdependecen between countries. In a way can be seen as a negative for example Greece and the credit crunch /Greek debt crisis after the global recession which heavily impacted the euro affecting the whole SEM (single euriopean market) devaluing it. Was a result of the greek governemnts austerity policies at the time.
