3.3.2 Trading blocs

Question 1

Main reasons for trading blocs

Answer 1

1) Improve peace and security and reduce conflict. E.g. EU and the Association of South East Asian Nations (ASEAN) decided to ban nuclear weapons.

2) To increase global trade and cooperation on trade issues by reducing berries. E.g. EU and NAFTA.

3) To help other members develop their economic standards of living. E.g. NAFTA (Mexico) or UN (disease epidemics).

Question 2

What was the main reason the EU(‘s predecessor) was set up in 1957?

Answer 2

Integration between European countries meant conflict became less likely.

Question 3

Advantages of trading blocs

Answer 3

• Allows freedom of movement of trade
• Bigger representation in world affairs
• To be able to compete on a global level. E.g. Smaller countries can get together to stop exploitation by larger countries.
• Allow workers to move more freely
• Common currency will reduce fluctuations and simplifying transactions
• To support particular sectors. E.g. Agriculture in the EU
• Share technological advances
• Remote or declining industrial regions can gain financial support from the bloc. E.g. EU regional fund support in South Italy.
• Raise standards in education and healthcare across the region improving quality of life.
• To spread democracy and human rights.

Question 4

Organisation of Petroleum Exporting Countries (OPEC)

Answer 4

Consists of 11 states who supply 40% of the world’s oil, they try to regulate the global oil market to ensure a fair price.

Question 5

G8

Answer 5

A small group of countries who represent 65% of the world’s trade and meet annually to discuss economic development.

Question 6

G20

Answer 6

A larger group of countries who meet annually to discuss economic development but also includes representatives from the IMF and World Bank.

Question 7

EU

Answer 7

An economic and political union which dates back to 1957 when the Treaty of Rome created the common market.

Question 8

North America Free Trade Agreement (NAFTA)

Answer 8

Signed by the USA, Canada and Mexico. In 1994 whose aim was to eliminate trade barriers between the 3 nations.

Question 9

What is the Schengen Convention?

Answer 9

• The Schengen Convention allows EU citizens to cross national borders without visa or passports checks. This allowed freedom of movement of people.

Question 10

When did the EU start?

Answer 10

Starts in 1951 by the Treaty of Paris and is still ongoing. Over time it has morphed from being focused on economics, to be more socially and politically focused.

Question 11

What were the biggest reasons given by Brexiteers as to why they voted leave?

Answer 11

• Freedom of movement, making it harder to control immigration.
• Power over the UK.
  o EU parliament making laws that affect the UK.
  o E.g. EU courts (ECtHR and ECJ) have precedent over UK courts system. E.g. Rwanda

Question 12

EU timeline

Answer 12

Question 13

Economic advantages of trading blocs

Answer 13

• Trade blocs protect the area’s economy from competition.
  Free trade within the bloc – countries know that they have free access to each other’s markets, so they can specialise.
• Market access and trade creation – trade is likely to increase as countries have access to each other’s markets. These imports often have a lower cost because of specialisation, so there is an increase in consumption, with increased demand resulting from lower prices.
• Economies of scale – goods can be produced cheaper as countries can club together and benefit from economies of scale (buying in bulk, mass production, etc.)
• Jobs may be created as a consequence of increased trade between member economies. 3 million jobs are said to be directly related to the EU in 2011.
• Weaker disadvantaged peripheral regions can be supported by the stronger areas, as they are in Europe.

Question 14

Economic disadvantages of trading blocs

Answer 14

• The benefits of global free trade can be lost as countries concentrate trade within their trade area or bloc.
• Inefficient producers within the bloc can be protected from more efficient ones outside the bloc. For example, inefficient European farmers may be protected from low-cost imports from developing countries because of the advantages of the CAP system of support for EU farmers.
• Trade wars – Trading blocs can lead to trade disputes where trading blocs argue with another. E.g. EU and NAFTA with the recent Boeing(US)/Airbus(EU) dispute.
• Non-member countries of the trade bloc will be ostracised (frozen out) since trade blocs are created to help only their member countries.
• Trading blocs cost money – the EU cost £960bn from 2014 to 2020. This money comes from taxation in member states.
• Loss of financial controls to a central authority such as a bank. E.g. European Central Bank (ECB)

Question 15

Social advantages of trading blocs

Answer 15

• Within social and political unions people are often free to live and work in the country of their choice within the union. This is the case within the EU, meaning workers have more choice.
• Living standards go up as trade prospers.

Question 16

Social disadvantages of trading blocs

Answer 16

• With relaxed borders it is easier for illegal immigrants to move around within the bloc, creating political issues and affecting security.
• Legislation can limit workers as well as protecting them – e.g. people might want to work more hours than stipulated in the Working Time Directive.

Question 17

Political advantages of trading blocs

Answer 17

• The incentives of trade and political cooperation help to reduce the chances of violent conflict.
• Giving individual countries greater political influence when dealing with other nations – the EU has lots of voting power in other institutions for example.
• The benefits of democracy can be reinforced by the bloc – the EU has its own Parliament and everyone with the right to vote can vote.

Question 18

Political disadvantages of trading blocs

Answer 18

• Trading blocs add another layer of government which costs money and add complications for countries making their own decisions. The European High Court can overrule decisions made in British courts for example.
• Loss of sovereignty with centralised decisions. Some smaller regions dislike big government, leading to increased separatism. E.g. Scottish Independence or Catalonia.

Question 19

Environmental advantages of trading blocs

Answer 19

• Trading blocs can set high environmental standards – such as the EU’s regulations on waste and carbon emissions.

Question 20

Environmental disadvantages of trading blocs

Answer 20

• Trading blocs increase food miles as the cheapest product within the bloc will be the most traded. E.g. “Scottish” smoked salmon that was raised in Scotland, processed in Poland then shipped back to the UK for sale 10 miles away from the Scottish border.
• Having to share resources may damage economic sectors. E.g. Sharing traditional fishing grounds and fishing quotas.

Question 21

Inequality within the EU

Answer 21

There are high levels of inequality within the EU. The Core regions of Western Europe (France, Germany, Italy, Belgium, etc.) are better-off, with higher GDP that peripheral regions.

Question 22

Core countries of the EU

Answer 22

• France
• Germany
• Italy
• Belgium
• Luxembourg
• Netherlands

Question 23

Where is the lowest GDP in the EU?

Answer 23

The peripheral regions. E.g. Poland, Bulgaria, Romania

Question 24

How the EU helped to reduce different levels of development?

(What are the three policies?)

Answer 24

• Common Agricultural Policy (CAP)
• European Investment Bank
• Urban II Fund

Question 25

Common Agricultural Policy (CAP)

Answer 25

A system of subsidies or money paid to farmers.
- Introduced in 1962

Question 26

Goals of the CAP

Answer 26

• Guarantee and maintain agricultural employment and wages
• Guarantee food production
• Stabilise food prices

Question 27

Disadvantage of the CAP

Answer 27

It consumes a huge amount of the EU’s budget without contributing much to the economy.
- Was 71% of the EU budget in 1984 to 27% in 2019.

It also causes the over production of goods and has a damaging environmental impact.

Question 28

European Investment Bank

Answer 28

Bank of the European Union (EU) that provides finance and expertise for sustainable investment projects in Europe and Beyond.

It has invested €9 billion into innovation up to 2012 and promised an extra €60 billion between 2013-2015.
They invested in 200,000 Small and Medium Enterprises across the EU in 2012.

It tries to support EU policy objectives. It is the largest multilateral lender/borrower in the world.

Question 29

Urban II Fund

Answer 29

A strategy used to combat social and economic issues facing urban areas.

Question 30

Projects in Newcastle supported by the EU

Answer 30

1) Newcastle Enterprise Package - A programme to get new business started in Newcastle. It had a £3m budget from the EU to support the development, growth and sustainability of enterprise throughout Newcastle.
2) The Toffee Factory – A creative workspace in the Ouseburn Valley, funded by the local council and EU.
3) The Beacon (Centre West and Groundwork)
4) Gateshead Millennium Bridge

Question 31

Who funds the Urban II Fund?

Answer 31

EU Member States and the Commission.

Question 32

Who owns the European Investment Bank?

Answer 32

EU member states as shareholders.

Question 33

EU timeline

Answer 33

Summary:
- The Schengen Convention allows EU citizens to cross national borders without visa or passports checks. This allowed freedom of movement of people.

• Starts in 1951 by the Treaty of Paris and is still ongoing. Over time it has morphed from being focused on economics, to be more socially and politically focused.

Question 34

Main reasons given by Brexiteers as to why they voted leave

Answer 34

Freedom of movement, making it harder to control immigration.

Power over the UK:
- EU parliament making laws that affect the UK.
- E.g. EU courts (ECtHR and ECJ) have precedent over UK courts system. E.g. Rwanda

Question 35

What are trading blocs?

Answer 35

Agreements between different governments that promote and manage trade.

Trade blocs remove trade barriers between their members, while keeping common barriers to countries who aren’t part of the bloc.

Question 36

How are trading blocs located?

Answer 36

Many trading blocs are regional. They make it easier for counties to trade with their neighbours.
- For example, in 2016, German exports to other EU counties were €708 billion, compared to €501 billion to countries outside the EU.

Other trading blocs are based around specific industries.
- For example, some of the main oil-exporting countries (e.g. Saudi Arabia) are members of the Organisation of Petroleum Exporting Countries (OPEC), which aims to standardise prices to prevent countries undercutting one another with cheaper prices.

Question 37

How do trading relationships change depending on the countries involved?

Answer 37

Most trade in the world takes place between developed countries - in 2013, imports and exports between the US and EU accounted for over 30% of global products trade.

Less developed countries trade mainly with emerging economies and developed countries. E.g. Bangladesh mainly exports to the US and EU and imports from China and India, rather than from less developed countries.

Emerging economies like China and India are increasingly important to global trade. China’s manufacturing sector has grown rapidly, and a highly educated population has grown India’s service sector.

Question 38

Access to Markets

Answer 38

Access to markets is about how easy it is for countries and companies to trade with one another.

Question 39

What is international access to markets determined by?

Answer 39

• The extent of export and import barriers between two countries.
• Wealth - developed countries often put higher tariffs on goods imported from less developed countries — this makes it harder for less developed countries to access the market.
• Membership of a trading bloc - member countries have access to the markets of all the other member countries. Trade blocs of developed countries have access to lots of wealthy buyers. However, less developed countries outside the trade bloc may have to pay high tariffs to export their goods to those markets. This puts less developed countries at a disadvantage.

Question 40

What are the economic impacts of differential access to markets?

Answer 40

1) It’s hard for countries with poor market access to establish new industries — they face high tariffs when they try to sell abroad, making their products uncompetitive, and they may be undercut in their
domestic markets by TNCs producing similar products more cheaply.

2) This makes them dependent on selling low-value primary products (e.g. agricultural goods) that tend to fluctuate in price, so countries with poor market access often have low Gross National Income (GNI). This means that they have less money to invest in industry, so their economic development is slow.

3) Countries with high levels of market access tend to see more economic growth because they can trade more. This means that their citizens are wealthier, they can afford to import a range of products and they can develop high-tech industries which boost their economy further.

Question 41

What are the social impacts of differential access to markets?

Answer 41

1) People in countries with better market access tend to have higher-paid jobs. This gives them more disposable income, which increases their standard of living.

2) Countries with less market access have less money available for education and healthcare etc., so quality of life is generally lower. Better access to education in developed countries has created better access to jobs for women and ethnic minorities, giving them more power to shape their own lives and societies.

3) Much dangerous, poorly paid work has moved from developed countries to less developed countries. E.g. sweatshops are crowded, dangerous factories, whose workers are paid little and work long hours.

Question 42

The effects of trade on people

Answer 42

• Trade and high levels of market access also mean that a wide range of goods are available in developed countries. This further increases people’s standard of living.
• Trade also creates more interdependence between counties – if something goes wrong, other counties are affected. For example, the financial crisis in 2008 increased rates of unemployment in many counties. – Kenyan flower growers.