4.1.5 Trade blocs Flashcards
trade bloc
groups of countries from different regions
come together to form agreement = flow of free trade
protected from imports by non member countries
-usually groups of countries in specific regions that manage and promote trade activities
4 reasons why have trade blocs?
1-reduce barriers e.g tariff
2-control/regulate trade e.g. prevent over-dominance
3-ethical trade (prevent exploitation)
4-free trade = lower price, increase export potential, higher growth and EOS
5 positives of trade blocs
positives : 1-beneficial pressures of competition 2-degree of protection from tough world, 3-specialisation = benefits of EOS 4-smaller countries greater say global trade agreements 5-good relationships
types of trade blocs
- free trade area e.g ASEAN, NAFTA
- customs union
- single market e.g. EU
single market
example of free trade area
no tariffs, common external tariffs, freedom of movement of goods/people, common rules/regulations
maintain of expansion through movement of labour = mass produce and skilled workers
- EU = level playing field- demanded by employers unifying rules/regulation
e. g. health/safety/environment goals
free trade area
no tariffs between members or external tariffs (checks origin country) negotiate own trade deals
agree eliminate/minimal trade barriers
participating nations = rules for area to operate, decide if tariffs in places/or other rules e.g. how to resolve trade disputes
e.g. NAFTA , EU African continental free trade area
pros and cons of free trade areas
pros:
1-less gov spending = eco growth, less on tariffs
2-dynamic & competitive = innovation- local business less reliant on gov subsidies
3-FDI & investors = boost domestic businesses
cons:
1-increase job outsourcing - less tariffs= MNCs produce cheaper countries = poor working conditions
2-degradation of natural resources
3-reduced tax revenue smaller countries struggle to replace revenue lost from import tariffs and fees
customs union (& adv and dis)
no tariffs& no border checks, common external tariff, trade deal for whole customs union
type of free trade agreement,
e.g.EU, Caribbean community, Eurasian customs union
adv: trade increase in members, reduce trade deflection
dis: trade decrease with non members, some in union = not receive fair share of tariff revenues, complexity of setting tariff rate= time & cost
EU:
group of countries that have formed a regional bloc based on a treaty of political and social and economic issues
aims: peace, prosperity, freedom
UK joined 1973, voted to leave June 2016
- 27/28 countries, Austria, Belgium, France, single market trade bloc, worlds largest trading bloc, world 2nd largest economy behind USA, 2014: EU output = $18.5trillion
- 5 largest economies: Germany, France, uk, Italy, Spain = account for around 70% of 28- trading bloc(before uk left)
impact of EU in businesses & positives and negatives
- free trade & movement of labour
- regulations for businesses: laws affect employee/consumer rights
positives:
1-security = economic stability and growth
2-business opportunity/no tariffs/free trade in Union
negatives:
1-no common language, difficult withdraw process
2-reduces power/responsibility of nations, members restrictive regulations
NAFTA & impact of NAFTA on business
North American free trade agreement, America, Mexico, Canada
-free trade area not force all member tariffs or other trade barriers to be same
- bigger markets = no extra taxes = lose to competitors
- national firms merge to form TNCs
- protection from foreign competitors & political stability
- dependant on foreign markets
features/benefits/drawbacks of NAFTA
features/benefits;
- tariffs eliminated = reduced import/export costs
- good for GDP (NAFTA boosted Mexican farm exports)
- creates jobs
drawbacks:
- led to job losses (682,900 in US)
- job migration suppressed wages
- Mexican farmers out of business = US companies degraded Mexican environment
- Mexican trucks access to US, Mexican trucks aren’t same safety standard as US trucks
ASEAN
association of south East Asian nations
- create common front against spread of communism
- promote political, economic and social stability from rising tensions in asian pacific region
FTA: lower intra regional tariffs = common effective preferential tariff scheme (CEPT) for AFTA
-criteria : agree to subscribe to all agreements began with 5 original member now expanded to 10
key features of ASEAN
positives and negatives
key features: characterised by great internal diversity, generally high economic growth, free flowing trade routes (easy access to each country’s workforces/ consumer bases)
positives:
- free flow of capital, goods/services, investment
- increase connectivity countries decrease isolation of poorer areas
negatives:
- reduce power of nations have a say and decrease responsibility
- members restricted by regulations (e.g. chosen trade partners, external tariffs)
- no common language spoken
impact of ASEAN on businesses
- increase foreign competition in domestic
- flows of investment, capital, skilled labour (capitalise on this as barriers to trade minimise)
- regional standards competition policy, consumer protection business
- fully fledged economic community = exchange easily
- small/medium firms= help/access to high tech areas
- 600 million inhabitant in ASEAN = large workforce
embargo
official ban on trade or other commercial activity with a particular country
WTO
world trade organisation
permits existence of trade blocs
provided they result in lower protection against outside countries that existed before creation of trade bloc
7 reasons why join a trade bloc
1-more competitive prices
2-EOS
3-consumer choice
4-relationships
5-opportunities = job access = wider availability of skills
6-easier travel
7-no tariffs = free trade between counties = more capital/money circulating around economy
4 characteristics of the EU single market
- free trade within member states
- no trade barriers (tariffs, quotas, subsidies or bans)
- 4 freedoms (goods, services, capital, people)
- common standards (standardisation and harmonisation)
Copenhagen criteria joining the EU
- stable institutions guarantee democracy, rule of law, human rights, respect for protection of minorities
- functioning market economy and capacity to cope with pressure competition/ market forces in EU
- ability to take on obligations of membership: support for aims of union- public administration capable of applying and managing EU laws in practice
4 impacts for UK economy and business from Brexit (short term)
- weaker ER = import prices 50% of UK imports- EU
- lower economic growth: bus & consumer confidence = supply chains = cautious
- unemployment = UK fell below 5%, lagging indicator of economic cycle
- housing market= confidence - mortgage demand = decline overseas demand although weaker pound = real purchasing power of US dollars in UK property market
agreed Brexit trade deal
- UK and EU agreed to unprecedented 100& tariff liberalisation = no tariffs or quotas on movement of goods we produce between UK and EU 1st time EU agreed zero tariff zero quota with any other trading partner = 43% of UK exports 51% imports 2019
- agreement based on international law not EU law
- ends EU state Aid regime in GB = introduce own modern subsidy system = better support businesses to grow and thrive in way that best suits interests on British industries
for BREXIT/ agree with leaving the EU
- tariff liberalisation - removal of tariffs and quotas for UK-EU trade
- potential trading partners
- increase freedom and control = less restricted by rules and regulations
5 reasons against BREXIT/disagree with leaving the EU
1-free trade, open markets, extra risks 2-GB pound is weaker 3-vulnerable as independent vs collective 4-decrease movement of labour 5-multinationals reconsider FDI into UK
USMCA
- United States Mexico and Canada agreement = free trade agreement, replace NAFTA
- signed 30th Nov 2018 , signed 10th Dec 2019 entered into force 1st July 2020 expires in 16yrs if not renewed
- more level playing field for American workers = improve origin rules for automobiles/truck etc and disciplines on currency manipulation
- benefit American farmers modernising and strengthening food and agriculture trade in N America
- new protection for US intellectual property and ensuring trade opportunities for trade in US services support 21st century economy
- chapter devoted to small/medium enterprises benefit
5 features of USMCA
1-dairy and agriculture 2-automoblie -3intellectual property 4-sunset clause (joint review after 6 years) 5-labour (rights)
positives and negatives of USMCA
positives:
1-provide greater job security
2-free trade = competitive across markets
3-larger no of workers in automobile industry
4-creative industries benefits from increase royalty payments for longer - new intellectual property law
5-US farmers= access to Canadian dairy market
negatives:
1-increase costs for business (automobile worker)
2-pressure on business = sufficient labour standards
3-uncertainty = agreements change = business = agile
4-Canadian farmers - greater levels of competition
6 differences between USMCA and NAFTA
- auto manufacturing ( boost 75% of vehicle parts manufactured in 1 of 3 countries, 62.5% previously) ( more workers paid $16/hr when making parts)
- labour laws strengthens
- dairy farmers = more market access
- updating NAFTA for digital era
- environmental protections
- congress keeps control over biologic drugs
4 negatives of trade blocs
negatives:
1-interdependence on other economies performance
2-loss of sovereignty/independence/power/authority
3-countries only apart of 1 trade bloc = cant enter others
4-other countries impose tariffs -response = affect exporters
members of ASEAN
-10 countries: Indonesia, Thailand, Singapore, Vietnam, Philippines, Myanmar, Malaysia, lao peoples democratic republic, Cambodia, burned Darussalam
benefits of being in the EU
benefits of being in the EU
- no tariffs - less costly - wider market
- migration - skills shortages
- cultural cohesion
drawbacks:
* common external regulations and legislation -> cant negotiate own deals not personalised
* central fund -> paying into and not getting out
* immigrayion -> welfare state
drawbacks of being in the EU
drawbacks:
* common external regulations and legislation -> cant negotiate own deals not personalised
* central fund -> paying into and not getting out
* immigrayion -> welfare state