Free Trade Flashcards
What’s free trade
Occurs him there are no barriers or limitations to trade at all
Countries may want to open up their economy internationally (int trade) but beleieves free trade may be damaging
Why put up trade barriers
Influencing the way trade takes place by protecting its industries with putting trade barriers in place
= May have future potential for trade but is currently not in a well established state to internationally trade against multinationals as of yet with their EOS and expertise
= might try deter imports if the business has lots of payment deficit so will correct it by deterring them
= put taxes on goods entering the country from abroad making imports expensive and home produced goods cheap (TARIFF)
= restrict imports on foreign products (imports) allowed in (QUOTA)
= another way is to insist that goods match up with required complicated regulations that are expensive and hard for foreign producers to comply with
= protection using trade barriers with SUBSIDIES (GOVERNMENT PAYMENTS) as it lowers production costs of the company to receive it
Problems with trade barriers
Retaliation and a ‘tit for tat’ manner resulting in a tariff/quota trade war
Negative for stakeholders; fewer employees, low supplier orders, low dividends, not many community incentives, lower tax revenue for government
How can free trade be encouraged
By creating a trade bloc
It’s a group of countries within a particular geographical region that protect themselves from imports from non-members
Free trade area
2 or more countries agree to reduce barriers to trade on all goods being traded with other members in the free trade area
A customs union
Takes the concept of the free trade area
Involves the removal of trade barriers between members but also a COOMIN EXTERNAL TARIFF AGAINST goods being imported into the bloc from non-members
Common market
All the member countries trade all resources freely not just goods
Means that all barriers to trade in goods,services, capital and labour are reduced/removed
EU as one of the world’s largest trade blocs
More than just a common market
Any country wanting to join the EU now has to agree to join the Euro at some point in the future
Said to be a single market
Easier access to each other’s markers and competition for customers in a bloc like the EU means that trade between member countries is going to increase
Single market
A large marker where member states can trade freely with a common or single set of regulations on the movement of people, finance, goods and services rather than different regulations for each country
Operating in a trade bloc benefits
- access to a potential market of millions of people and millions worth of sales TRADE CREATION
- selling in another country can increase business stability with no longer lots of eggs in one basket
- access to raw materials and components at lower costs with removal of tariffs
- access to capital from foreign financial institutions
- EOS potential
Operating within a trade bloc disadvantages
- membership in a trade bloc can hinder trade with countries outside the bloc
- TRADE DIVERSION as export tariffs and import tariffs are placed so they sell less
- easier for companies to be taken over by foreign investors if the stop free movement of capital
- have to abide by the rules of the trade area I.e. packaging standards, health and safety, employee treatment
- competition could be too great to deal or compete with
Things to consider before a UK business starts international trade
- transport and logistics for your product
- complying with specification requirements v packaging, research
- understanding culture, language
- SWOTs need to be done for the abroad market
- need to offer good employment to attract the best staff
- exchange rates
