International trade and the EU.

Question 1

What is international trade?

Answer 1

The exchange of goods and services across international borders/territories.

Question 2

What are the reasons for international trade?

Answer 2

Countries do not produce all of the goods in order to satisfy the needs and wants of their population.
Different countries can specialise in producing specific products in a more efficient manner. Some countries produce goods at a cheaper cost than others because they are more efficient.
-Product differentiation also leads to international trade. The goods traded are similar but not identical.
-New markets for growth and profits.
-Products may be maturing in one country, so can be an extension strategy,
-New production facilities in emerging economies.
-Consumer choice.

Question 3

How has consumer knowledge facilitated international trade?

Answer 3

individuals can see what people in other countries have. This is a result of an increase in travel, research and marketing efforts. These encourage the trade of goods and services between countries.

Question 4

How has cooperation facilitated international trade?

Answer 4

Efforts of the World Trade Organisation to remove barriers to trade and cross-border deregulation and trading blocs have led to the creation of an international trading community.H

Question 5

How have costs facilitated international trade?

Answer 5

The internet is used to sell products or goods on their websites and marketing and communication. The increased use of containerisation and business efficiency in moving large quantities of goods has led to transportation costs falling.

Question 6

What is free trade?

Answer 6

international trade is conducted without any barriers. Members in a free trade area can trade without any restrictions.

Question 7

What is protectionism?

Answer 7

an economic policy of restraining trade between countries by imposing barriers to trade. A country may use protectionism because of trade imbalance, to protect jobs or protect politically sensitive industries.

Question 8

What are tariffs?

Answer 8

a tax or duty that raises the price of imported products. They are used by governments to raise revenue, or to restrict certain imports. A tariff may make a product more expensive for the consumer, so they may switch to domestic products.

Question 9

What are quotas?

Answer 9

a limit on the amount/value of imports allowed which increases the market share available for domestic producers. Limited supply also increases the price of the imported goods.

Question 10

What is a VER?

Answer 10

Voluntary export restraint. This is a type of quota put in place by exporters. VERs are often created because the exporting countries would prefer to impose their own restrictions rather than risk sustaining worse terms from tariffs or quotas.

Question 11

What is non competitive purchasing?

Answer 11

governments only buying from domestic producers.

Question 12

What are embargoes?

Answer 12

complete or partial inhibition of commerce and trade with a particular country in order to isolate it.

Question 13

What is a trading bloc?

Answer 13

-Groups of countries that promote and manage trading activities in their region. Trading blocs are a form of free trade, meaning that members can trade in goods and services without protectionist measures being imposed.
-EU, NAFTA and EFTA.
-There is usually an external tariff wall, in order to encourage members to treat other members more favourably.

Question 14

What is a single market?

Answer 14

-A free trade area in that there are no tariffs, quotas or taxes on trade, but also where there is free movement of goods, services, capital and people. In addition to this, there is a common external tariff on goods entering the single market.
-It is a type of trading bloc in which there is free movement of capital and people.

Question 15

What does a single market do?

Answer 15

-A functioning single market stimulates competition and trade, improves efficiency, raises quality and helps cut prices.

Question 16

Advantages of free trade for businesses?

Answer 16

Access to cheaper raw materials.
Transfer of technology, skilled labour and other skills.
Economies of scale can occur.
No tariffs means British goods may appear cheaper which will increase demand.
No quotas means there is no restricted supply for British goods, allowing revenue to be maximised.

Question 17

Advantages of free trade for stakeholders?

Answer 17

Customers- more competition pushes down and encourages high quality and innovation.
Trading with other countries increases political stability.
Employment and higher wages in developing countries.

Question 18

Drawbacks of free trade?

Answer 18

The destruction of infant industries from fiercely competitive international businesses.
The lack of intellectual property laws means foreign businesses could be copying products and selling them for cheap.
Poor working conditions and pay in multinational businesses.
Reduced tax revenue because of lack of tariffs (government).

Question 19

Advantages of protectionism?

Answer 19

Protects domestic industries and businesses.
Protects domestic employment.
Tariffs can raise revenue.
To prevent dumping.
Bolster the position of UK businesses, increasing the price of imported goods improves the position of UK goods within the markets.

Question 20

What is dumping?

Answer 20

dumping is the practice of forging producers deliberately pricing out domestic businesses. Once they have achieved this, they can raise prices and enjoy monopoly power.

Question 21

What are the challenges facing businesses who want to develop in new international markets?

Answer 21

-Identifying the international market needs of customers. Owners may make presumptions about the market that are incorrect due to cultural differences.
-Cultural nuances.
-Distance and time differences make management and coordination harder.
-Finding reliable partners to help with communication, research, etc.
-Communication with local consumers and staff.

Question 22

Advantages of developing in new international markets?

Answer 22

Increase in sales and profits.
Economies of scale.
May acquire new skills and talent overseas.
The home market may be saturated.
Significant grants or tax incentives that reduce costs.
First mover advantage- being the first one in the market to create a barrier to entry for competitors.

Question 23

Disadvantages of developing in new international markets?

Answer 23

Products may not easily translate to meet local customer needs and may require significant investment.
Communication may act as a barrier.
Take risks when dealing with fluctuating exchange rates.
There may be substantial tariffs and quotas.
Could cause diseconomies of scale.

Question 24

What is the EU?

Answer 24

A political and economic alliance protecting the interests of its members, containing 27 countries. The EU sets many laws and regulations through the Commission, Parliament and Council of Ministers, these control large parts of business activity, economic policies and trade.

Question 25

What is the single market?

Answer 25

The group of European countries that operate without any internal borders and other regulatory obstacles to the free movement of goods/services.

Question 26

What are the aims of the single market?

Answer 26

to encourage competition and trade, improve efficiency, raise quality and help to cut prices.

Question 27

How much does the single market contribute to GDP?

Answer 27

20%

Question 28

Features of the single market?

Answer 28

No barriers to trade between member states, no tariffs, free transfer of capital and labour, consistent standards, common external tariff on imports into the EU.

Question 29

What are the advantages of the single market for UK buinsesses?

Answer 29

Higher demand from access to a larger marketplace (500 million customers.)

Lower costs through increased economies of scale.

Freeing of capital markets. Businesses will be able to access the best finance and capital-raising deals throughout Europe.

Greater employer access to labour markets;

Growing wealth in poorer parts of the single market could drive future demand.

Single market legislation has deregulated markets, increasing opportunities for competitive businesses to enter these markets.

The EU offers financial subsidies to certain industries.

Question 30

Advantages of the single market to workers and consumers?

Answer 30

Increased wealth as trade and competition increases.

Lower prices and increased economic activity leads to more employment.

Increased consumer choice.
Greater employment opportunities for those with ‘marketable skills’.

EU competition law has increased choice and forced down prices.

Question 31

Disadvantages of the single market?

Answer 31

EU rules and regulations add costs to trading outside the EU, so lose access to these customers.
The UK has not adopted the Euro so still has to deal with the cost of currency exchange.
More efficient larger EU businesses can cause the destruction of domestic businesses.
Migration into the UK from EU countries is high with free movement of people. Could lower wages in the UK.
Adopting common standards is hard to achieve when some governments are seeking to protect domestic interests.
Creation of monopolies.
The UK was a net contributor to the EU, paying more than it received.
Homegrown products not available.

Question 32

What is the Euro and Eurozone?

Answer 32

The Euro is the official currency of the EU.
Used by 19/27 countries.
Managed by the European Central Bank which sets a common interest rate.

Question 33

What are the benefits of the Euro?

Answer 33

-No currency conversion costs.
-Exchange rate fluctuations do not impact members of the Eurozone.
-Greater price transparency, so consumers are better informed.
-Encourages inward investment given the cheaper transaction between members.
-Some of the Eurozone’s previous currencies were much weaker.
-Interest rates are more stable and lower.

Question 34

What are the costs of the Euro?

Answer 34

-Businesses can no longer benefit from favourable exchange rates which make exports more expensive.
-Less control over interest rates.
-The economies within the Eurozone zone may be in completely different stages of the economic cycle, but still have to accept the interest rate.
-Countries are linked so feel the impact of external shocks on one member.
-Change over costs.
-The Stability and Growth Pact requires that governments strictly control their budget deficits. This creates limitations for a member state when attempting to meet each country’s own economic objectives.

Question 35

Evaluate the impact of being a member?

Answer 35

Creates a more influential trade bloc that can give better import and export opportunities.
Travel between countries is easier, reducing distribution costs.
Access to most skilled workers.
EU fundings have maintained businesses in socially deprived areas.
Evidence that membership has increased employment opportunities by 10%.
The Eurozone allows comparison of goods.
The Eurozone’s cycle is different from the UK’s so could benefit from lower interest rates than EU competitors.
Trade with the EU accounts for 44% of trade.
HOWEVER:
Can’t trade freely globally without restrictions.
Cannot freely gain workers from outside the EU without extra administrative costs.
The UK government pays a membership fee which is a burden on the taxpayer.

Question 36

Evaluate the impact of not being a member?

Answer 36

Increasing regulation (especially employment-based) from the EU has pushed up business costs.
Free to sign trade deals with other nations.
Increased job opportunities in the UK for UK workers which theoretically should push up prices.
Domestic markets are protected from stronger competition.
Can create farming and fishing policies.
HOWEVER:
Increased non-EU migration.
Potential loss of labour as EU migrants return home, affected the hospitality industry.
Slower trade with border checks.
Pay tariffs and experience quotas to trade with the EU.
Will still have to abide by EU regulations.
Loss of industry subsidies.