Lesson 9- Trade Blocs and Differential Access to Markets Flashcards
The Development Gap
- This was first demonstrated in the Brandt Report of 1980 which divided the world into the rich North and poor South
- Between 1950 and 1980 countries in the North accounted for 20% of the population but 80% of the GDP.
- However, since then globalisation has rendered this simplistic approach obsolete.
Trade groupings
- Group 1-Established
- Group 2- Emerging economies
- Group 3- Not sustanable economic growth
- Group 4- Worlds poorest economies
Trade groupings- Group 1 countries
- the most affluent which have dominated the global economy for the last 50 years – Europe, USA, Japan. (Equivalent to HICs)
Trade groupings- Group 2 countries
- the emerging economies (around 30 countries including China and India). They have GDP growth rates of 3.5% or higher and roughly 50% of the global population. They are the new engines of the global economy. (Equivalent to NEEs)
Trade groupings- Group 3 countries
– more than 50 countries with over 1 billion people. To date they have been unable to translate natural resource wealth into sustained economic growth. (Equivalent to LICs)
Trade groupings- Group 4 countries
- those that are lagging behind. The world’s poorest economies, home to 1 billion people. They are stagnant or declining economies. (Equivalent to LDEs)
Trading Blocs
- In 1947, GATT (General Agreement on Tariffs and Trade) sought to lower barriers to international trade (aim of free markets).
- Since then trade tariffs have shrunk, and world trade has therefore increased.
- Since 1950’s countries have joined together to form TRADE BLOCs in order to stimulate trade (economic benefits). E.g. EU
What is the EU?
- As a customs union, the EU is protectionist in its own way. Though its 27 members trade freely with each other, there is an external tariff barrier for countries outside of the Union (with the exception of those in EFTA such as Norway and Iceland).
- This also means that the EU negotiates trade deals as a bloc representing all member states, so any agreements reached apply to all members.
- 65 per cent of the trade in the EU is intra-regional. This high level of trade between members fosters greater integration and interdependence.
What is a bilateral trade agreement?
EU and Bilateral trade
- New Zealand was the EU’s 49th-largest trading partner for goods in 2016 while the EU is New Zealand’s second largest trading partner after Australia.
- Total trade in goods amounted to nearly €8.1 bn. New Zealand’s exports to the EU are largely dominated by agricultural products while EU’s exports to New Zealand are focused on manufactured goods.
- In 2017, a new partnership (bilateral trade deal) was agreed.
- Products included in this deal included: medicine products and devices, telecommunication equipment and machinery
Advantages of the EU?
- Access to a Large Market: Countries in the EU benefit from access to a vast single market with over 450 million consumers, which can boost trade and economic growth.
- Elimination of Trade Barriers: Being part of the EU means reduced or eliminated tariffs and trade barriers between member states, making it easier and cheaper for businesses to trade.
- Increased Investment: Membership in the EU can attract more foreign direct investment, as businesses are keen to take advantage of the stability and market access provided by the bloc.
Disadvantages of the EU?
- Loss of Sovereignty: Membership can require countries to cede some control over national laws and regulations to EU institutions, which might conflict with national interests.
- Economic Disparities: The diverse economies within the EU mean that policies benefiting some countries may not suit others, potentially leading to economic imbalances.
- Bureaucracy: The EU’s complex administrative structure and regulatory environment can result in slow decision-making processes and increased compliance costs for businesses.
China trading as an NEE
- China’s phenomenal economic growth rate in the last 30 years has been based on the expansion of manufacturing of consumer goods for richer countries.
- China has emerged as the world’s major trading power, responsible for nearly 20 per cent of all global exports. This has brought great advantages for the countries infrastructure, and allowed economic development there.
- The export of cheaply produced products onto the world market (such as steel) has however triggered a trade war with the USA, which has escalated to high tariffs on traded goods between the two countries; some analysts argue that this is the main cause of slowing world trade, and will continue to slow growth in the future.
Advantages of chinas export led-growth
1) Economic Growth: China’s focus on exports has driven rapid GDP growth, propelling the country to become the world’s second-largest economy. From 2000 to 2025, China’s GDP grew at an average annual rate of around 9%. This growth has increased national income and improved living standards for many citizens.
2) Employment Creation: The export-driven economy has created millions of jobs, particularly in manufacturing and related industries. Since the end of the 1970s, over 400 million people have been lifted out of poverty. This job creation has significantly reduced poverty and improved socio-economic conditions across the country.
3) Foreign Reserves Accumulation: By exporting large volumes of goods, China has accumulated substantial foreign currency reserves. As of 2025, China’s foreign reserves are estimated to be around 45% of its GDP. These reserves provide economic stability, enabling the country to manage exchange rates, invest in infrastructure, and respond to global financial fluctuations.
Disadvantages of chinas export-led growth
- Dependence on Foreign Markets: China’s economy is highly dependent on foreign demand. In 2024, exports accounted for approximately 18% of China’s GDP. This reliance makes the economy vulnerable to global market fluctuations.
- Neglect of Domestic Priorities: The focus on exports can lead to underinvestment in domestic needs. For example, despite rapid economic growth, China’s domestic consumption as a percentage of GDP remains relatively low at around 38%.
- Wage Suppression: To remain competitive in export markets, China has kept labor costs low. As of 2024, the average monthly wage in China was about $1,200, significantly lower than in many developed countries.
Sub-Saharan Africa as a trading region
-What limits their trading ability
- There is minimal intra-regional trade and Africa’s main exports remain primary resources and commodities such as minerals, energy and food resources.
- Lack of skills, poor transport and energy infrastructure and widespread corruption have discouraged investment into industrial development that would enable African countries to add value to their exports. They rely on imports of most manufactured goods.
- Africa is one of the largest, poorest and most divided continents. There are many language, ethnic and cultural divisions making improving trade difficult.
Sub-Saharan Africa as a trading region
-Their trade
1) China’s investment - Chinese investment in developing infrastructure has undoubtedly been tor China’s own benefit. Nonetheless, it has also increased the connectivity and integration of different African nations.
2) The African Continent Free Trade Area (AfCFTA) - In 2018, after years of talks led by the African Union, five key trading groups agreed to work together and created AfCFIA, the worlds largest free trade area and, with a population of 1.3 billion people, the largest single market. 54 of the 55 African nations have now signed the deal. ArCFIA has the following trade implications for African nations:
- Its main purpose is to increase intra-regional trade, which is historically low at around 16 per cent. This is seen as critical for growth and job creation on the continent.
- It gives African nations more voice and leverage in global trade.
- However as a result of the different stages of development of nations, freer trade has the potential to disadvantage the poorest people within some countries.
Why do more developed countries have higher access to markets?
- They can afford to pay higher tariffs on exported goods
- They can increase access by investing into foreign markets to avoid tariffs
- HDE’s often group together to form trading blocs
Trade sanctions
- Trade sanctions are used as a political weapon to countries
-e.g Irans economy was in ruin after facing a huge sanction due to failures to suspend their nuclear weapons programme - this harmed their economy until 2016 when sanctions were hilted
Social and Economic impacts of trade sanctions
- Limited revenue from exports and business taxes means lack of security for investment or development
- Poor access to markets deters foreign investment
- Debt is increased restructing economic growth
- Limited investment, growth and development will cause unemployment and poverty
- A lack of ability to trade may threaten food or energy security
Measures to combat differential access
- Special and differential treatment agreements (SDT’s) have been a feature of the WTO’s trading system for the past 60 years
-this agreement meant that LDE’s should:
-Enjoy access to markets
-Have the right to restrict imports to a greater degree
-Be allowed additionaly freedom to subsidise exports
What is Fair Trade?
- Fair trade is a social movement whose goal is to help producers in LDEs achieve better trading conditions. The movement focuses mainly on agricultural-based products including coffee, tea, cocoa, sugar, bananas, cotton and chocolate (all of which are low value primary products).
Is fair trade a good solution for LDE’s
- Fair trade supporters argue that those producing the commodities do not get an equitable (fair) deal from the organisations they sell their products to.
- Buyers such as TNCs, or supermarket chains from developed countries are able to force down the prices because the workers and suppliers in LDEs have little market influence and are extremely reliant on the income from their goods.
- The fair trade movement advocates the payment of higher prices to producers, as well as helping them to achieve improved social and environmental standards. The goods are labelled as fair trade goods, so that ethical consumers can recognise that they are buying goods for which the producer received a fair price.
