Trading Blocs

Question 1

What are trading blocs

Answer 1

Associations between different governments to promote and manage trade for a particular region

• Members sign agreements to remove or reduce protectionism barriers between them

Question 2

What are the 3 main trading blocs we need to be aware of

Answer 2

• The North American Free Trade Agreement (NAFTA)
• The Association Of Southeast Asian Nations (ASEAN)
• The European Union (The EU)

Question 3

Describe NAFTA trading bloc

Answer 3

• Made up of Canada, Mexico and United States
• Its a free trade area, meaning barriers to trade have been reduced between member countries, but individual countries can still impose them on outside countries

Question 4

Describe ASEAN trading bloc

Answer 4

• Made up of 10 countries, including Thailand, Malaysia and Indonesia
• As well as being a free trade area, it allows some free movement of labour and capital (money) between the member countries

Question 5

Describe the EU trading bloc

Answer 5

• Made up of 28 European countries
• Its a single market, meaning there’s no borders between member states for the movement of labour, products and capital
• There’s also a harmonisation of standards, meaning all countries have the same regulations about products, such as regulations regarding quality.
• Many EU member countries are also within a monetary union where all countries use a single currency, the euro

Question 6

Advantages of a business operating in a trading bloc

Domestic businesses

Answer 6

• A business in that country of a trading bloc, the business may become the cheapest supplier due to removal of trading barriers, leading to a surge in demand for the business’s products
• Fewer regulations mean easier for businesses to obtain materials, labour and capital.
• May have access to more skilled workers, improving efficiency and quality of production
• As a trading bloc expands, firms in member countries have an expanding market, increasing sales volume therefore lower costs due to economies of scale

Question 7

Disadvantages of a business operating in a trading bloc

Domestic businesses

Answer 7

• Can become more expensive to import products from countries not in the bloc, leading to increase costs, or time consuming finding another supplier
• Small firms in a country that’s joined a trading bloc may be forced out of business because of competition from larger firms in the bloc. Can increase unemployment levels in the country
• Business May have to change its operations to comply with rules and regulations set by the trading bloc. Likely to increase firms costs in short term

Question 8

How can trading blocs affects businesses from outside the bloc

Answer 8

• Costs of exporting products to a country in a trading bloc may rise if there are tariffs on imports from outside the bloc. Meaning demand for a firms products in that country may fall
• However, advantage is that if a country that a firm exports to becomes part of a trading bloc, the firm may need to alter its products so it meets regulations of the bloc, but if the regulations are harmonised the product can be sold throughout the bloc. This allows the firm to benefit from economies of scale, therefore become more competitive.