Trading Blocs Flashcards
what is a trading bloc ?
It is a group of countries that form an agreement to reduce or eliminate protectionist measures between each other.
how do trading blocs link to trade liberalisation ?
joining a trading bloc is a key method of increasing trade liberalisation. This is because when a country joins one, this makes it easier for the businesses located with the trading bloc to sell to that country, therefore leading to trade creation.
What is the EU and what does it include?
- it is a single market.
- Being a member includes free movement of goods and people.
–> countries within the union have no trade restrictions between themselves.
–> member countries have common external barriers to countries outside of the union (e.x: tariffs).
What is the Association of South East Asian Nations (ASEAN) ?
- it is a free trade area moving towards a common market.
- the ASEAN free trade area is less integrated than the EU = it doesn’t allow for the free movement of people between countries, whereas the EU does.
–> A free trade area aims to achieve free flow of goods in the region (eliminating trade barriers)
–> Free trade areas can lower business costs. increase market size and help businesses to generate EOS.
What is The North American Free Trade Area (NAFTA) ?
- It is a free trade area.
- Many US businesses relocated their manufacturing to Mexico, as goods could be produced much more cost effectively due to the lower wages paid to Mexican workers.
–> the products can then be imported back to the US without tariffs being incurred.
–> Mexico also benefited from this agreement, as it helped to create many new industries and jobs within the country.
Free trade area
Group of countries that trade freely with no/ few trade barriers. However, each member country retains its own independent trade policies in relation to the rest of the world.
single market
A market where almost all trade barriers between members have been removed and common laws or policies aim to make the movement of goods, services, capital and labour between countries easy.
common market
A trade agreement in which member countries agree to remove tariffs and other trade barriers, and to harmonize regulations in order to promote the free movement of goods, services, and factors of production (such as labor and capital) among member countries.
Benefit 1: Access to more markets
businesses are able to sell to more customers due to free movement of trade and reduced / eliminated tariffs to member countries.
Benefit 2: External tariff walls.
- It is a tax applied to imported goods by a group of countries that have formed a trade agreement.
- This protects businesses within the trading bloc from competition outside of the trading bloc.
Benefit 3: Infrastructure support
businesses may gain additional support from the gov to enable them to maintain their competitiveness against businesses in countries inside the trading bloc.
Benefit 4: Free movement of labour
- it can allow businesses to source workers from a wider pool.
- a higher supply of labour may push wages lower, leading to reduced costs for businesses.
Drawback 1: Increased competition
- there is increased competition for businesses within the trade bloc, as member countries may end up trading with each other and less with external businesses.
- This may be more of an issue for small businesses as they have less resources available with which to compete.
- businesses with monopoly power can increase their monopoly by eliminating competitors in other countries within the bloc.
Drawback 2: common rules and regulations.
in order to operate as one market, new rules and regulations may be put in place that all businesses must adhere to = this may affect production and business costs.
–> e.x: The EU states that employees can only work a maximum of 48 hours per week.
Drawback 3: Retaliation
external tariffs set against countries outside of the trading bloc may lead to retaliation from these countries = they may set tariffs of their own, making imports and exports to them more expensive.
