Trading blocs

Question 1

Define TRADING BLOCS

Answer 1

A trade bloc is an economic unit formed when the governments of a group of countries agree to trade together freely i.e. usually without trade barriers.
Usually the countries are grouped together geographically.

Question 2

What are the 5 types of trading bloc?

Answer 2

1. Preferential trade areas - trade barriers are reduced/eliminated for a select number of goods and services.
2. Free trade areas - trade barriers are reduced/eliminated for all goods and services.
3. Customs union - removal of trade barriers between members and a common approach when dealing with outside countries.
4. Common market - removal of trade barriers between members as well as movement of factors of production (labour, capital) within the bloc.
5. Economic unions - comprised of features of both a customs union and a common market. Can involve a monetary union.

Question 3

What are the similarities between the WTO and a trade bloc?

Answer 3

• Both seek to reduce trade barriers to promote trade
• Both encourage specialisation
• Both involved in trade creation
• Both lead to more economies of scale
• Both can help to ensure fair competition

Question 4

What are the differences between the WTO and a trade bloc?

Answer 4

• Trade blocs may conflict with the WTO
• Trade blocs distort trade by creating barriers
• Blocs negatively impact non-members
• Blocs allocate resources inefficiently
• Blocs can lead to retaliation of other countries via protectionist policies

Question 5

What are the features of the EU?

Answer 5

It is a common market and customs union with 28 members. Has a common external tariff for non-members. Based in Europe.

Question 6

What are the four freedoms of the EU Single Market?

Answer 6

1. Free trade in goods - businesses can sell anywhere within the EU
2. Mobility of labour - citizens can move, study and work anywhere in the EU
3. Free movement of capital - currencies and capital flow freely between states
4. Free trade in services - pensions, architecture and advertising can be offered in any member state.

Question 7

What are the advantages of being part of the EU?

Answer 7

• Trade is encouraged between members
• Stronger competition drives innovation and efficiency
• Market of 28 countries and population of 500m +
• Freedom of movement boosts labour mobility and availability.

Question 8

What are the disadvantages of being part of the EU?

Answer 8

• Common external tariffs drive trade away from the EU
• In some markets, mergers have created significant monopolies
• May increase unemployment as businesses relocate to cheap production locations within the bloc.
• For the UK, membership is £15bn a year

Question 9

What are the features of ASEAN?

Answer 9

The Association of Southeast Asian Nations.
A free trade area with 10 member states, with the aim of establishing an economic community. Ranges from advanced economies like Singapore to developing ones like Myanmar.

Question 10

What are the features of NAFTA?

Answer 10

The North American Free Trade Association.
A trilateral agreement between the US, Mexico and Canada. Aim to create a free trade area between members following the removal of trade barriers.

Question 11

What are the positive impacts on businesses of trading blocs?

Answer 11

• Free trade and access to markets
• Easier access to knowledge, workers and components
• Economies of scale
• Takes advantage of favourable differences between member states
• Consumers have more choice of products

Question 12

What are the negative impacts on businesses of trading blocs?

Answer 12

• May reduce trade with countries outside the trade bloc
• Not all member states have the same political power
• Political decision may influence the development of the bloc
• May damage domestic industries.