Unit 3 Topic 1 Content Flashcards
What are the six factors that have contributed to expanded international trade? (globalisation)
- Technological change
- Trading blocs
- Deregulation
- MNCs
- Changed political and developmental strategies
- Global organisations
Explain technological change.
Technological advancement has resulted in improvements in:
- Transportation
- Communication
Impacts:
Faster and cheaper flow of people, products and ideas. Multi-national corporations can more efficiently manage and coordinate production across a number of countries.
This has opened new opportunities to access resources in other counties eg call centres overseas, internet based selling.
Improved transport includes large container ships and jet aircraft to transfer
production in bulk. Benefit: cheaper and faster. This allows production supply
chains to be spread over a number of countries yet still be efficient (time and cost)
Trading Blocs
Trading block facilitate trade. They remove restrictions (tariffs, quotas, …) and
provide preferential treatment.
Result = increased global production, exchange of
technologies and lower prices. For example - Australia is part of APEC and has
negotiated a number of bi lateral trade agreements which have provided Australia
greater access to the growing Asia area, therefore expanding exports and also
gaining allowing Australian consumers to benefit from low cost imports from Asia.
Trading Blocs definition
An economic union is considered one of the different types of trade blocs. It refers
to an agreement between countries that allows products, services, and workers to
cross borders freely. The participant countries have both common policies on
product regulation, freedom of movement of goods, services and the factors of
production (capital and labour) and a common external trade policy.
▪ The union requires the integration of monetary and fiscal policies, so that member
countries coordinate policies, taxation, and government spending related to the
agreement. They also use a common currency that comes with fixed exchange
rates.
▪ Example: European Union (EU)
▪ The European Union is the world’s largest trade bloc. The EU’s common currency is
the euro, which is used by its 28 member states. The EU countries coordinate their
economic policies, laws, and regulations to address economic and financial issues.
One of the union’s founding principles is free trade among its members..
Free trade agreements- which are multilateral agreements, and which are bilateral agreements?
Multilateral: Multiple countries
E.g. NAFTA, EU, APEC
Bilateral: Two countries
E.g. CERTA, SAFTA, TAFTA, AUSFTA
Global Agreement:
WTO
REVIEW QUESTION: PARAGRAPH ANSWER
▪ What free trade agreements are Australia part of and explain their significance to
Australia‘s trade? (Include Bi lateral and Multi lateral)
Set out:
1. Define Free trade agreements
2. Give examples of Australias FTA that are significant (bi and multilateral),
saying why significant:
ChAFTA (China-Australia Free Trade Agreement)
CERTA (Closer Economic Relations Trade Agreement)
APEC (Asia Pacific Economic Cooperation) is a multilateral trade agreement
with 21 members which aims to free up trade globally. It is highly significant
to Australia’s trade covering 53% of world GDP and 44% world trade.
Example response:
A Free trade agreement is an international treaty which removes barriers to trade and
facilitates stronger trade and commercial ties, contributing to increased economic integration
between participating countries.
Australia has FTA’s with a number of countries to facilitate free trade, including
Singapore, Thailand, USA, Chile, Malaysia, Sth Korea, Japan, China. Significant
FTA’s include the recent bi lateral China-Australia Free Trade Agreement
(ChAFTA )2015. This agreement unlocks significant opportunities for Australia
in China which is Australia’s largest export market for both goods and
services, accounting for nearly a third of total exports, and a growing source of
foreign investment. CERTA (Closer Economic Relations Trade Agreement) is a
bilateral agreement between Australia and NZ (1983) to remove trade
restrictions and to operate with uniform business regulations and tax laws.
This agreement has see trade increase by 8%. APEC (Asia Pacific Economic
Cooperation) is a multilateral trade agreement with 21 members which aims
to free up trade globally. It is highly significant to Australia’s trade covering
53% of world GDP and 44% world trade.
What are FTAs (Free-trade agreements) and how do they benefit the global economy?
A FTA (free-trade agreement) is an international treaty which removes barriers to trade and facilitates stronger trade and commercial
ties, contributing to increased economic integration between participating countries. FTAs can be bilateral,
agreement between 2 countries eg SAFTA, or multilateral, agreement between 3 or more countries eg APEC
▪ FTAs open up opportunities for Australian exporters and investors to expand their businesses into key overseas
markets. FTAs can improve market access across all areas of trade — goods, services and investment — and help
to maintain and stimulate the competitiveness of Australian firms. This benefits Australian consumers through
access to an increased range of better value goods and services. Specific benefits of FTA’s include:
▪ FTAs foster freer trade flows and create stronger ties with our trading partners.
▪ FTAs don’t just eliminate tariffs, they also address behind-the-border barriers that impede the flow of goods and
services between parties, encourage investment, enhance cooperation, and can address other issues, such as
intellectual property, e-commerce and government procurement.
▪ FTAs can increase Australia’s productivity and contribute to higher GDP growth by allowing domestic businesses
access to cheaper inputs, introducing new technologies, and fostering competition and innovation.
▪ FTAs promote regional economic integration and build shared approaches to trade and investment, including
through the adoption of common Rules of Origin and through broader acceptance of product standards.
▪ FTAs can enhance the competitiveness of Australian exports in the partner market, and add to the attractiveness
of Australia as an investment destination.
What is deregulation? Provide types and examples.
Deregulation refers to the loosening or removal of government controls over business activity.
Examples in Australia include the banking sector and telecommunications.
Internationally :
▪ Relaxing rules on environmental controls, wages, health and safety
standards, local ownership requirements, local content requirements,
foreign investment
Govts impose barriers to trade (protectionism) for economic and political reasons.
Deregulation involves the govt removing barriers on the free flow to trade and
investment. Protectionist barriers exist (tariffs, quotas …) but regulations also are a
barrier to trade. Regulations can give preferential treatment to domestic businesses.
Examples;
▪ Govt purchasing policies (local content for example)
▪ Labelling regulations (which some foreign goods may not meet)
▪ Health and safety standards of products
▪ Foreign ownership limits eg media, utilities
▪ Also a lack of transparency adds to the difficulty of doing business in a foreign
country as the laws/ regulations are often not clear or easily accessible.
Market-friendly global policies facilitating globalisation?
- Privatisation of GBE (Govt Business Enterprises) in order to promote competition
and efficiency eg. In Australia, Telstra, Commonwealth bank. Privatisation
encourages increased foreign investment due to gains of efficiency, competition,
and infrastructure development - Financial deregulation of banking sector and labour markets (enterprise
bargaining) to promote more competition, productivity, efficient resource use,
lower consumer prices, increased international competitiveness.
Explain the role of non-government world organisations?
World Organisations have been working over the last few decades to open up the world
economy by reducing protectionism and regulations.
▪ International trade negotiations by the WTO have resulted in some significant
reductions in govt restrictions on trade.
The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world’s trading nations and ratified in their
parliaments. The goal is to help producers of goods and services, exporters, and
importers conduct their business. The WTO promotes sustainable economic
development through promoting free trade having desirable effects on the world
economy, facilitating trade negotiations, and settling trade disputes
Members meet regularly to make decisions with trade: called Rounds. Eg Uruguay
round, Doha round. Main result is that tariffs have been reduced in most developed
countries below 10% and some below 5%. Developing countries tend to have higher
tariffs. Other results include the protection of Intellectual property and the reduction of
FDI restrictions. (FDI restrictions include regulations on ownership, operation,
administration and market access).
About Multinational Corporations
MNC’s gain a competitive advantage by locating operations in other countries
where they have a comparative advantage in specific areas of operations. This may
include for examples, locating production in a country that has accessible
resources, or locating production in a country that has low cost labour.
▪ MNC’s are responsible for greatly increasing the level of Foreign Investment
around the globe over the last 20 years- because for them to set up operations they
need to invest in the local economy.
▪ 1970’s = about 7000 MNC
▪ 2019 = over 100 000 MNC
▪ There are over 1 million MNC subsidiaries around the world
▪ MNC produce about 25% of world GDP
Host governments tend to regulate Foreign Investment : Why?
MNC’s own agendas/ philosophy/policies/goals which may conflict with the
government. For example Transfer Pricing:
This involves MNC subsidiaries operating in different countries, each performing a
particular part of the overall production process. In this process the MNC buys and
sells within its own subsidiaries -it sets its own price in doing this (transfer price).
This is a problem because a MNC can use the transfer pricing process to manipulate
profits and move them to countries with lower tax rates. This means less tax revenue
for countries that have profits moved off shore, and also local companies that don’t
participate in transfer pricing are at a competitive disadvantage.
Changed political and developmental strategies - how has the global economy become more open over the years?
The global economy has become more open over the last few decades. In 1990 we
had the break up of the USSR and a move from communism to free market
economies.
▪ Vietnam, Cuba, China, Eastern Europe have all opened up to international trade.
Even North Korea has become more open, yet is still restrictive. Hong Kong, Sth
Korea, Singapore, Philippines, Taiwan (Asian Tigers) have emerged and have
export focussed production. These economies have been developing rapidly –
particularly China. Such economies are called ‘emerging market economies’ .
Their ‘emergence’ has created a much larger global world market for trade.
▪ What other major emerging country is not mentioned above? AMERICA.
Technological change?
Technological advancement has resulted in improvements in global Transportation
and Communication. The impact has been a faster and cheaper flow of people,
products & ideas. It has allowed MNC’s to more efficiently manage and coordinate
production across a number of countries, opening up new opportunities to access
resources in other countries and increase trade. Improved transport includes large
container ships and jet aircraft to transfer production in bulk, being cheaper and
faster. This allows production supply chains to be spread over a number of countries
yet still be efficient regarding time and cost.
Examples of non-govt global organisations and their functions?
World Trade Organisation - trade
International Monetary Fund - financial stability
World Bank - loans, assisting
United Nations - security
Organisation for Economic Cooperation and Development - development and growth
About the World Trade Organisation:
The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade between
nations.
▪ At its heart are the WTO agreements, negotiated and signed by the
bulk of the world’s trading nations representing 98 per cent of world
trade, and ratified in their parliaments.
▪ The goal is to help producers of goods and services, exporters, and
importers conduct their business and sets out rules of fair trade.
▪ Therefore the WTO facilitates free trade to create sustainable
development, contributing significantly to increased globalisation
through:
1. promoting free trade having desirable effects on the world economy,
2. facilitating trade negotiations
3. and settling trade disputes
What is the International Monetary Fund:
The International Monetary Fund (IMF) is an
organization of 189 countries, working to foster global
monetary cooperation, secure financial stability,
facilitate international trade, promote high employment
and sustainable economic growth, and reduce poverty
around the world. Created in 1945.
▪The existence of the IMF encourages countries to free
up barriers to trade and investment.
About the Organisation for Economic Co-operation and Development?
The Organisation for Economic Co-operation and
Development (OECD) has 35 member countries, founded in 1961 to
stimulate economic progress and world trade. It promotes trade in
market economies, providing a platform to compare govt policy,
identify good practices and coordinate domestic and international
policies of its members.
▪ The OECD roots go back to the rubble of Europe after World War II.
Determined to avoid the mistakes of their predecessors in the wake of
World War I, European leaders realised that the best way to ensure
lasting peace was to encourage co-operation and reconstruction, rather
than punish the defeated. Encouraged by its success and the prospect of
carrying its work forward on a global stage, Canada and the US joined
European members in signing the new OECD Convention which
officially began on 30 September 1961. http://www.oecd.org/
▪ How does it benefit Australia?
Increased trade, sharing of idea, data comparison, policy comparison
