4.3.1.5 Trading Blocs

What is a trading bloc?

When the governments of a group of countries agree to trade together freely

Make political or economic arrangements to boost trade within the members

What are the five types of trading blocs?

• preferential trade areas

• free trade areas

• customs union

• common markets

• economic unions

What is preferential trade bloc

When members agree to either reduce or eliminate trade barriers for a select number of goods or services, resulting in partial trade liberalisation

What is a free trade area

When members agree to either reduce or eliminate trade barriers for all good and services, resulting in trade liberalisation

(Like EU)

What is a customs union

group of countries that’ve removed most or all (internal) tariffs and/or quotas

includes common external tariff

trade negotiations r conducted on behalf of all member states

What is a common market

• When members agree to the removal of trade barriers as well as freedom of movement of factors of production within bloc

• Often agreement of common economic policies

Define an economic union

Compromises of the features of both customs and common market, including common economic policies

What are some features of the Single European Market (SEM)?

no internal trade barriers

common external tariff

involves free movement of good, services, capital and labour which promotes deeper economic integrations n market liberalisation

List 3 advantages of the Single European Market (SEM)

• Trade creation - trade encouraged within member states as there are no barriers

• Competition - stronger competitive forces drive productive and dynamic efficiency

• Access to markets - market of 27 countries and > 500m people offering expansion opportunities

• Freedom of movement - right to live and work anywhere within the SEM (Single European Market) without restriction, boosts labour mobility

List 3 disadvantages of the Single European Market (SEM)

• Trade diversion - existence of common external tariff diverts trade away from the EU. Goods within SEM May be more expensive

• Monopolies - in some markets e..g gas and electricity, large monopolies created to exploit the available EoS and merger opportunities

• Unemployment - In some countries workers can lose jobs as production transferred to member states w lower costs of labour

• Cost - Being a member of the SEM costs the UK 15 FLIPPING BILLION POUNDS per year BISMILLAH IS THIS THE AVENGERS OR SOMETHING

What are the benefits of EU enlargement?

• Potential for EoS and free trade across a larger geographical area and population

• For consumers: increased competition may lead to lower production costs :. lower prices and increased choice and quality

• For businesses: Low wages of new accession countries 😈

What are the drawbacks of EU enlargement?

• Can EU countries cope with the influx of migrant workers from new accession countries?

• New countries may require additional support from the EU which may have to be funded by stronger nations

• EU Enlargement may increase bureaucratic costs for all existing moments

What is ASEAN?

Association of Southeast Asian Nations

founded 1967

Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

One of the fastest growing markets in the world, producer of manufactured products

What is NAFTA?

• North American Free Trade Association

• founded in 1994

• trilateral agreement between USA, canada, mexico

• aim is to eliminate any barriers to trade between 3 countries

• agreement led to significant FDI into mexico, particularly from USA

What is the WTO?

World Trade Organisation

Only international agency overseeing the rules of int’l trade

WTO decisions ABSOLUTE and every member must abide by its rulings

What may trading blocs do that conflict WTO’s goals?

• distort trade by creating barriers

• Negatively impact on non-members

• Allocate resources in an inefficient manner

• Lead to protectionist policies between trading blocs

• Contravene a key requirement for WTO membership in that all members must have MFN status

List 4 advantages of trading blocs

• Free trade within bloc encourages specialisation and trade

• Easier access to knowledge, workers, components

• EoS

• Favourable taxes/labour costs between members

List 3 disadvantages of trading blocs

• May Reduce trade with countries outside bloc

• Not all members may have the same power

• May damage domestic industries

Why has there been an expansion in trading blocs?

• globalisation

• Growing GDP

• Increase in FDI

• Policy towards Regional development

What impact do trading blocs have on businesses?

• EoS possible

• Can look for cheaper labour or taxes within bloc

• Movement of workers, knowledge, components

What’re the drawbacks of trading blocs on businesses?

• May damage domestic industries

• May reduce trade with countries outside bloc

• Market saturation

• Bureaucracy costs

• Autonomy