4.1.5 Trading Blocs

Trade bloc

Group of countries that agree to reduce or eliminate trade barriers between them eg EU, ASEAN, NAFTA

ASEAN

Association of the Southeast Asian Nations

Benefits of Business within Trade Blocs

1. Access to more markets - More customers

2. External Tariff walls - Tariffs for countries importing from outside the trade bloc

3. Infrastructure support - Government support

4. Free movement of labour

Access to more markets

Free movement of goods allows Access to all markets + customers within trade bloc

External Tariff walls

Tax applied by a trade bloc to goods imported from outside the bloc

Protects Domestic Businesses from External Competition

Infrastructure support

Government may offer businesses additional support to maintain competitiveness with other countries within the trade bloc

Free movement of labour

Allows higher supply of workers

May push wages down, reducing costs for business

Drawbacks of Business within Trade Blocs

1. Increased competition

2. Common Rules + Regulations

3. Retaliation

4. Inefficiency

Increased competition

Number of Competitors increase due to lower trade barriers eg no tariffs

Difficult for smaller firms to compete

Larger businesses may dominate eg economies of scale

Depends on type of business

- Larger businesses may thrive

- Smaller businesses with limited resources may struggle

Common Rules + Regulations

Must follow Trade Blocs rather than your own

- May need to make changes to production processes or train staff on new procedures, increasing costs

- Once standards are met, Long term benefits may outweigh the short term costs

Retaliation

External countries may retaliate to Trade Bloc tariffs

Depends on type of business

- Increases costs for Globalised businesses

exporting/importing outside trade bloc

- Smaller businesses are less effected but it may prevent them expanding globally

Inefficiency

Less competition from external businesses may reduce incentive for innovation/efficiency

Trade Bloc may lead to Trade diversion - Most efficient producers outside the block are replaced with less efficient producers inside the block, leads to higher cost, lower quality