1.3 - Trade Blocks

Question 1

What are some examples of Trade Blocks around the world?

Answer 1

NAFTA, EU, CARICOM, MERCOSUR, ASEAN

Question 2

What is FDI?

Answer 2

Ownership of a business in one country that is based in another, making it legal for foreigners to own and control businesses and property in another country

Question 3

What is an example of inorganic FDI?

Answer 3

Kraft Foods buying Cadburys (can sometimes lose jobs)

Question 4

What is an example of organic FDI?

Answer 4

Expanding operations into a new country - Nissan into Sunderland (can create jobs and sustain a much larger supply chain)

Question 5

How is TNC growth encouraged?

Answer 5

Free market liberalisation - Reagan and Thatcher in 1980s believed governments prevented economic development and this led to the trickle down effect, which led to London becoming a financial hub

Question 6

How are free trade blocks growing?

Answer 6

Encouraged by removal of tariffs as this causes market growth

Question 7

What is an example of a company growing due to free trade blocks?

Answer 7

Tesco gained 75 million more customers in 2004 when 10 new countries were introduced to the EU

Question 8

Why doesn’t everyone want FDI?

Answer 8

• imports can threaten industries

- migrants can change cultural diversity so countries protect themselves from FDI

Question 9

How does NAFTA allow the USA and Mexico to work together?

Answer 9

Mexico provides cheap labour in the Maquiladoras and the USA take advantage of this as it is a large consuming nation

Question 10

Why do countries want FDI?

Answer 10

Capital / money is coming into the country

Question 11

If capital and money are coming into a country, what does this create?

Answer 11

• Employment, income and both taxes revenues and spending power in a society
• FDI might also build infrastructure that other British companies might benefit from

Question 12

Why can FDI be a threat to other companies?

Answer 12

More competition for companies already in the UK - have to find more efficient ways to produce their goods and might mean finding new tech that others can benefit from

Question 13

What are different types of FDI?

Answer 13

Offshoring, foreign mergers, foreign acquisitions and transfer pricing

Question 14

What is offshoring?

Answer 14

TNCs building their production facilities in ‘offshore’ low wage economies

Question 15

What are foreign mergers

Answer 15

Two firms in different countries join forces to create a single entity
e.g. Shell has HQs in the UK and the Netherlands

Question 16

What are foreign acquisitions?

Answer 16

When a TNC launches a takeover of a company in another company
e.g. UK’s Cadbury taken over by US’s Kraft

Question 17

What is transfer pricing?

Answer 17

Some TNCs, such as Starbucks and Amazon, have sometimes channeled profits through a subsidiary company in a low tax country such as Ireland. The OECD is now attempting to limit this practice.

Question 18

What is a SEZ?

Answer 18

• Special Economic Zone
• area in which trade laws are different from the rest of the country to increase investment and attract FDI
• China, India, Indonesia - changed attitudes and have embraced SEZ’s
• World Bank helped fund infrastructure

Question 19

When did Indonesia open its markets and who did it become an offshore location for?

Answer 19

1960s and for GAP and Levis

Question 20

What is the EU?

Answer 20

• world’s largest trade block
• multi-governmental organisation with its own currency (Euro)
• introduced the capital of culture award
• member states have freedom of movement

Question 21

What does Common Agricultural Policy in the EU ensure?

Answer 21

With shared legislation , countries become eligible for funds including farming subsidies under CAP

Question 22

What is ASEAN?

Answer 22

• The Association of SE Asian Nations
• 10 member states with a total 6 million people
• promoted free trade and helped develop manufacturing and created jobs such as the call centre workers in the Philippines

Question 23

What does privatisation allow?

Answer 23

• Allowing FDI to have stakes in privatised services and infrastructure
• encouraging business start ups through low taxes, changes in laws such as Sunday trading in 1994

Question 24

What are some positives of a trade bloc?

Answer 24

• bigger market with no extra taxes
• countries can expand into other countries and source materials more cheaply within the trade bloc
• firms could merge together - creates economies of scale - lower costs, higher profits, more investment
• you protect yourself from other parts of the work e.g. cheap Chinese clothes can’t easily be imported once over the quota. This forces consumers to buy locally sourced goods - confrontation or political instability?

Question 25

What are some negates of a trade bloc?

Answer 25

• lose some sovereignty e.g. human rights legislation is introduced, consumer protection, greenhouse gases etc
• countries depend on each other so economic problems in one country spreads to another
• have to compromise and concede - benefit from foreign markets and companies but have to compete with them too. Lower prices but some of your own companies could go out of business