4.1.5 Trade blocs

Question 1

Trade bloc

Answer 1

usually groups of countries in specific regions that manage and promote trade activities

Question 2

WTO - World trade organisation

Answer 2

permit the existence of trade blocs, provided that they result in lower protection against outside countries than existed before the creation of the trade bloc

Question 3

Types of trade blocs

Answer 3

• free trade area
• customs tariff
• single market

Question 4

Free trade market

Answer 4

where there are no import tariffs or quotas on products from one country entering another

• no external tariff
• negotiate own trade deals

Question 5

Customs tariff

Answer 5

a trade bloc with a free trade area with a common external tariff

• no border checks
• trade deals for whole customs union

Question 6

Single market

Answer 6

• a type of trade bloc which most trade barriers have been removed which some common policies on product regulation and freedom of movement of the factors of production
• no tariffs
• free trade area
• common external tarries
• common rules and regulations
• freedom of movement of goods and people

Question 7

EU

Answer 7

• a political and economic union of 27 members
• customs union, single market and single currency
• free movement of goods, capital, services and people
• no trade barriers
• common standards - standardisation and harmonisation

Question 8

ASEAN

Answer 8

• a regional intergovernmental organisation
• free trade agreement
• promotes peace and stability in the region

Question 9

NAFTA

Answer 9

• a treaty between Canada, Mexico and usa that eliminated most tariffs
• trade and economic activity between these areas

Question 10

What is the criteria for the EU?

Answer 10

The Copenhagen criteria

• stable government
• functioning market economy
• ability to take on obligations of membership

Question 11

Brexit impacts on the business

Answer 11

• Brings a risk of higher costs and delay to supply chains
• border tariffs for importers and exporters
• unemployment problems within workforce - uncertainty over the immigration status of EU nationals - bring economic disruption, employment disputes due to political polarisation within the workforce

Question 12

Benefits of Brexit on businesses

Answer 12

• no longer have to contribute to EU - last year was $13bn - farmers would benefit
• opportunities to forge deals on our own outside the EU
• won’t conform to EU legislation and political decisions
• free trade - UK frees itself from EU’s complex and expensive laws
• Europe needs UK as a favoured trade partner

Question 13

Drawbacks of Brexit on businesses

Answer 13

• investment may slow down due to uncertainty
• open markets - UK will lose access to largest export market
• students from EU
• skill shortage - without freedom of movement, businesses will struggle to hire qualifies employees

Question 14

What is the EMU?

Answer 14

The European monetary fund

• Introduced in 1999 and implemented in 2002
• Interest rates set by ECB
• Used by 500 million consumers

Question 15

Benefits of UK not being in EMU

Answer 15

• Bank of England control interest rates - retain control, interest rate suited to own economy
• £ stronger than Euro would put UK businesses in a strong position
• retain sovereignty
• no need to pursue convergence

Question 16

Drawbacks of UK not being in EMU

Answer 16

• if Euro becomes stronger than £ UK business will suffer
• Inconvenience for overseas companies
• pricing for UK business can be very difficult - need to find different pricing strategy for UK

Question 17

Benefits of the UK joining the EMU

Answer 17

• helps with long-term planning and cash flow - wouldn’t have to think about currency exchange rate
• make trade negotiations much easier

Question 18

Drawbacks of the UK joining the EMU

Answer 18

• if euro falls, the UK will suffer as well
• loss of sovereignty
• the cost of introducing the currency will be significant
• every EU country has a different economic cycle

Question 19

Benefits of NAFTA

Answer 19

• lowered the price of many goods due to free trade
• NAFTA was good for GDP
• benefits diplomatic relations between countries

Question 20

Drawbacks of NAFTA

Answer 20

• some were against as there was fear that the removal of trade barriers completely would move US firms to Mexico to take advantage of cheap labour
• led to the loss of manufacturing jobs in the US
• hurt the business of small farmers in Mexico as they couldn’t compete with MNC’s
• environmental policies were often lowered due to production being moved from US to Mexico

Question 21

Benefits of ASEAN

Answer 21

• cheaper and easier to travel within member countries
• access to cheaper goods
• connectivity of regional markets will help businesses cut expenses

Question 22

Drawbacks of ASEAN

Answer 22

• local farmers and workers may struggle

- disparity of income and GDP per capita between countries

Question 23

Benefits of trading in a trade bloc

Answer 23

• economies of scale
• attracts a larger market and FDI
• greater competition between countries can increase competitors
• manufacturers can import without tariffs
• access to other markets
• spreading risk

Question 24

Drawbacks of trading in a trade bloc

Answer 24

• new rules and regulations may not suit all businesses
• reaching agreements with member states can be timing consuming and difficult
• no protection for domestic industries from other bloc member exports
• Increased competition for domestic producers