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Flashcards in 4.1.5 trading blocs Deck (13):

what are trade blocs

-Trading blocs are when the governments of a group of countries agree to trade together freely i.e. normally with no trade barriers

-The countries are normally grouped together geographically e.g. the European Union (EU)

-The members of a trading bloc make preferential economic, and sometimes political, arrangements to boost trade within the member states


what are the types of trading blocs

Preferential trade areas
free trade areas
Customs unions
common markets
Economic unions


describe Preferential trade areas

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


describe free trade areas

Members agree to either reduce or eliminate trade barriers for all goods and services, resulting in trade liberalisation


describe custom unions

Members agree to the removal of trade barriers amongst themselves and a common approach to trade barriers when dealing with countries outside of the bloc
In a sense the bloc is now acting as one homogenous group


describe common markets

Members agree to the removal of trade barriers as well as the freedom of movement of factors of production within the bloc
Often also involves the agreement of common economic policies


describe economic unions

Comprises of the features of both a customs union and a common market, including common economic policies


effects of trade blocs

-encourages trade within the bloc and benefits economically
-economic migration, people move to where jobs and money is

-additional barriers between blocs to trade with counties outside of blocs, much harder to negotiate


whos in ASEAN

The Association of Southeast Asian Nations (ASEAN) was founded in 1967

Its members are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Formerly Burma), the Philippines, Singapore, Thailand and Vietnam


describe NAFTA

The North American Free Trade Association (NAFTA) was founded in 1994
It is a trilateral agreement between the USA, Canada and Mexico
Its aim is to eliminate any barriers to trade between the three countries
The agreement led to significant FDI into Mexico, particularly from the USA
Often, production was transferred from the USA to Mexico, creating significant tension amongst American workers
However, it is clear that NAFTA has led to significant growth since its introduction


DESCRIBE The World Trade Organisation (WTO

Progress towards complete trade liberalisation has increased in recent years. One of the main organisations involved in this has been the World Trade Organisation.
Established in 1995, its purpose is to promote free trade by persuading countries to abolish import tariffs and other barriers
The WTO is the only international agency overseeing the rules of international trade
It polices free trade agreements and settles trade disputes between governments and organises trade negotiations
WTO decisions are absolute and every member must abide by its rulings
There are currently 160 members
Most Favoured Nation (MFN) status is required for all members providing trade advantages such as reduced tariffs


Trading blocs might conflict with the WTO because they:

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


Impact on businesses of trading blocs

Free trade within the bloc encouraging specialisation and trade
Easier access to knowledge, workers and components
Economies of scale
Take advantage of favourable differences between members e.g. taxes or labour costs
May reduce trade with countries outside of the bloc
Not all members may have same power
May damage domestic industries