7.3 International trade and access to markets

Question 1

What is the notion of comparative advantage?

Answer 1

The theory behind comparative
advantage suggests that countries should specialise
in providing goods and services that they excel at
producing. They trade these for the things they are not
so good at producing.

Question 2

Multilateral trade agreement

Answer 2

A trade agreement
negotiated between more than two countries or groups
of countries at the same time, usually facilitated by the
WTO.

Question 3

China favours multilateral trade agreements [true/false]

Answer 3

False - they want to discuss every issue with a particular country [feel stronger, no unity]

Question 4

Tariff

Answer 4

a tax on
imports

Question 5

List 5 barriers of trade [other than ‘Import license”]

Answer 5

1. Import quotas
2. Subsidies
3. Sanctions
4. Embargoes
5. Technical/ Regulatory restrictions

Question 6

RTAs

Answer 6

regional trade agreements

Question 7

Since the global financial crisis of 2008–2009,
multilateral trade agreements on a global scale have
been easier to achieve. [TRUE/FALSE]

Answer 7

FALSE

Question 8

[TRUE/FALSE] During recessions international trade volume goes up

Answer 8

FALSE

Question 9

Comment on the development of global trade in the last
a. 50 years
b. 10 years

Answer 9

a. huge increase
b. stagnation, slow growth of volume

Question 10

Which value is bigger?
a. the value of world trade in goods
b. the value of world trade in services

Answer 10

goods! 19.48 trillion USD [2018] vs only 5.8 trillion USD [2018] for services

Question 11

Explain 6 factors shaping the global trade:
a. comparative adventage
b. proximity
c. agglomeration
d. market size and strength
e. geopolitical relationships

Answer 11

comparative advantage – countries specialise
in producing and exporting goods that they can
produce more efficiently at a lower cost
● proximity – countries are more likely to trade
with their neighbours, partly because this reduces
transport costs but also for cultural, historic
or linguistic reasons. This is why trade is often
organised on a regional basis and intra-regional
trade still dominates the global pattern
● agglomeration – some industries tend to cluster in
geographical areas as sharing of regional skills and
specialist information saves costs
● market size and strength – exporters are drawn
to larger, more affluent and growing markets where
there is potential to increase volume and value of
sales
● geopolitical relationships – political alliances
are important in determining which countries
co-operate and trade with each other; conversely,
conflict may lead to sanctions or embargoes.

Question 12

[True/False] Intra-regional trade is particularly strong within
Europe and within the Asia-Pacific region; it is also
strong in North America but to a lesser extent.

Answer 12

True

Question 13

[TRUE/FALSE] Latin America has the strongest trade flows with
Europe. it has an overall trade surplus
with Asia-Pacific region but a deficit with
the North Amercia

Answer 13

FALSE

Latin America has the strongest trade flows with
North America, though trade with Europe and Asia-
Pacific is also good; it has an overall trade surplus
with North America and Europe but a deficit with
the Asia-Pacific region

Question 14

How do the BRICS countries benefit from the** backlash against further liberalisation of global
trade** seen in the USA and parts of Europe?

Answer 14

stronger links developing
between the Asia-Pacific region, Africa and Latin
America may become more important

Question 15

FDI

Answer 15

Foreign Direct Investment

Question 16

Has FDI increased or decresed in the recent years?

Answer 16

Decreased.

[In 2019, FDI inflows totalled US $1.39 trillion, which
was the fourth consecutive annual decline.]

Question 17

[TRUE/FALSE] Developing countries receive almost twice as much
FDI as they initiate.

Answer 17

Yes

Question 18

[TRUE/FALSE]
The Asia-Pacific region accounts for 40 per cent of
FDI inflows.

Answer 18

TRUE

Question 19

What are the 5 factors to attract the FDI?

Answer 19

1. manufacturing industries – for example, foreign
   motor companies investing in the USA and UK or
   offshoring and outsourcing investment in China and
   India
2. natural resource development – investment from
   mining corporations, for example, in Brazil, Congo,
   Guyana and Mongolia
3. financial business services – attract investment in
   Singapore and Hong Kong
4. large and accessible consumer markets – attract
   both manufacturers and service providers, for
   example, the EU is a single market of 500 million
   people
5. lower business taxes – attract investment to
   Ireland and Cyprus, which have relatively low taxes
   and are also part of the large EU market; this also
   demonstrates that in some cases it is a combination
   of factors that attracts foreign investment.

Question 20

What is the difference between TTP and TTIP?

Answer 20

free trade agreements were being negotiated with
Asia-Pacific countries in the Trans-Pacific Partnership
(TTP) and with the EU in the Transatlantic Trade
and Investment Partnership (TTIP).

Question 21

Prove that EU is a customs union:

Answer 21

1. Though its 27 members trade freely with each
   other, there is an **external tariff barrier for countries
   outside of the Union **(with the exception of those
   in EFTA such as Norway and Iceland).
2. This also
   means that the** EU negotiates trade deals as a bloc
   representing all member states**, so any agreements
   reached apply to all members.

Question 22

[TRUE/FALSE]
65 per cent of the trade in the EU is intra-regional.
This high level of trade between members fosters
greater integration and interdependence

Answer 22

TRUE

Question 23

Anti-free trade movements have gained popularity in
the EU over recent years.

Give two arguments, that some people in EU use:

Answer 23

1. Farmers in countries such as Belgium, France and
   the Netherlands are concerned that imports of cheap
   beef and sugar will lead to unfair competition.
2. Environmental groups suggest that Brazilian and
   Argentinian cattle are injected with chemicals
   and that Mercosur countries do not meet EU
   standards in working conditions, food production
   or environmental protection. They also object to
   Brazilian President Bolsonaro’s attitude towards the
   commercial development of the Amazon rainforest.

Question 24

What are India’s trade patterns? [global integration, demography, top exports, top imports, main export destinations, main import destinations, balance of payments?]

Answer 24

global integration: higher integration in services than China
demography: very high demographic dividend

• Top** exports** are refined petroleum, chemicals, gold
  and diamonds, rice, cars and textiles.
  ● Top** imports are crude oil (for refining and
  exporting), coal briquettes and gas.
  ● Main export destinations** are the EU (mainly
  Germany and the UK), the USA, the UAE, China,
  Hong Kong and Singapore.
  ● Imports come mainly from China, the USA, Saudi
  Arabia and the UAE.
  ● India’s imports have expanded faster than its
  exports, so balance of payments problems make the
  economy vulnerable. In 2018, there was a deficit of
  US $166 billion.

Question 25

Comment on China’s trade pattern

Answer 25

-China has emerged as the world’s major trading
power, responsible for nearly 20 per cent of all global
exports and around 15 per cent of all global imports

● there has been a clear pattern ofiimporting mainly raw
materials from developing countries, primarily from
Latin America and Sub-Saharan Africa, and exporting
processed metals such as steel and manufactured
electronic consumer goods to developed countries,
particularly those in Europe and North America

Question 26

Describe Mercosur [when was it formed, countries, rules, exported goods, export destinations]

Answer 26

Formed in 1991
Countries in Mercosur: Brazil, Argentina, Uruguay, Paraguay
Rules: a customs union (simillar to EU?). Free movement of labout between member states
Top exported goods: raw materials, energy, food resources
Export destinations: China, North America

Question 27

Desribe Pacific Alliance (PA)
(when was it formed, countries, differences from Mercosur)

Answer 27

Formed quite recently, 2011
Countries: Chile, Peru, Colombia and Mexico
Differences:

• it has been more open to making bilateral trade
  agreements with other nations
  ● it tends to see the Asia-Pacific as its main market
  ● some PA countries, notably Peru and Colombia,
  are experiencing faster growth both in terms of
  individual economies and volume of trade. This may
  reflect the trend that trans-Pacific trade has been
  more dynamic than trans-Atlantic trade over recent
  years.

Question 28

Comment on the trade patterns in Sub-Saharan Africa

1. Is the intra-regional trade high or low?
2. What are Africa’s main exports?
3. Give two causes of low FDI in the region
4. Comment on the secondary sector situation
5. Who is the biggest trade partner? How does the situation evolve?

Answer 28

1. There is **minimal intra-regional trade **
2. Africa’s **main exports remain primary resources and
   commodities **such as minerals, energy and food
   resources.
3. Lack of skills, poor transport and energy
   infrastructure and widespread corruption have
   discouraged investment into industrial development
   that would enable African countries to add value
   to their exports.
4. They rely on imports of most
   manufactured goods.** Not developed secondary sector**
   5.
   6.Traditionally, Africa’s main trading partner has
   been Europe, but this has changed with China’s
   involvement in the continent.

Question 29

Describe **two factors **that may change trading relationships for Africa in the future [China, AfCFTA)

Answer 29

1. China’s investment – Chinese investment in
   developing infrastructure has undoubtedly been
   for China’s own benefit. Nonetheless, it has also
   increased the connectivity and integration of
   different African nations

2.** The African Continent Free Trade Area
(AfCFTA)** – Africa has five main regional
trading groups with some overlap but minimal
integration between them. Even within these
groupings there are linguistic and cultural
divisions. In 2018, after years of talks led by
the African Union, these five groups agreed to
work together and created AfCFTA, the world’s
largest free trade area and, with a population
of 1.3 billion people, the largest single market.

54 of the 55 African nations have now signed
the deal

– Its main purpose is to increase intra-regional
trade, which is historically low at around 16 per
cent. This is seen as critical for growth and job
creation on the continent.

Question 30

Why do wealthier, more developed economies generally have better access to markets? [Think of : what they can afford, relocation, trading blocs]

Answer 30

● they can afford to pay higher tariffs on exported
goods [LDE’s struggle to do it]
● they can increase access by investing into foreign
markets; for example, TNCs can relocate their
production inside foreign markets to avoid tariffs [no important TNC’s in LDE’s; primary products are traditionally subject to price volatility]
● HDEs often group together to form trading blocs and
customs unions, such as the EU, to allow free trade
with each other but impose barriers on countries
outside the union.