Flashcards in Trading Relationships And Access To Markets Deck (17):
What are the several ways that countries can do to develop a trading relationship or agreement and so gain access to markets to sell their products?
1. Bi-lateral agreements
2. Trading Blocs
3. International agreements through the WTO
Describe Bi-lateral Agreements
These are relationships that countries negotiate directly with one other country – the UK is currently looking to negotiate deals after Brexit. For example the PM’s visit to China in February 2018.
Describe Trading Blocs
These are groups of countries which have agreed to allow free movement of certain goods and services between all members. The EU, NAFTA and ASEAN are all examples of powerful trading blocs.
They set up protectionist policies for trade outside the bloc.
Therefore they work together to maximise trade between themselves and control trade between the bloc and foreign competitors.
Disadvantage of Trading Blocs
Critics of trading blocs point to the fact that countries outside of the bloc have to pay tariffs to sell certain goods inside the bloc. This is not free trade and can restrict the development of LICs in particular. It is a form of protectionism.
Describe International Agreements through the WTO
The WTO sets and manages the ‘rules of global trade’. Its aim to work towards a ‘global system of free trade’ by negotiating ‘global trade agreements’. It has 160 member countries (75% are LICs) who run the WTO. Tariffs are agreed.
Disadvantage of International Agreements through the WTO
Critics of the WTO say that it takes too long to reach global agreements and that core countries may refuse make agreements which are to their disadvantage.
The ‘Doha talks’ began in 2001 and were aimed at reducing agricultural tariffs by 30% and reducing subsidies paid to farmers in wealthy countries (such as the under the Common Agricultural Policy in the EU). The benefits of this would be increased value of trade for LICs (many rely on the export of primary products) and reduced food prices in HICs. The problem would be that farmers in HICs would be exposed to competition from LICs.
So what happened?
In 2013 the Doha talks collapsed without agreement as HICs including USA and EU would not reduce farm subsidies sufficiently and emerging nations like China and India would not reduce tariffs on manufactured goods sufficiently. There was a stalemate.
As a consequence LICs still find it difficult to sell some agricultural products in the west and HICs still find it difficult to sell some manufactured products in emerging markets. There is protectionism rather than free trade.
Describe Special and Differential Treatment // SDT agreements
Special and differential treatment (SDT) agreements are promoted by the WTO and are designed to allow some of the poorest countries on the planet (LDCs) to have access to world markets to sell their products.
•The aim is to give LDCs (about 50 mostly in Africa) access to HIC markets for their primary products. In time this should enable development to occur and poverty to be reduced.
•An example of a SDT is the EU’s ‘everything but arms’ agreement in which LDCs were given tariff free access to EU markets for all products except arms and ammunition.
•This policy has had limited success as some HICs do not participate for fear of cheap goods flooding their markets.
Reason for Increased Global Trade
One reason for increased global trade is the concept of free trade. This is the idea that trade barriers should be reduced or removed altogether so that all countries can buy and/or sell goods and services to any other country without interference. This is the factor called ‘new systems of trade’
The theory behind this is the idea of comparative advantage in which countries sell goods or provide services which they are good at producing and buy goods and services which they are not good at producing. Free trade should make this possible.
Where is the fastest growth of Global Trade predicted in 2020?
Asia Pacific Region
How much is Global Trade predicted to be worth in services and goods by 2020?
(Although some countries still prefer protectionist policies + there are barriers to free trade):
World trade in goods could be worth about $35 trillion and world trade in services could be worth about $6 trillion.
What is WTO aim?
Free trade is the aim of the World Trade Organisation (WTO) which is an international organisation run by the UN which governs almost all (97%) of world trade.
•One way for a country to develop is through producing many products within the country instead of relying on imports.
•To allow industries to develop and produce these goods, governments create policies to protect them from foreign competition.
•These policies involve quotas, tariffs / duties and/or subsidies.
A quota is a limit on the amount of a product that can be imported or exported. Setting a quota limits foreign competition because local businesses do not have to compete for every sale.
A tariff or duty is a tax paid on imports or exports. This limits foreign competition by increasing the cost of foreign goods
A subsidy is a payment by a government to a producer. This means that the producer can sell their product more cheaply and therefore compete and still make a profit.
Describe Free Trade
Free trade emphasises the idea that there should not be protectionist policies, ie no tariffs, duties, quotas or subsidies.
•The belief in free trade comes from the idea that a country should specialise in what it can produce efficiently, profit from that and import other products. In this way, the most efficient production systems would develop.