Trading Blocs - Global Environment, Business Environment Video Lecture | Business Environment - B Com

hello and welcome to this video on
trading Blox
first thing to notice is that trade bloc
doesn't have a K is just block as an
Allah block and that is just a way of
life so in this video we're going to be
looking at what a trading block is and
the main types secondly some of the
major trade blocks and who they are and
then lastly what was the impact of trade
blocks on business so let's start off
with what is a trade block well a trade
block exists when government's make
agreements between themselves to do with
trade no me this is to make trade more
free so to remove trade barriers and
encourage trade between the Member
States often these countries are close
together geographically because it makes
sense in that respect because trade is
easy to do with a neighboring partner
sometimes a trading block can have
agreements that aren't just on trade
they can also sometimes evolve into
political Arrangements as well so there
are lots of different types of trade
block that come under the title of trade
bloc's and we need to be aware of five
different types the first one is what's
known as a preferential trade area and
that is where countries agree to
eliminate trade barriers for example
tariffs on particular goods and services
so not all goods and services but maybe
on a couple of key items so China might
say to Japan we will remove tariffs on
your bikes and Japan might say well we
will in return remove tariffs on your
clothes and they have created a
preferential trade area together the
next one up if you like is a free trade
area and that's when trade barriers are
removed for all goods and services so
there are no tariffs no quotas on any
goods and services between countries and
when this is the case we call that a
free trade area and that's probably the
most common example the next one up
after this is a customs union and that
builds on a free trade area
tariffs on all goods and services have
been removed but also now an external
tariff has been applied to any
non-members of that trade block so there
is no barriers between trade for members
but also they now have a common external
tariff they agree to have a tariff are
that applies just to non-members okay
two more after that the next one up is
what's known as a common market and
again that involves the removal of all
trade barriers but also now we allow
free movement of the factors of
production so we say workers can go
across to any different member money can
flow freely between different member
countries as well as trade in goods and
services the final one would be an
economic union and that's taking a
common market a bit further by then
maybe having some common economic
policies to do with government spending
or taxation and sometimes this will
involve things like having the same
currency so a monetary union so we've
got these five different types of trade
bloc ranging from quite a low level of
integration where just trade as trade
barriers are removed on particular goods
and services all the way up to quite a
full-on integration possibly even having
you in the same currency and the same
economic policies so there are some
comparisons here to be drawn between
what trading bloc's are trying to
achieve and the WTO the World Trade
Organization
so both these organizations are but
these things have a similarities in that
the WTO also seeks to reduce trade
barriers and promote world trade and
that can be similar to the objective of
trading bloc's in that trade bloc's
often encourage specialization between
member states both organizations would
argue they are involved in trade
creation they can lead to more economies
of scale and they can make fairer
competition occur however there can be
some conflict between trade bloc's
these organizations
and the WTO because trademarks might
conflict with WTO because they distort
trade to some extent by creating
barriers particularly when you go for a
customs union or higher by implementing
a tariff for non-members they're
distorting trade so this might have a
negative impact on non-members and lead
to a less efficient overall allocation
of resources or production process often
it can lead to retaliation as well
between trading Blox and so more
protectionism so there are lots of
different types of trading rocks and
different trading bloc's in existence
and we need to have an awareness of some
of them we'll go look at three in a
little bit of detail but here are some
examples of more common ones the
European Union is a trade bloc we're
going to come on to the cat in a second
the slightly wider European free trade
area the North American NAFTA agreements
there is one in South America called
Mercosur there's one in Southeast Asia
we've got them in southern Africa South
Asia Central America around the Pacific
and then lastly in the Caribbean and
these range from free trade areas to
customs unions to common markets so
we've been to all the trading bloc is
and the main types we're now gonna look
at some of the major tracks so the first
one and the most common one that cited
as an example want me to know about is
the European Union and there are 28
member nations of the EU collectively
known as the EU 28 and here they are the
EU is a common market and also a customs
union in that it has a common external
tariff so there are three free movement
of the factory production between these
countries and also they apply a tariff
for imports from outs from non-member
countries as we know in June 2016 the
vote the UK voted in a referendum Evo
peon Union and that is expected to
between 2019 and 2020 so the European
single markets sometimes known as the
SEM the single European market is based
on four key principles and the first is
that as part of this trading block there
is free trading goods so businesses can
sell the products anywhere in the EU
without any tariffs without any quotas
and there can't be any penalties the
second one is mobility of labour
citizens of EU Member States can live
study and work in any other country free
movement of capital so money and
currency can flow freely between member
states and EU citizens and then lastly
free trading services professional
services pensions advise architecture
telecoms advertising can be offered in
any Member State so this is creates a
common market for countries in the
European Union so the EU as a market
what's the advantage of being part of
this trading bloc well it accounts that
the UN total accounts around 30% of the
total value of global GDP it's quite
variety of different country sizes with
Germany being the largest and Malta the
smallest and it accounts for 7% of the
overall world's population but it's very
large market five hundred and three
million potential customers and those
customers are relatively wealthy because
GDP is quite high
however the EU does have problems with
unemployment and in particularly youth
unemployment it's worth noticing here
that the euro area is not the same as
the EU the EU is the 28 countries we
just looked at the euro area are just
those countries that use the euro so
that's a kind of sub section within the
EU the pros and cons of being part of
the European single markets well an
advantage of being part of the EU is
that trade is encouraged within member
states and that can benefit
members economies there may be strong
competition within the market which can
make firms more efficient and can also
benefit consumers through more choice in
lower prices for businesses is a big
access to a large base of customers 28
countries and over 500 million potential
customers so a lot of opportunity to
expand them benefit from economies of
scale and it can also be very good for
workers in terms of they are able to go
and work anywhere within the single
market without restriction on the
flipside it can be criticized that the
single European market diverts trade
away from non-members in some markets
these large markets are dominated by
monopolies companies some countries see
unemployment as production is
transferred to states with lower labor
costs and there is a cost of being part
of the single European market which is
about 15 billion pounds per year so as
you are aware the UK has recently
decided to leave the European Union what
might be some of the impacts well since
their decision we've seen a weaker
exchange rate so a weaker pound makes
imports more expensive and exports
cheaper so it's good potentially for
exporting companies although it depends
whether those companies will face
tariffs or any protectionist measures on
their exports however bad news here in
terms of prices of imports which may
have a knock-on effect for inflation
again the fall in business confidence
and the uncertainty associated with the
exit terms means that we might see
weaker demand within the economy and
also lower economic growth the housing
market may be disrupted through a fall
in confidence although it would be noted
that the four and the pound does make UK
houses more attractive for overseas
buyers and then lastly there may be an
impact on unemployment as we may be
lose some export markets or the economy
maybe loses some demand then there might
be an impact on unemployment all that's
unlike to be felt for a while yet so we
look to the EU a couple of other ones we
should be aware of the first one is the
Association of Southeast Southeast Asian
Nations and this is a block of ten
nations with an economic size of 2.3
trillion dollars it's currently a free
trade area although there are plans to
establish an Economic Community has
quite a diverse range of members in the
training block so quite advanced
economies like Singapore all the way to
developing countries like Myanmar and
these are the members so we can see its
Southeast Asian Nations
here have a free-trade arrangement
between them over trade and the final
trading bloc that we're going to look at
is the north american free trade
association called laughter and three
member countries here are the USA Canada
and Mexico the aim here is to eliminate
any barriers to trade between the three
countries so this is again as a free
trade area and what we've seen is that
as left to sit led to significant
foreign direct investment into Mexico
particularly from the USA to take
advantage perhaps of lower labor costs
and then export from Mexico back into
the USA for the larger customer base
this has created some tension amongst
American workers who feel perhaps they
might have lost their jobs as production
production was transferred to Mexico
which has maybe had an impact on recent
political elections in the States
however a lot of economists would argue
that during the course of existence free
trade between these countries has led to
significant economic growth and a higher
all-round standard of living for the
three members so relate to the trading
box we look some of the major types now
let's have a quick look at the impact on
businesses
while some positive impacts of trading
Blox might be free trade and access to
markets for those businesses that are
outward looking and looking to expand
internationally being part of a trade
bloc maybe a common market would give
you access to workers components can be
moved in large can be moved around
freely and you have a wider pool a large
training block can lead to a large
international scale of operations and
economies of scale and also the
opportunity for businesses to maybe
locate in those member countries where
taxes or labor costs are cheaper which
can have a positive impact on financial
performance in terms of negative impacts
or being part of a trade bloc perhaps a
customs union and having a common
external tariff might limit trade with
countries outside of the block so in
terms of customers but also in terms of
accessing supplies not all members may
have the same power within a block so in
the EU there are voting rights depending
on how large an economy is so if your
business is part of a smaller economy
your government may not have as much
influence over the terms of the block
and what happens again businesses may be
subject to political uncertainty and
political decisions may influence the
business through how the bloc develops
trading bloc's may damage domestic
industries if they lack protection and a
larger competitor from another country
within the block and enters the market
as well so in this video we've looked at
what is a trade bloc and the main types
we've looked at three major trade bloc's
and the impact of trade bloc's on
businesses that's it thank you very much