Free Trade Areas

Year 13

Imports & Exports

An import is the UK purchase of a good or service made overseas. An export is the sale of a UK-made good or service overseas. A nation trades because it lacks the raw materials, climate, specialist labour, capital or technology needed to manufacture a particular good. Trade allows a greater variety of goods and services.

Government can help businesses

Tariffs Tariffs (import duties) are surcharges on the price of imports. raises the price of the import; reduces the demand for imports; encourages demand for home-produced substitutes; raises revenue for the government. Quotas Quotas restrict the actual quantity of an import allowed into a country. Note that a quota: raises the price of imports; reduces the volume of imports; encourages demand for domestically made substitutes.

The European Union (EU)

The EU has a common market, but most believe its now a single market:

free movement of capital and labour within member countries; (No Tariffs, Quotas). free trade between member countries; common tariffs against non-members; standardised trade and customs procedures, e.g. metric measurements; 12 of the 25 EU member states are part of the single currency - the euro, which was introduced in these countries in January 2002. The UK has elected to stay outside the euro.

What is a Common Market?

These are groups of countries have completely free trade internally and a single unified trade policy covering all member countries trade with the rest of the world. But besides free movement of goods and services, there is also free movement of people and capital. The E.U is a common market

What is a Free Trade Area?

These are groups of countries that trade completely freely with each other, no trade barriers, but each country retains own independent trade policies in relation to the rest of the world. E.g. NAFTA North American Free Trade Area Canada; USA; Mexico

Winners of Free Trade

Consumers due to increased competition:

Increased competition for suppliers Greater pressure on businesses to keep their costs and prices down Increased competition can lead to a dilution of monopoly power which reduces the potential for exploiting consumers This leads to the elimination of less efficient smaller rivals and raise standards of living around the world

Winners of Free Trade

Businesses due to:

Increased imports or exports If become efficient Increased economies of scale Increased efficiency of production and reduce costs May be able to use up surplus raw materials Comparative Advantage

Losers of Free Trade

Government possibly? They are keen to protect jobs in their own country, by using barriers to restrict international competition. Infant Industries Less efficient businesses/suppliers