Business Studies Unit 4 Topic 1


Business Unit 4 - topic 1

1. International Trade  - is the buying and selling goods between countries; trade between or among countries:

  • Export and import
  • Offshoring 
  • Outsourcing 
  • Franchising 

Why do countries trade?

  1. Availability - no single country can produce all products; need to obtain other products from other countries; UK cannot grow bananas
  2. Product Differentiation - International trade occurs because people are always looking for something unique; other options
  3. Dispose of surplus production - to sell off what cannot be sold locally
  4. Difference in cost production - locally available resources make production cheaper and more efficient
  5. Political reasons - engaging in international trade reduces conflicts and wars as globalisation makes it harder to operate for any country on its own

Why does International Trade grow?

  1. Increased Specialisation - where countries focus on producing what they can produce at lowest opportunity cost; producing what they are good at
  2. Increasing Trade Liberalisation - process of encouraging free trade between countries by eliminating tariff and non-tariff barriers

2. World Trade Organisation (WTO) - is an organisation that was formed by countries to promote free trade; formed in 1995 to replace General Agreement on Tariffs and Trade (GATT).

Role of WTO:

  • Promote free trade
  • Encourages abolition of trade barriers; achieved by negotiations and talks
  • Policing trade agreements; WTO is the police of International Trade making sure that countries act according to the contracts that they have signed
  • World trade dispute resolution; acts as arbitrator in conflicts; organises negotiations and makes judgements against countries; their decisions are final and cannot be overruled

Limitations of WTO:

  • Takes too long to arbitrate; settling disputes takes too long
  • Favours the powerful nations; critics think that WTO favours powerful trade blocs such as USA and EU and helps act against weaker by developing ones countries and blocs
  • Failure to promote multilateralism; WTO operates as multilateral organisation, however many countries favour bilateral discussions with partners or competitors as bilateral negotiations are quicker. Many countries prefer this bypass to the WTO process, and deal directly with the countries making WTO irrelevant 
  • Too few agreements : critics argue that the number of trade agreements settled through WTO is inadequate given the number of disputes

Multilateralism - a situation in which countries or organisations work together to achieve something or to deal with a problem 

Bilateralism - a situation in which two countries o organisations work together to achieve something

Bypass - deliberately established alternative route that temporarily avoids the proper route

Economic Integration - is an agreement among countries in a geographic region to reduce and ultimately remove, tariff and non tariff barriers

Surplus - an amount of something left over when requirements have been met; an excess of production or supply

3. Expansion of Trading Blocs - trading bloc is a group of countries within a geographical region that trade freely with each other while restricting trade from non members; trading bloc- form of economic integration 

  • European Union (EU)
  • Association of Southeast Asian Nations (ASEAN)
  • East African Community


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