Political Factors on Global Interactions (DP IB Geography)
Revision Note
Multi-Government Organisations
Multi-Government Organisations (MGOs) are organisations or countries that come together to form a single unit, mostly for trading purposes
Some are international, such as the UN, World Bank and IMF, while others are regional, such as when Armenia made an agreement with the EU in 2019 to create the EU-Armenia regional trade agreement (RTA)
MGOs allow state boundaries to be crossed to facilitate the free movement of goods, services, finance and ideas
Members are encouraged to end tariffs and promote the exchange of ideas in areas of security, trade, etc
They are seen as promoting global interactions as they encourage different people to become one
Organisations such as the UN maintain international peace and have substantial influence on global geopolitics
MGOs such as the WTO and IMF dictate international trade rules and financial regulations, influencing global economic health, trade tariffs and development policies
The World Health Organisation (WHO) and the United Nations Environment Programme (UNEP) tackle global challenges, from pandemics to environmental issues, and guide national health policies and environmental strategies
MGOs such as UNESCO promote cultural exchanges, safeguard world heritage sites and set international educational standards
Regional MGOs
Regional MGOs have agreements between countries within the same geographical area
These are normally referred to as trading blocs and allow free trade between member countries but impose tariffs on external countries that trade with them
As of January 2024, there were 361 regional trade agreements in force around the world
There are different types of trading blocs with different levels of economic integration, ranging from a low level of integration, such as a bilateral agreement between two countries, to a high level of integration, such as the EU
Free trade areas are blocs in which countries agree to abolish trade restrictions between themselves but keep their own restrictions with other countries
An example is USMCA: (United States-Mexico-Canada Agreement), previously known as NAFTA (North American Free Trade Agreement),
Customs unions such as Mercosur in South America operate as a form of economic cooperation by having a common external tariff on overseas imports
Common markets are custom unions that also allow the free movement of people and capital within the member nations
Economic unions such as the EU (European Union) allow groups of nations to trade freely but also allow the free movement of people and capital. All member nations must have common policies on various sectors such as agriculture, employment, industry, regional development, etc.
Free-trade blocks
Advantages and Disadvantages of Trading Blocs
Advantages | Disadvantages |
|---|---|
Greater access to markets offer the potential for economies of scale With freedom of labour, there are greater employment opportunities Membership in a trading bloc may allow for stronger bargaining power in new multilateral negotiations Greater political stability and cooperation between the countries within the bloc due to the increased interdependence Trade Creation | Loss of sovereignty as nations increasingly give up their autonomy, perhaps most visible when joining a monetary union (nations lose the ability to set their own monetary policy) Multilateral trading negotiations become more challenging as countries within a trading bloc have to maintain the existing bloc rules when dealing with third-party countries Trade Diversion |
Free Trade Zones
Free Trade Zones (FTZs) are specific areas where goods undergo processing, storage, and re-exportation, often without being charged standard customs duties
FTZs are usually located in areas with global access for trade, such as major seaports, international airports and national borders
As goods in FTZs are not charged customs tariffs, this makes imports and exports more viable and cost-effective
FTZs boost exports by offering business incentives to produce goods, mainly for international markets
FTZs encourage foreign investors, leading to improvements in international businesses, stimulating local economies and increasing employment
Countries increase trade relations, economic ties and interdependence through the removal of tariffs
FTZs improve customs procedures and become key hubs/nodes in global supply chains, ensuring faster delivery of goods and refining international logistics
Export-processing zone (EPZ)
An export-processing zone (EPZ) is a type of FTZ that is usually set up in developing countries by their governments
EPZs encourage industrial and commercial exports
The World Bank defines an EPZ as
[an] industrial estate, usually a fenced-in area of 10 to 300 hectares, that specialises in manufacturing industrial and commercial goods purely for export. It offers firms free trade conditions and a liberal regulatory environment.
Its main purpose is to attract foreign investors, partners, and buyers who can help a country enter the world trade market for industrial goods
This helps to generate employment and foreign exchange for the host country
In 1997, 93 countries had set up export processing zones, employing 22.5 million people
By 2023, more than 5 400 EPZs were in existence worldwide, located both in developed and developing economies, employing more than 70 million people
The majority are in Asia, with China accounting for more than half of all EPZs
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