The UK government is considering a free-trade agreement with Soland. The agreement would remove a UK tariff on solar panels and a Soland tariff on UK engineering services. Table 1 shows current data and forecasts if the agreement is introduced.
| Measure | Current | Forecast with agreement |
|---|---|---|
| Exchange rate | S$1.20 per £1 | S,$1.20 per £1 |
| Soland panel price before UK tariff | S$360 | S,$360 |
| UK tariff on Soland panels | 10% | 0% |
| UK panel output | 2.4 million units | 1.8 million units |
| UK panel-manufacturing jobs | 14,000 | 9,500 |
| UK solar-installation jobs | 38,000 | 47,000 |
| UK engineering-service exports to Soland | £1.1 billion | £1.8 billion |
[ITEM A] Supporters say the agreement would make solar panels cheaper for UK households and firms. UK installers expect demand to rise, while engineering businesses would gain improved access to Soland's rapidly growing market. They argue that lower renewable-energy costs could support both trade and environmental objectives.
[ITEM B] UK panel manufacturers warn that cheaper imports may close factories and create job losses in areas with few alternative employers. Some Soland factories have weaker worker and environmental protections. Critics also argue that relying on one overseas source for solar panels may leave the UK vulnerable to transport disruption or political disagreement.
Define the term 'free-trade agreement'.
Using Table 1, calculate the current landed price in pounds of one imported Soland solar panel, including the tariff.
Explain two possible benefits of the agreement for UK consumers and producers.
Using Table 1, analyse the likely effects of the agreement on UK output and employment.
Do you think the UK government should sign the free-trade agreement with Soland? Use Items A and B and your own economic knowledge to justify your view.
48 exam-style questions on AQA GCSE Economics 2.4 International trade and the global economy, covering 2.4.1a The importance of trade, 2.4.1b Advantages of trade and interdependence, 2.4.1c UK exports and imports, 2.4.2a How exchange rates are determined, 2.4.2b Effects of exchange rate changes, 2.4.3a Free-trade and its arguments, 2.4.3b Free-trade agreements such as the EU, 2.4.4a Features and growth of globalisation, 2.4.4b Benefits and drawbacks of globalisation, and 2.4.4c Moral, ethical and sustainability considerations. Each one has a worked solution and a mark scheme showing where the marks go.