25. Economic integration

Question 1

Bilateral vs multilateral trade agreement

Answer 1

Bilateral trade agreement - agreement relating to trade between two countries to reduce / remove tariffs / quotas

Multilateral trade agreement - agreement relating to trade

between multiple countries to reduce / remove

tariffs / quotas

Question 2

Define trading bloc

Answer 2

Trading bloc - group of countries that join together in some form of agreement in order to increase trade between themselves and/or to gain economic benefits from cooperation on some level

Question 3

The sategs of economic integration

Answer 3

1. Preferential trading areas
2. Free trade areas
3. Customs unions
4. Common markets
5. Economic and monetary union
6. Complete economic integration

Question 4

Explain preferential tading areas

Answer 4

Preferential trading areas (PTA): trading bloc that gives preferential access to certain products from certain countries (usually reducing not eliminating protection)

Examples: EU with African Carribean and Pacific Group of States (ACP) - former EU colonies

Question 5

Explain free trade area

Answer 5

Free trade area - agreement made between countries, where the countries agree to trade freely among themselves, but are able to trade with countries outside of the free trade area in whatever way they wish.

Examples: North American Free Trade Area (NAFTA)

Question 7

Explain customs unions

Answer 7

Customs union - agreement made between countries, where the countries agree to trade freely among themselves, and they also agree to adopt common external barriers against any country attempting to import into the customs union

Example: EU

Question 8

Explain common markets

Answer 8

Common market - customs union with common policies on product regulation, and free movement of goods, services, capital, and labour.

Example: EU

Question 9

Explain economic and monetary union

Answer 9

Economic and monetary union - common market with a common currency and a common central bank.

Example: eurozone

ADVANTAGES:

• lower exchange rate fulctuations - lower uncertainty - increased investment / trade
• more stable against speculation
• higher business confidence
• no transaction costs
• over time the prices in the union should equalize

DISADVANTAGES:

• loose the power to set ineterst rates - loose monetary policy
• different fiscal policies in members may weaken the unoion
• the costs of converting currency are high

Question 10

Explain complete economic integration

Answer 10

Complete economic integration - final stage of economic integration, at which point the individual countries involved would have no control of economic policy, full monetary union, and complete harmonisation of fiscal policy - Eurozone is moving towards

Question 11

Economic integration advantagaes and disadvantages

Answer 11

ADVANTAGES: greater size of market - potential for larger export markets, increased competition - greater efficiency, more choice, lower prices for consumers, larger stimulus for investment - received from outside of bloc, greater political stability/cooperation, easier to negotiate with blocs than with independent countries

DISADVANTAGES: discriminatory policies against non-members - damaging multilateral trading negotiations of the WTO, domestic producers may find comeptition too high