Chapter 7 Flashcards by Matthew Luce

agreements between

countries in a geographic region to reduce tariff and non-tarriff barriers

Regional economic integration

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What is one of the main dangers of regional economic integration?

a number

of regional trade blocks compete against each other

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What are the five levels on economic integration (From least integration to greatest)

Free trade area, Customs Union, Common Market, Economic Union, Political Union

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the most popular form, is when all
barriers to the trade of goods and services among
member countries are removed.

free trade area

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what are some examples of free trade areas?

European Free Trade Association

North American Free Trade
Agreement [NAFTA]

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Who makes up the European Free Trade Association?

Norway, Iceland, Liechtenstein, and

Switzerland (NILS)

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eliminates trade barriers between

member countries and adopts a common external trade policy.

Customs union

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What is an example of a customs union?

the Andean Pact

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Who makes up the Andean Pact?

Bolivia,

Columbia, Ecuador, Venezuela, and Peru

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no barriers to trade between
member countries, a common external trade policy, and
the free movement of the factors of production

Common Market

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What is an example of a common market

MERCOSUR (between Brazil, Argentina,

Paraguay, and Uruguay

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involves the free flow of products and
factors of production between members, the adoption of a common external trade policy, as well as a common currency, harmonization of tax rates, and a common monetary and fiscal policy

Economic Union

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independent states are combined into a

single union; requires a central political apparatus coordinate economic, social, and foreign policy for members.

Political Union

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What is an example of a political union?

The U.S. States (The EU is trying)

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integration is an attempt to achieve

additional gains from the free flow of trade and investment between countries beyond WTO deals

Regional economic

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Why is regional economic integration necessary?

Accrue economic benefits that are hard to achieve with global trade policy

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Why is regional economic integration politically necessarY?

nations that are interdependent are less likely to engage in violent conflict/war with partners.

Second, they have more power as a group when dealing with other nations.

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Regional economic integration only makes sense when the amount of trade

it creates exceeds the amount it

diverts

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occurs when low cost producers

within the free trade area replace high cost domestic producers

Trade Creation

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occurs when higher cost suppliers

within the free trade area replace lower cost external suppliers

Trade diversion

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So, regional integration may be easier but not

necessarily a _____ solution to a nation’s trade goals

better

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When did NAFTA become law?

1994

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What were the main effects of NAFTA?

abolished tariffs on 99 percent of goods traded

removed barriers on the cross-border flow of services

protects intellectual property rights

allows each country to apply its own environmental standards

establishes two commissions to impose fines and remove trade privileges when environmental standards or legislation involving health and safety, minimum wages, or child labor are ignored

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What is one of the benefits Mexico received due to NAFTA?

increased jobs as low cost production

moves south and more rapid economic growth results

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What are some of the benefits the US and Canada received from joining NAFTA?

access to a large and | increasingly prosperous market and lower prices for consumers from goods produced in Mexico

What is an international effect of NAFTA for US and Canadian firms?

firms with production sites | in Mexico are more competitive on world markets

What are the cons of NAFTA?

Jobs could be lost and wage levels could decline in the U.S. and Canada Mexican workers could emigrate north Pollution could increase due to Mexico's more lax standards Mexico would lose its sovereignty

The European Union (EU) was the result of

post-WWII rebuilding and desire to establish single market to maintain global influence.

When was the EU established, and when did it change its name to the EU?

1951; 1994

What is the EU's system of governance?

executive commissions & council, parliament, | and court system

committed EU members to | adopt a single currency, the euro

Maastricht Treaty (1991)

What is the Eurozone

those who use the Euro (not all members of the European Union use the Euro.)

What is an advantage of the EU related to currency?

handling one currency, rather than many

What is an advantage of the EU related to prices?

easier to compare prices across Europe

What is an advantage of the EU in regards to production?

increased competition promotes greater | efficiencies in production

What is an advantage of the EU in regards to investments?

strengthen pan-European capital market opens investment options for both to individuals and institutions

What is the first main disadvantage to the EU?

Membership implies a loss of control over monetary | policy (European Central Bank (ECB) manages monetary policy independently, theoretically)

What is the main disadvantage of the EU in regards to currency?

The EU is not an optimal currency area due to differences across member countries in the underlying structure of economic activities make it difficult to adopt a single currency and use a single exchange rate.

Why is regional economic integration important to global companies?

It means that markets that had been protected from foreign competition are increasingly open However, regional economic integration is likely to increase competition between regional trading blocs

Opportunities of regional integration

Formerly protected markets are now open The free movement of goods, the harmonization of product standards, and the simplification of tax laws reduces costs of doing business

Threats related to regional integration

Lower trade and investment barriers could lead to increased price competition within trade blocs Firms outside these blocs risk being shut out by the creation of these “trade fortresses

What was the forerunner to the EU?

``` European Coal and Steel Community (formed in 1951) ```

European Economic | Community was established by what treaty in 1957

Treaty of Rome

The four main institutions of the EU are

European Commission European Council European Parliament Court of Justice

the ________ proposes EU legislation, | implements it, and monitors compliance

European Commission

the _______________ the ultimate controlling authority within the EU

European Council

the _______________ debates legislation | proposed by the commission and forwarded to it by the council

European Parliament

the _____________ the supreme appeals court for EU law

Court of Justice

The __________________ committed EC countries to work toward establishment of a single market by 1992

Single European Act (1987)

Treaty signed in 2007 that made the European Parliament the co-equal legislator for almost all European laws and also created the position of the president of the European COuncil

Treaty of Lisbon

The Single European Act specifically addressed which points?

remove all frontier controls between EC countries apply the principle of mutual recognition to product standards open procurement to non-national suppliers lift barriers to competition in retail banking and insurance remove all restrictions on foreign exchange transactions between member countries abolish restrictions on cabotage

What is cabotage?

The right of foreign truckers to pick up and deliver goods within another memberstate's borders

an area where similarities in the underlying structure of economic activities make it feasible to adopt a single currency and use a single exchange rate as an instrument of macro-economic policy

optimal currency area

was established to manage monetary policy, but some question its ability to act independently within the European Union

European Central Bank

Since its establishment the euro has had a __________ trading history with the dollar

volatile

Besides NAFTA, what other regional trade groups are found in the Americas

the Andean Community | MERCOSUR

There are two main impediments to integration

1. it can be costly | 2. it can result in a loss of national sovereignty

Why is integration costly?

while a nation as a whole may benefit from a regional free trade agreement, certain groups may lose

Successes of NAFTA

trade between the three countries has increased by 250 percent the members have become more integrated productivity has increased in member nations employment effects have been small Mexico has become more politically stable

What South American trade group was based on the EU model

The Andean Pact (1969)

In the late 1980s, Latin American governments began to | adopt

free-market economies

In 1990, the Andean Pact was re-launched, and now | operates as a

customs union

a free trade pact between Brazil | and Argentina

MERCOSUR (1988)

in 1990, MERCOSUR was expanded to include

Paraguay and | Uruguay

However, critics worry that MERCOSUR is diverting trade rather than creating trade, and local firms are investing in industries that are not competitive on a worldwide basis

Two other trade pacts in the Americas are

Central American Common Market | CARICOM (1973)

Costa Rica, El Salvador, Guatemala, Honduras, | Nicaragua, and the Dominican Republic

Central American Common Market

A customs union between english-speaking Carribbean countires

CARICOM

Central American Common Market were joined by the U.S. in 2003 to create a free trade agreement,

Central American | Free Trade Agreement

six CARICOM members formed the _________in 2006 to lower trade barriers and harmonize macro-economic and monetary policy

Caribbean Single Market and Economy (CSME)

Talks began in 1998 to establish a Free Trade of The _____ by 2005

Americas

Current support for the agreement by the U.S. and Brazil | is

limited

How successful have been various attempts at regional economic integration throughout Asia and Africa been?

Very limited

What are the two most successful Asia regional economic integrations?

Association of Southeast Asian Nations (ASEAN)(1967) Asian Pacific Economic Cooperation (APEC) 1990

Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Myanmar, Laos, and Cambodia

ASEAN

between the six original members of ASEAN came into full effect to reduce import tariffs among members Vietnam, Laos, and Myanmar have all joined

ASEAN Free Trade Area (AFTA) (2003)

was founded in (1990) to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region

Asian Pacific Economic Cooperation

APEC currently has 21 members including the

United States, Japan, and China

There are ________ trade blocs on the African continent

nine

Why has progress of regional economic integration in Africa been slow?

Many countries believe that they need to protect their industries from unfair foreign competition making it difficult to create free trade areas or customs unions