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International Business > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q
  • agreements between

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

A

Regional economic integration

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2
Q

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

A

a number

of regional trade blocks compete against each other

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3
Q

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

A

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

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4
Q

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

A

free trade area

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5
Q

what are some examples of free trade areas?

A

European Free Trade Association

North American Free Trade
Agreement [NAFTA]

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6
Q

Who makes up the European Free Trade Association?

A

Norway, Iceland, Liechtenstein, and

Switzerland (NILS)

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7
Q

eliminates trade barriers between

member countries and adopts a common external trade policy.

A

Customs union

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8
Q

What is an example of a customs union?

A

the Andean Pact

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9
Q

Who makes up the Andean Pact?

A

Bolivia,

Columbia, Ecuador, Venezuela, and Peru

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10
Q
  • no barriers to trade between
    member countries, a common external trade policy, and
    the free movement of the factors of production
A

Common Market

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11
Q

What is an example of a common market

A

MERCOSUR (between Brazil, Argentina,

Paraguay, and Uruguay

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12
Q

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

A

Economic Union

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13
Q

independent states are combined into a

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

A

Political Union

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14
Q

What is an example of a political union?

A

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

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15
Q

integration is an attempt to achieve

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

A

Regional economic

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16
Q

Why is regional economic integration necessary?

A

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

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17
Q

Why is regional economic integration politically necessarY?

A

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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18
Q

Regional economic integration only makes sense when the amount of trade

A

it creates exceeds the amount it

diverts

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19
Q

occurs when low cost producers

within the free trade area replace high cost domestic producers

A

Trade Creation

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20
Q

occurs when higher cost suppliers

within the free trade area replace lower cost external suppliers

A

Trade diversion

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21
Q

So, regional integration may be easier but not

necessarily a _____ solution to a nation’s trade goals

A

better

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22
Q

When did NAFTA become law?

A

1994

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23
Q

What were the main effects of NAFTA?

A

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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24
Q

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

A

increased jobs as low cost production

moves south and more rapid economic growth results

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25
Q

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

A

access to a large and

increasingly prosperous market and lower prices for consumers from goods produced in Mexico

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26
Q

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

A

firms with production sites

in Mexico are more competitive on world markets

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27
Q

What are the cons of NAFTA?

A

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

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28
Q

The European Union (EU) was the result of

A

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

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29
Q

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

A

1951; 1994

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30
Q

What is the EU’s system of governance?

A

executive commissions & council, parliament,

and court system

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31
Q

committed EU members to

adopt a single currency, the euro

A

Maastricht Treaty (1991)

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32
Q

What is the Eurozone

A

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

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33
Q

What is an advantage of the EU related to currency?

A

handling one currency, rather than many

34
Q

What is an advantage of the EU related to prices?

A

easier to compare prices across Europe

35
Q

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

A

increased competition promotes greater

efficiencies in production

36
Q

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

A

strengthen pan-European capital market

opens investment options for both to individuals
and institutions

37
Q

What is the first main disadvantage to the EU?

A

Membership implies a loss of control over monetary

policy (European Central Bank (ECB) manages monetary policy independently, theoretically)

38
Q

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

A

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.

39
Q

Why is regional economic integration important to global companies?

A

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

40
Q

Opportunities of regional integration

A

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

41
Q

Threats related to regional integration

A

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

42
Q

What was the forerunner to the EU?

A 
European Coal and 
Steel Community (formed in 1951)
43
Q

European Economic

Community was established by what treaty in 1957

A

Treaty of Rome

44
Q

The four main institutions of the EU are

A

European Commission
European Council
European Parliament
Court of Justice

45
Q

the ________ proposes EU legislation,

implements it, and monitors compliance

A

European Commission

46
Q

the _______________ the ultimate controlling authority within the EU

A

European Council

47
Q

the _______________ debates legislation

proposed by the commission and forwarded to it by the council

A

European Parliament

48
Q

the _____________ the supreme appeals court for EU law

A

Court of Justice

49
Q

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

A

Single European Act (1987)

50
Q

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

A

Treaty of Lisbon

51
Q

The Single European Act specifically addressed which points?

A

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

52
Q

What is cabotage?

A

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

53
Q

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

A

optimal currency area

54
Q

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

A

European Central Bank

55
Q

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

A

volatile

56
Q

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

A

the Andean Community

MERCOSUR

57
Q

There are two main impediments to integration

A
  1. it can be costly

2. it can result in a loss of national sovereignty

58
Q

Why is integration costly?

A

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

59
Q

Successes of NAFTA

A

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

60
Q

What South American trade group was based on the EU model

A

The Andean Pact (1969)

61
Q

In the late 1980s, Latin American governments began to

adopt

A

free-market economies

62
Q

In 1990, the Andean Pact was re-launched, and now

operates as a

A

customs union

63
Q

a free trade pact between Brazil

and Argentina

A

MERCOSUR (1988)

64
Q

in 1990, MERCOSUR was expanded to include

A

Paraguay and

Uruguay

65
Q

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

A

a

66
Q

Two other trade pacts in the Americas are

A

Central American Common Market

CARICOM (1973)

67
Q

Costa Rica, El Salvador, Guatemala, Honduras,

Nicaragua, and the Dominican Republic

A

Central American Common Market

68
Q

A customs union between english-speaking Carribbean countires

A

CARICOM

69
Q

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

A

Central American

Free Trade Agreement

70
Q

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

A

Caribbean Single Market and Economy (CSME)

71
Q

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

A

Americas

72
Q

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

is

A

limited

73
Q

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

A

Very limited

74
Q

What are the two most successful Asia regional economic integrations?

A

Association of Southeast Asian Nations (ASEAN)(1967)

Asian Pacific Economic Cooperation (APEC) 1990

75
Q

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

A

ASEAN

76
Q

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

A

ASEAN Free Trade Area (AFTA) (2003)

77
Q

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

A

Asian Pacific Economic Cooperation

78
Q

APEC currently has 21 members including the

A

United States, Japan, and China

79
Q

There are ________ trade blocs on the African continent

A

nine

80
Q

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

A

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

International Business (6 decks)

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