Chapter 7 Flashcards
- agreements between
countries in a geographic region to reduce tariff and non-tarriff barriers
Regional economic integration
What is one of the main dangers of regional economic integration?
a number
of regional trade blocks compete against each other
What are the five levels on economic integration (From least integration to greatest)
Free trade area, Customs Union, Common Market, Economic Union, Political Union
the most popular form, is when all
barriers to the trade of goods and services among
member countries are removed.
free trade area
what are some examples of free trade areas?
European Free Trade Association
North American Free Trade
Agreement [NAFTA]
Who makes up the European Free Trade Association?
Norway, Iceland, Liechtenstein, and
Switzerland (NILS)
eliminates trade barriers between
member countries and adopts a common external trade policy.
Customs union
What is an example of a customs union?
the Andean Pact
Who makes up the Andean Pact?
Bolivia,
Columbia, Ecuador, Venezuela, and Peru
- no barriers to trade between
member countries, a common external trade policy, and
the free movement of the factors of production
Common Market
What is an example of a common market
MERCOSUR (between Brazil, Argentina,
Paraguay, and Uruguay
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
independent states are combined into a
single union; requires a central political apparatus coordinate economic, social, and foreign policy for members.
Political Union
What is an example of a political union?
The U.S. States (The EU is trying)
integration is an attempt to achieve
additional gains from the free flow of trade and investment between countries beyond WTO deals
Regional economic
Why is regional economic integration necessary?
Accrue economic benefits that are hard to achieve with global trade policy
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.
Regional economic integration only makes sense when the amount of trade
it creates exceeds the amount it
diverts
occurs when low cost producers
within the free trade area replace high cost domestic producers
Trade Creation
occurs when higher cost suppliers
within the free trade area replace lower cost external suppliers
Trade diversion
So, regional integration may be easier but not
necessarily a _____ solution to a nation’s trade goals
better
When did NAFTA become law?
1994
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
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
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
- 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
a
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
