Chapter 8: Regional Trading Arrangements Flashcards
What is a Regional Trading Arrangement?
Member nations agree to impose lower barriers to trade within the member group than with non-member nations.
What is one of the jobs of the World Trade Organization?
To promote trade liberalization through trade agreements.
Economic Integration
Process of eliminating restrictions on international trade, payments, and factor mobility.
Free Trade Area
An association of trading nations that agree to remove all tariff and non-tariff barriers among themselves.
Ex: NAFTA (Canada, Mexico, U.S.)
Customs Union
An agreement among two or more trading partners to remove all tariff and non-tariff barriers among themselves.
Ex: Benelux 1948 (Belgium, the Netherlands, Luxemburg)
Common Market
A group of trading nations that permit:
1) The free movement of goods and services among member nations.
2) The initiation of common external trade restrictions against non-members.
3) The free movement of factors of production across national borders among the economic bloc.
European Union (EU) achieved Common Market status in 1992.
Economic Union
National, social, taxation, and fiscal policies are harmonized and administered by a supranational institution.
Monetary Union
Ultimate degree of economic union would be the unification of national monetary policies and the acceptance of a common currency administered by a supranational monetary authority.
One national currency.
The economic union would thus include the dimension of a monetary union.
Static Effects of Economic Integration
Include: productive efficiency and consumer welfare.
Dynamic Effects of Economic Integration
Include: Relate to member nations’ long-run rates of growth.
Small changes in growth rates can lead to substantial cumulative effects on national output.
Maastricht Treaty
Signed in 1991, the Maastricht Treaty set 2002 as the date upon which the European Union would begin using one unified currency known as the Euro.
Maastricht Treaty: Convergence Criteria
Price Stability:
Inflation in each prospective member is supposed to be no more than 1.5 percent above the average of the inflation rates in the three countries with the lowest inflation rates.
Low Long-Term Interest Rates:
Long-term interest rates are to be no more than 2 percent above the average interest rate in those countries.
Stable Exchange Rates:
The exchange rate is supposed to have been kept within the target bands of the monetary union, with no devaluations for at least two years prior to joining the monetary union.
Sound Public Finances:
One fiscal criterion is that the budget deficit in a prospective member should be at most 3 percent of GDP; the other is that the outstanding amount of government debt should be no more than 60 percent of a year’s GDP.
Variable Levies
Common agricultural policy of applying tariffs to agricultural imports entering the EU.
Optimum Currency Area
An optimum currency area is a region in which it is economically preferable to have a single official currency rather than multiple official currencies.
Ex: U.S
North American Free Trade Agreement
Went into effect in 1994
Free trade agreement between Canada, Mexico, and the United States.
