Chapter 8 Terms - Global and Regional Integration

Question 1

Regional economic integration:

Answer 1

Efforts to reduce trade and investment barriers within one region

Question 2

Global economic integration:

Answer 2

Efforts to reduce trade and investment barriers around the globe

Question 3

General Agreement on Tariffs and Trade (GATT):

Answer 3

A multilateral agreement governing the international trade of goods (merchandise)

Question 4

World Trade Organization (WTO):

Answer 4

The official title of the multilateral trading system and the organization underpinning this system since 1995

Question 5

European Union (EU):

Answer 5

The official title of European economic integration since 1993

Question 6

Political Benefits of Global Economic Integration

Answer 6

1. Promote Peace by promoting trade and investment
2. Build confidence in a multilateral trading system

Question 7

Economic Benefits of Global Economic Integration

Answer 7

1. Disputes are handled constructively
2. Rules make life easier and discrimination impossible for all participating countries
3. Free trade and investment raise incomes and stimulate economic growth

While emphasizing economic benefits, global economic integration is political in nature. Its most fundamental goal is to promote peace, as shown in Table 8.1.

Question 8

Multilateral trading system:

Answer 8

The global system that governs international trade among countries—otherwise known as the GATT/WTO system

Question 9

Nondiscrimination:

Answer 9

A principle that a country cannot discriminate among its trading partners

Question 10

Six Main Areas of the WTO

Answer 10

1. Umbrella–> Agreement establishing the WTO
   (The 3 main areas)
2. Goods (GATT)
3. Services (GATS)
4. Intellectual Property (TRIPS)
5. Dispute Settlement (Dispute Settlement Mechanisms)
6. Transparency (Trade Policy Reviews)

Question 11

General Agreement on Tariffs and Trade: 1948–1994

Answer 11

The GATT’s major contribution was to reduce the level of tariffs by sponsoring rounds of multilateral negotiations.

Question 12

World Trade Organization (WTO): 1995–Present

Answer 12

One of the main objectives for establishing the WTO was to strengthen the trade dispute settlement mechanisms.

–> Sets time limits for peer review panel, which consists of three neutral countries as peers, to reach a judgment.
–> Removes the power of the accused countries to block unfavorable decision; WTO decisions are final.
–> The WTO does not have enforcement capability; WTO simply recommends that losing countries change their laws or practices and authorizes the winning countries to use tariff retaliation to compel the offending countries to comply with the WTO rulings.

Question 13

Doha Round:

Answer 13

A round of WTO negotiations to reduce agricultural subsidies, slash tariffs, and strengthen intellectual property protection that started in Doha, Qatar, in 2001; officially known as the “Doha Development Agenda,” it was suspended in 2006 due to disagreements.

Question 14

The Pros for Regional Economic Integration (Political)

Answer 14

1. Promotes peace by fostering closer economic ties and building confidence
2. Enhances the collective political weight of a region

Question 15

The Pros for Regional Economic Integration (Economic)

Answer 15

1. Disputes are handled constructively
2. Consistent rules make life easier, and discrimination impossible, for participating countries within on region
3. Free trade and investment raise incomes and stimulate economic growth

Question 16

The Cons for Regional Economic Integration (Political)

Answer 16

Discriminates against firms outside a region, thus undermining global integration

Question 17

The Cons for Regional Economic Integration (Economic)

Answer 17

May result in some loss of sovereignty

Question 18

Types of Regional Economic Integration

Answer 18

1. Political Union (Integration of political and economic affairs)
2. Economic Union (Common economic policies)
3. Common Market (Free movement of goods, people, and capital)
4. Customs Union: (Common external tariffs)
5. Free Trade Area (Removal of intragroup tariffs)

Question 19

Free trade area (FTA):

Answer 19

A group of countries that remove trade barriers among themselves

Question 20

Eurasian Economic Union (EAEU):

Answer 20

A free trade area launched by Belarus, Kazakhstan, and Russia

Question 21

Customs union:

Answer 21

One step beyond a free trade area, a customs union imposes common external policies on nonparticipating countries

Question 22

Common market:

Answer 22

Combining everything a customs union has, a common market, in addition, permits the free movement of goods and people

Question 23

Economic union:

Answer 23

Having all the features of a common market, members also coordinate and harmonize economic policies to blend their economies into a single economic entity

Question 24

Monetary union:

Answer 24

A group of countries that use a common currency

Question 25

Political union:

Answer 25

The integration of political and economic affairs of a region

Question 26

The European Union

Answer 26

Shown in Figure 8.4, the European Union is headquartered in Brussels, Belgium. Today’s EU—after losing former member Britain—has 27 member countries, 450 million citizens, and $19 trillion in GDP.

Question 27

The EU Today

Answer 27

27 member countries, 450 million citizens, and US$19 trillion GDP
The world’s largest economy (26% of world’s GDP)
The largest exporter and importer of goods and services
The largest trading partner with the United States, China, and India
Schengen: A passport-free travel zone within the EU
Euro: The currency currently used in 19 EU countries
Euro zone: The 19 EU countries that currently use the euro as the official currency

Question 28

Schengen:

Answer 28

A passport-free travel zone within the EU

Question 29

Euro:

Answer 29

The currency currently used in 19 EU countries

Question 30

Euro zone:

Answer 30

The 19 EU countries that currently use the euro as the official currency

Question 31

Benefits of Adopting the Euro

Answer 31

1. Reduce currency conversion costs
   2, Facilitate direct price comparison
2. Impose monetary discipline on governments

Question 32

Costs of Adopting the Euro

Answer 32

1. Unable to implement independent monetary policy
2. Limit the flexibility in fiscal policy (in areas such as deficit spending)

Question 33

The EU’s Challenges (7)

Answer 33

Determining whether to become a political union
Voting power within the EU
Growth and expansion
Internal divisions
Immigration
Financial crises and recession
Brexit: British exit from the EU

Question 34

North American Free Trade Agreement (NAFTA):

Answer 34

A free trade agreement among Canada, Mexico, and the United States that was in force between 1994 and 2020

Question 35

United States–Mexico–Canada Agreement (USMCA):

Answer 35

A free trade agreement that replaced NAFTA

Question 36

Association of Southeast Asian Nations (ASEAN)

Answer 36

The organization underpinning regional economic integration in Southeast Asia

Question 37

Asia–Pacific Economic Cooperation (APEC):

Answer 37

The official title for regional economic integration involving 21 member economies around the Pacific

Question 38

Trans–Pacific Partnership (TPP):

Answer 38

A multilateral free trade agreement being negotiated by 12 Asia Pacific countries

Question 39

Implications for Action - MGMT Savy

Answer 39

1. Think Regional, downplay global
2. Understand the rules of the game, at both global and regional levels, and endeavor to positively influence them

Two broad implications for action emerge, as listed in Table 8.3.