Global – Economic Integration Flashcards
What is Economic Integration?
Economic cooperation between countries and coordination of their economic policies leading to increased economic links between them.
What are the Types of Trade Agreements?
1) Preferential
2) Bilateral
3) Regional
4) Multilateral
What are Preferential Trade Agreements?
An agreement between two or more countries to lower trade barriers on particular goods in trade between each other. It results with members of the agreement having easier access to the markets of other members, as opposed to those not in agreement.
Distinguish between Bilateral, Regional and Multilateral Trade Agreeements
Bilateral: between two countries
Multilateral: between many countries
Regional: between countries located within a region
The main objective of all types of agreement is to promote trade liberalization (free trade).
What are Trading Blocs?
Group of countries which has agreed to reduce trade barriers for the purpose of encouraging free trade and cooperation between them.
What are the Different Types of Trading Blocs?
1) Free trade area
2) Customs union
3) Common market
4) Monetary union
What is a Free Trade Area?
Type of trading bloc which consists in a group of countries who decide to gradually eliminate trade barriers between themselves.
What are the Issues related to Free Trade?
Each country has individual barriers for non-member countries therefore external goods can be imported by an FTA country with the lowest barriers and sold between the FTA members with higher barriers. To prevent this, “rules of origin” are used.
What is a Customs Union?
Group of countries which fulfills the requirements of an FTA and additionally adopts a common policy towards non-member countries. All countries also act as a group in negotiations and agreements with non-member countries.
State an Example of an FTA
1) NAFTA (Canada, Mexico, US)
2) SAARC (South Asia)
State an Example of Customs Union
1) CEFTA (Europe Trade Agreement)
2) SACU (South Africa)
3) PARTA (Pacific)
What are the Issues related to Customs Union?
Potential disagreements between countries when negotiating with non-member countries. This can also occur in relation to policy setting and coordination.
What is a Common Market?
Countries which have formed a Custom Union proceed to further eliminate remaining trade barriers between them, they continue to have common external policy, and additionally agree to remove all restrictions on movements of factors of production (e.g. labor and capital).
State an Example of a Common Market
1) EEC (before European Union)
2) CSME (Caribbean)
What are the Issues related to Common Market?
Requires greater coordination among members and willingness to give up authority. Disagreements can arise and a long time is needed to assert policy changes.
What are the Advantages of Trading Blocs?
- Trade creation (costly products are replaced by imports)
- Increased competition
- Expansion into larger market
- Economies of scale
- Lower prices for consumers and greater choice
- Increased investment
- Improved resource allocation and employment opp.
- Improved efficiency
- Stronger bargaining power
- Political advantages
What are the Disadvantages of Trading Blocs?
- Trade diversion (cheap imports replaced by costly)
- Conflict with multilateral agreements
- Unequal distribution of gains and possible loss
- Loss of sovereignty
What is Monetary Union?
When member countries of a common market adopt a common currency and a common central bank responsible for monetary policy. (E.g. euro zone countries).
What is the World Trade Organization?
An international organization that provides the institutional and legal framework for the trading system that exists between the member nations world wide, it promotes trade liberalization.
What are the Objectives of the WTO?
- Administering trade agreements
- Forum for trade negotiations
- Handles trade disputes
- Monitors national trade policies
- Provides assistance and training for dev. countries
- Facilitates cooperation with other organizations
What are the Criticisms the WTO has been Accused of?
- Unfavorable agreements for developing countries
- Unable to reach agreement for agricultural protection
- Not distinguishing developed and developing countries
- Ignoring environmental and labor issues
- Unequal bargaining powers between members
What are the Challenges Faced by the WTO?
- Fragmentation of global trade
* Resolving trade disputes
What are the Advantages of Monetary Union?
Single currency:
• Eliminates risk of uncertainty
• Encourages price transparency
• Eliminates transaction costs
• Promotes inward investment (from countries in union)
Member countries are committed to low inflation:
• Low inflation = low interest = more investment
What are the Disadvantages of Monetary Union?
Single currency:
• Cannot use monetary policy domestically
• Policies impact all countries differently
• Loss of floating exchange rate mechanism
• Fiscal policy is restrained (convergence requirements)
• Loss of national government authority
