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Free Trade

national government should exert minimal influence on the exporting and importing decisions of private firms and individuals

Fair Trade

aka managed trade the national government should actively intervene to ensure that domestic firms; exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specific industries

national defense argument

a country must be self-sufficient in critical raw materials, machinery, and technology, or else be vulnerable to foreign threats

infant industry argument

a country's new industry must be given time to mature in order to compete with more mature foreign competition, and thus must be given temporary protection

strategic trade theory

new models that justify government trade intervention, by assuming that the market can only support a few firms worldwide, because of high development costs or a strong experience curve, and that national governments will be better off if trade policies that improve the competitiveness of domestic firms are adopted

export promotion strategy

country encourages firms to compete in foreign markets by harnessing some advantage the country possesses, such as low labor costs

import substitution strategy

encourages growth of domestic manufacturing industries by erecting high barriers to imported goods

industrial policy

a government identifies key domestic industries critical to the country's future economic growth and then formulates programs that promote their competitiveness. Ideal situation is when firms get large market shares in important growth markets globally

public choice

branch of economics that analyzes public decision making, the special interest will often dominate the general interest on any given issue for a simple reason: special interest groups care more than general public does

tariff

tax placed on a good that is traded internationally. imposed for 2 reasons: raise revenue for the national government or trade barrier

export tariff

levied as goods leave the country

transit tariff

levied as goods pass through one country bound for another

import tax

most important, levied as a good enters the country for resale

ad valorem tariff

assessed as a percentage of the market value of the imported good

specific tariff

assessed as a specific dollar amount per unit of wight or other standard measure

compound tariff

has both an ad valorem and specific component

harmonized tariff schedule

(HTS) detailed classification scheme for imported for imported goods

nontariff barrier

(NTB) any kind of government regulation, policy, or procedure other than a tariff that has the effect of impeding international trade

quota

a numerical limit on the quantity of a good that may be imported into a country during some time period. Usually used to protect politically powerful industries

tariff rate quota

(TRQ) imposes a low tariff rate on a limited amount of imports of a specific good; above that threshold, a TRQ imposes a prohibitively high tariff rate on the good

voluntary export restraint

(VER) a promise by a country to limit its exports of a good to another country to a pre-specified amount or percentage of the effected market; usually done to resolve/avoid trade conflicts with an otherwise friendly trade partner

embargo

absolute ban on the exporting/importing of goods to a particular destination

public sector procurement

policy that mandates that public sector expenditures must go to domestic companies

local purchase requirements

policy that mandates firms to purchase foods or services from local suppliers

regulatory controls

health and safety inspections, environmental laws, licensing requirements

currency controls

double exchange rates for currency: exporters get a good deal, importers get a raw deal

investment controls

governmental mandates that prevent foreign ownership of key industries (airlines, media) usually for defense purposes

Subsidies

governmental payments to firms in order to lower their costs of doing business

Foreign Trade Zone

a geographic area where imported of exported goods receive preferential tariff treatment

maquiladora

a factory located in an FTZ in Mexico, usually situated near the US border

Export-Import Bank of the United States

(Eximbank) provides financing for US exports through direct loans and loan guarantees

Countervailing Duty

(CVD) ad valorem tariff on an imported good that is imposed by the importing country to counter the impact of foreign subsidies

Dumping

occur when a firm sells its goods in a foreign market at a price below what it charges in its home market

escape clauses

aka safegaurd clauses, allow countries to erect temporary measures to protect themselves from sudden surges in imported goods, allowing domestic economies to adjust

General Agreement on Tariffs and Trade

(GATT) fought to reduce barriers to international trade, signed at the Havana conference. Replaced by WTO

most favored nation principle

(MFN) which requires that any preferential treatment granted to one country must be extended to all countries

general system of preferences

(GSP) ability to lower tariffs to developing countries without lowering them for more developed countries

Uruguay Round

agreement establishes WTO, cut tariffs on imported goods as well as focusing on NTB's (abolishing quotas)

World Trade Organization

(WTO): promote trade flows by encouraging nations to adopt nondiscriminatory, predictable trade policies

reduce remaining trade barriers through multilateral negotiations

Establish impartial procedures for resolving trade disputes amoung members

national treatment

when a country treats foreign firms the same way it treats domestic firms

trade balancing rules

countries may not require foreign investors to limit their imports of inputs to an amount equal to their exports of local production

foreign exchange access

countries may not restrict foreign investors access to foreign exchange

domestic sales requirements

countries may not require the investor to sell a percentage of a factory's output in the local market

free trade area

encourages trade among its members by eliminating trade barriers (tariffs, quotas, and other NTBs) among the member countries

trade deflection

a scenario where nonmembers of a free trade area reroute their exports to the member nation with the lowest external trade barriers

rules of origin

detail the conditions under which a good is classified as a member good or a nonmember good

customs union

eliminates internal trade barriers among its members while also adopting common external trade policies toward nonmembers

common market

eliminates trade barriers, adopts a common external trade policy toward nonmembers, eliminates barriers that inhibit the movement of factors of production (land, labor, and capital) among its members

economic union

full integration of the economies of two or more countries. eliminates internal trade barriers, adopts common external trade policies, abolishes restrictions on the mobility of factors of production among members, also requires its members to coordinate their economic policies (monetary & fiscal policy, taxation, and social welfare programs) in order to blend economies into a single entity

political union

the process of two countries becoming one country

Benelux Nations

Belgium, Netherlands, Luxembourg

Treaty of Rome

establishes the European Economic Community calls for development of a common market among the six member states

Treaty of Maastricht

turns EEC into EU

European Council

consists of the heads of government or of state of each of the member states, the President of the European Council, and the President of the European Commission

Council of the European Union

composed of 27 representatives each selected directly by an responsible to his or her home government. which representative a country sends to a meeting depends on the agenda. This is the most powerful decision making body in the EU. some decisions (entry of new members, taxation, foreign and security policy initiatives, and amending EU treaties) require unanimous approval. others that are less crucial, only require a qualified majority (weighted voting system)

European Commission

27 people, one from each member state, selected for 5 year terms. loyalty of members is to EU as whole, not home country. Administrative branch, and manages budget

European Parliament

736 representatives elected in national elections to serve five year terms. seats allocated roughly by population

European Court of Justice

27 judges, 6 year terms. selected jointly by the governments of the member states. interpret EU law and ensure that members follow EU regs and policy

Co-Decision Procedure

Introduced by the 1992 Treaty of Maastricht puts the Parliament on an equal footing with the Council when legislating on a whole series of important issues including the free movement of workers, the internal market, education, research, the environment, trans-European networks, health, culture, consumer protection, etc. The European Parliament has the power to throw out proposed legislation in these fields if an absolute majority of members of Parliament vote against the Council's 'common position'. The Treaty has made provision for a conciliation procedure.

harmonization

region wide regulations to govern trade within an economic union

mutual recognition

if one member state determines that a product is appropriate for sale, then all of the members are also obliged to do so under the provision of the Treaty of Rome

Treaty on European Union

Maastricht Treaty

Cohesion Fund

a means of funneling economic development aid to countries whose per capita GDP is less than 90% EU average

Economic and Monetary Union

major task is to create a single currency (euro) to replace national currencies

Convergence Criteria

1. Inflation no more than 1.5 points above the average rate of the three members with lower inflation
2. Long term interest rates no more than 2 % above avr. rate of three lowest members
3.Budget deficit 3% of GDP or less
4. Government debt 60% of GDP or less
5. Currency within EMS trading banks for two years

All 5 must be met in order to adopt the euro

European Central Bank

responsible for controlling the eurozone's money supply, interest rates, and inflation

Stability and Growth Pact

eurozone participants have agreed to limit their annual government deficits to no more than 3% of their GDPs, severely curtailing ability to use fiscal policy to promote economic growth

Treaty of Amsterdam

It builds on the achievements of the treaty of Maastricht. It amended and renumbered the EU and EC Treaties. Consolidated versions of the EU and EC Treaties are attached to it. It lays down plans to reform EU institutions, to give Europe a stronger voice in the world, and to concentrate more resources on employment and the rights of citizens.

Treaty of Nice

2003. reformed the institutional structure of the European Union to withstand eastward expansion. The Treaty provided for an increase after enlargement of the number of seats in the European Parliament to 732, which exceeded the cap established by the Treaty of Amsterdam. the Treaty providing that once the number of Member States reached 27, the number of Commissioners appointed in the subsequent Commission would be reduced by the Council to below 27, but without actually specifying the target of that reduction. Opponents of the Treaty claimed that it was a "technocratic" rather than "democratic" treaty, which would further diminish the sovereignty of national and regional parliaments, and would further concentrate power into a centralized and unaccountable bureaucracy. They also claimed that five applicant countries could have joined the EU without changing the EU's rules.

Treaty of Lisbon

(2009) Designed to make the E.U. more democratic, efficient, and transparent, and thereby able to tackle global challenges such as climate change, security, and sustainable development.

European Free Trade Association

Iceland, Liechtenstein, Norway, and Switzerland

European Economic Area

An agreement, entered into force on 1 January 1994, which links Iceland, Norway and Liechtenstein to the European Union Internal Market.

screwdriver plant

factory where very little transformation of a product is undertaken

NAFTA

North American Free Trade Agreement (NAFTA) is a pact that unites Canada, Mexico, and the United States in one of the world's largest free-trade zones. It builds on a free-trade agreement between the United States and Canada that became effective in 1989

Caribbean Basin Initiative

President Reagan's program that was created over concern over communist expansion to Latin America. It was a plan of economic and technical assistance in order to help in improve conditions of the 28 nations within and/or on the border of the Caribbean. It warned that the US must act in order to defend freedom so that no more "Cubas" may be created.

Mercosur Accord

Argentina, Brazil, Paraguay, and Uruguay customs union. Bolivia, Chile, Colombia, Ecuador, Peru, and Venezuela are associate members

Andean Community

Bolivia, Columbus, Ecuador, Peru, Venezuela
Customs union
Abolished foreign exchange, financial and fiscal incentives, and export subsidies
Established common external tariffs.

ANZCERTA

most effective economic union in the world

ASEAN

The Association for the Southeast Asian Nations formed in 1967 to promote the prosperity and political stability of its member nations. Currently Brunei, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam are members. Other countries in the region participate as "observer" members.

AFTA

1. ASEAN Free Trade Area- multilateral agreement on trade, including agricultural trade, between Association of South-east Asian Nations
2. - relax trade barriers amongst member countries in order to achieve direct trade benefits.
- created to promote regional integration
- didnt change direction of trade: unwilling to provide ASEAN secretaries with resources to carry out tasks/ reluctant to integrate

APEC

a group of 21 Asia-Pacific nations including Australia that have an informal agreement to achieve free trade among its members by 2010 for developed economies and by 2020 for developing economies

SADC

Southern African Development Community, founded in 1980, 9 origional members, south africa is newest member, seeks to co-ordinate transport services and industrial development

CEMAC

Economic and Monetary Community of Central Africa, comprising five members of the Franc zone Cameroon, Central African Republic, Congo, Gabon, Equatorial Guinea,Chad

ECOWAS

the Economic Community of West African States, formed in 1975 to improve trade within Western Africa and with countries outside the region.

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