31 terms

International Business Chapter 8


Terms in this set (...)

Regional Economic Integration
agreements to reduce tariff and non-tariff barriers for the free flow of goods, services and factors of production between countries in a geographic region
Free trade area
eliminates all barriers to the trade of goods and services among member countries.
European Free Trade Association (EFTA)
Norway, Norway, Iceland, Liechtenstein, and Switzerland
Customs Union
union eliminates trade barriers between member countries and adopts a common external trade policy.
Andean Pact
an example of a customs union
Common Market
has no barriers to trade between member countries, a common external trading policy and the free movement of the factors of production
example of a common market. (Brazil, Argentina, Paraguay, and Uruguay)
Economic union (E.G. European Union)
-free flow of products and factors of production between members
--common external trade policy
--common currency
--harmonized tax rate
--common monetary and fiscal policy
Political Union
central political apparatus that coordinates the economic, social, and foreign policy of member states
Economic integration can be difficult because ________
benefits and losses from free trade unevenly distributed
--loss of national sovereignty

--regional economic integration is only beneficial if the amount of trade it creates exceeds the amount it diverts
Trade creation:
low cost producers within the free trade area replace high cost domestic producers
Trade diversion
higher cost suppliers within the free trade area replace lower cost external suppliers
European Trading Blocs
European Union (EU) with 27 members

The European Free Trade Area (EFTA) - 4 countries with members in norway, iceland, switzerland, and liechtenstein
What promoted the formation of the EU?
ww1 and WW2 promoted the formation of the E.U. for lasting peace and political and economic power
European Economic Community
in 1951--this was formed at the Treaty of Rome with the goal of becoming a common market
Single European act of 1987
committed the EC countries to work toward establishment of a single market by Dec 31 1992

-emerged from frustration that the EC was not living up to its promise

-impetus for the restructuring of European industry allowing for faster economic growth
Maastricht Treaty
committed the EU to adopt a single currency.
--this created the second largest currency zone in the world (U.S. dollar is the largest)

-used by 16 of the 27 member states

-Britain, Denmark, and Sweden opted out
The Euro
established January 1, 1999

Euro had a volatile trading history with the U.S. dollar
What are some benefits of the Euro?
savings from exchanging one currency,

-easier to compare prices across europe which forces firms to be more competitive

-development of highly liquid pan-european capital market

-increases the range of investment options open to both to individuals and institutions
Costs of the Euro:
loss of control over national monetary policy

-EU is not an optimal currency area
Economic integration in the americas
-there is a move toward greater regional economic integration in the Americas

-North American Free Trade Area (NAFTA)

-Andean Community


A hemisphere-wide Free Trade of the Americas is under discussion
North American Free Trade Area (1994)
United States, Canada, and Mexico

-abolished tariffs on 99% of traded goods

protected intellectual property rights
removes most restrictions on FDI

allows each country to apply its own environmental standards
Supporters of NAFTA:
-increased jobs as low cost production moves south
-rapid economic growth

access to a large and increasingly prosperous market

lower prices for consumers from goods produced in mexico

low cost labor and the ability to be more competitive on world markets
Critics of NAFTA
jobs would be lost and wage levels would decline in the U.S. and Canada

Mexican workers would emigrate north

pollution would increase due to Mexico's more lax standards

Mexico would lose its sovereignty
Who was right about NAFTA?
NAFTA's early impact was subtle and advocates and critics may have been guilty of exaggeration

NAFTA is credited with helping create increased political stability in Mexico
Free Trade of The Americas
-talks began in april 1998 to establish a Free Trade of the Americas (FTAA) by 2005
Problems with he FTTA
the united states wants stricter enforcement of intellectual property rights

Brazil and Argentina want the U.s. to eliminate agricultural subsidies and tariffs
What if the FTTA were created
if the FTAA is established, would create a free trade ares of 850 million people who accounted for nearly $18 trillion in GDP in 2008
21 members in APEC they include U.S., Japan, and china. 55% of the worlds GNP and 49% of world trade.
purpose was to establish a customs union. in 2006, Caribbean Single Market and Economy
May be diverting trade more than creating trade. it incorporates Brazil, Argentina, Paraguya, and Uruguay