1. free trade area
    • all barriers to the trade of goods and services among member countries are removed
    • each country is allowed to determine its own trade policies with regard to nonmembers
  2. European Free Trade Association (EFTA)
    • Norway, Iceland, Liechtenstein, Switzerland
    • free trade in industrial goods only
  3. custom union
    • eliminates trade barriers between member countries and adopts a common eternal trade policy
    • EU began as a custom union
  4. common market
    • has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members
    • no restrictions on immigration, emigration, or cross-boarder flows of capital between member countries
    • MERCOSUR - South America (Argentina Brazil Paraguay Uruguay and Venezuela) hopes to establish a common market
  5. economic union
    • involves the free flow of products and factors of production between member countries and the adoption of a common external trade policy, but it also requires a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy
    • The EU, not all members have adopted the euro, there are differences in tac rates and regulations across countries still remain, and some markets, such as the market for energy, is not fully deregulated
  6. political union
    • a central political apparatus coordinates the economic, social and foreign policy of the member states
    • U.S = independent states are effectively combined into a single nation
  7. Economic case for intergration
    • unrestricted free trade will allow countries to specialize in the production of goods and services that they can produce most effectively = greater world production
    • free trade stimulates growth , creates dynamic gain from trade
    • FDI can transfer technological, marketing, and managerial know-how to host nations
    • it is easier to establish a free trade and investment regime among a limited number of adjacent countries than among the world community.
  8. Political Case for Integration
    • Linking neighboring economies and making them increasingly independent on each other creates incentives for political cooperation between the neighboring states and reduces the potential for violent conflict
    • EC (European Community)- European nations were no longer large enough to hold their own in world markets and politics
  9. Impediments to intergration
    • aids the majority, it has its costs, certain groups may lose
    • concerns over national sovereignty because close economic integration demands that countries give up some degree of control over such key issues as monetary policy, fiscal policy, and trade policy (british see it s a bureaucracy)
  10. Trade creation
    • occurs when high cost domestic producers are replaced by low cost producers within the free trade area
    • when higher cost external producers are replaced by lower cost external producers within the free trade area
  11. Trade diversion
    • occurs when lower cost external supplies are replaced by higher cost suppliers within the free trade area.
    • WTO should ensure that FTAs does not result in trade diversion (doesn't cover some non tariff barriers)
  12. European Union
    • product of
    • 1.devesttion of Western Europe during two world wars and the desire for lasting peace
    • 2. the European nation's desire to hold their own on the world's political and economic stage
  13. Treaty of Rome
    • in 1957 the European Community was changed to EU following the ratification of the Maasctricht Treaty (creation of common market)
    • 27 members
  14. European Commission
    • responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states
    • Brussels, Belgium
    • 24,000 employees
    • Run by 27 commissioners one from each member state
  15. European Council
    • represents the interests of the member states. The ultimate controlling authority within the EU since draft legislation can become EU law only if the council agrees
    • one representative from each state
    • membership varies depending on the topic being discussed
    • Votes the a country gets in the council are related to the size of the country
  16. European Parliament
    • 732 members, directly elected by the populations of the member states
    • Strasbourg, France
    • debates legislation proposed
    • propose amendments
    • Treaty of Lisbon: increasing power; now has the right to vote on the appointment of commissioners as well as veto some laws
    • co-equal legislator for almost all European laws
  17. Court Justice
    • comprised of one judge from each country, is the supreme appeals court for EU law
    • acts as independent officials, rather than as representative of national interests
  18. Single European Act
    • adopted by the member nations of the European Community. Committed member countries to work toward establishment of a single market by december 31, 1992
    • Objectives
    • Remove all frontier controls
    • "mutual recognition" to produce standards
    • open public procurement to nonnational suppliers
    • lift barriers to competition
    • remove all restrictions on foreign exchange transactions by end of 1992
    • abolish restrictions on cabotage-the right of foreign truckers to pick up and deliver goods within another member's borders
    • IMPACT
    • faster economic growth
    • implementation for a single marketplace has been uneven, because of the established legal, cultural and language differences between nations
  19. Maasctricht Treaty
    • committed members to adopt a common currency by Jan 1999
    • the new members will adopt the euro when they have a high degree of price stability, a sound fiscal situation, stable exchange rates, and converged long term interest rates.
    • members must give up currency but also control over monetary policy
  20. Benefits of the Euro
    • businesses and individuals will realize significant savings from having to handle one currency, lead to lower foreign exchange and hedging costs
    • common currency makes it easier to compare prices across Europe - increase competition and lower prices (buying a car in a different country)
    • lower prices, force to look for ways to reduce their production costs
    • development of a highly liquid pan-European capital market - lower the cost of capital and increase range of investment options open to both individuals and institutions
  21. Costs of Euro
    • Lost control of monetary policy.
    • ECB (European central bank) manage monetary policy so as to ensure price stability. Set interest rates and determines MP across Euro zone (independent from political pressures)
    • EU is not an optimal currency area - each nation is different, therefore they may react very differently to external economic shocks
  22. optimal currency area
    similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy
  23. NAFTA
    • Cananda Mexico and US
    • MEXICO- comperative advantage
Card Set
INTB Chap 8