Chapter 9: Regional Economic Integration

Tripartite Free Trade Act2015 signe dby 26 african nations
Nations work together to establish free trade area
Bene difficult to implement, more likely to trade with US or Europe
Regional economic integrationReduction of tariff and non tariff barriers
Concern that world is moving towardRegional trade blocks competing with each other
Free trade areaAll barriers removed, members determine their own trade policies with regard to non members
Customs unionElimates trade barriers between member countries and adopts a common external trade policy

Most desire further integration in the future

Common marketa free trade area with relatively free movement of capital and services.

Requires significant harmony among members in fiscal, monetary and employment policies

Political uniontype of state which is composed of or created out of smaller states.

US is closest example of this (50 states)

Economic unionThe European Union

Harmonizing tax rates, common currency.

Economic case for integrationIt’s an attempt to achieve additional gains from the free flow of trade
Political case for integrationMaking countries rely on each other means they must depend on each other.
Impediments to integrationCostly, lose national sovereignty
Trade creationLow cost producers in the trade area replace high cost domestic producers
Trade diversionOccurs when higher cost suppliers in the trade area replace power cost external suppliers.
Forerunner of the EUEuropean coal and steel community
Treaty of RomeEstablished the European Economic Community in 1957
Changed to EU in 1993
Single European ActSingle market
Lift and remove barriers on exchanges.
Set rules all nations must follow
The six countries in the northern side of the Pacific Rim agreed to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other. The agreement among these countries is referred to as aregional economic integration.
Which of the following is true with regard to regional economic integration?Regional economic integration is good for consumers because it lowers prices.
Where has the movement toward regional economic integration been most successful?Europe
The countries of Mimbo, Juwan, and Ninot agreed to remove all barriers to the trade of goods and services among each other. However, the three countries agreed that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration among these three countries is a(n)free trade area.
The countries of Mesomia, Candera, Blauthop, and Rochus are committed to removing all barriers to the free flow of goods and services between each other but want to pursue independent external trade policies. The countries have in mind a(n)free trade area.
Which of the following is defined as a group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies?free trade area
Eripria, Gautom, and Kasmonis, three countries in a specific geographic area decide to form a free trade area. Which of the following is true with regard to their free trade area?Each member country is allowed to determine its own trade policies with regard to nonmembers.
Which of the following is the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements?free trade agreements
Which of the following is true of the European Free Trade Association (EFTA)?It was founded by those western European countries that initially decided not to be part of the European Community.
Three countries, close to each other in the Pacific Rim, enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common trade policy with regard to nonmembers. Faced with political backlash, the countries stop short of allowing mobility of factors of production such as labor and capital. Which of the following levels of economic integration best describes this arrangement?customs union
To spur trade, Cormoran, Brithea, and Asmakush decided on economic integration where there were no barriers to trade between the three countries, they agreed on a common external trade policy, and allowed factors of production to move freely between the three countries. In short, the three countries formed acommon market.
If seven countries formed a common market, which of the following would be a feature of their trade agreement?free movement of factors of production between member nations
The six member countries of the Murasian Common Market are unhappy with the outcome of their economic integration. They want something that entails a closer economic integration and cooperation than a common market and want to pursue a common currency. They should form a(n)economic union.
The fourteen member countries of BERPHO have a level of economic integration that involves the use of a common currency, harmonization of members’ tax rates, and a common monetary and fiscal policy. BERPHO is an example of a(n)economic union.
SMEAN is an economic union of six geographically close countries. Which of the following is true with regard to SMEAN?It involves the free flow of products and factors of production among member countries.
BERPHO, an economic union, wants to make a coordinating bureaucracy that is accountable to the citizens of member nations. What BERPHO wants to do is called a(n)political union.
The goal of ESASME, an economic union, is to have a Council of Ministers that would coordinate the economic, social, and foreign policy of the member-states. ESASME wants to be apolitical union.
Which of the following supports the economic case for regional economic integration?Coordination and policy harmonization problems are largely a function of the number of countries that seek agreement.
Ghom Nartico, the head of state of Nuntica, wants to make a political case for regional economic integration to his electorate. Which of the following would be a valid statement for Nartico to make?Countries can enhance their political weight in the world by grouping their economies.
Which of the following was a major consideration that underlay the establishment of the European Community?The need for a united Europe to deal with the United States and the politically alien Soviet Union
The Coalition for United Nuntica are opposed to Nuntica joining any regional trading bloc. Which of the following are the two main impediments to regional economic integration that they should emphasize in gaining support for their stance?costs and national sovereignty
Which of the following is an example of concerns over national sovereignty acting as an impediment to regional economic integration?Great Britain refusing to adopt the common currency of the European Union, the euro
After the formation of BERPHO, a free trade area for its member countries, Nuntica found that its high-cost domestic producers were replaced by low-cost producers within the free trade area. This is an example oftrade creation.
As a result of the formation of a free trade area between six member countries in the Pacific Rim, the member country of Rimho found that its lower-cost external suppliers were replaced by higher-cost suppliers within the free trade area. This is an example oftrade diversion.
A regional free trade agreement will benefit the world only ifthe amount of trade it creates exceeds the amount it diverts.
The country of Argonia and the country of Berylia imposed tariffs on imports from all countries. They set up a free trade area, removing all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Argonia now begins to import sugar from Berylia. Previously, Argonia was indigenously producing sugar at a higher cost. Thus, Argonia benefits from this transaction. This is known astrade creation.
As a result of the formation of BERPHO, a free trade area consisting of six member countries, higher cost external fabric producers were replaced by lower-cost external fabric producers within the free trade area. This is known astrade creation.
Suppose the country of Ceria and Lithinia imposed tariffs on imports from all countries, and then they set up a free trade area, scrapping all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Now, Ceria begins to import sugar from Lithinia. However, Ceria had previously been importing sugar from another country, Cadnia, which produced sugar more cheaply than Ceria or Lithinia. This is an example oftrade diversion.
Which of the following are significant trade blocs in Europe?European Union and the European Free Trade Association
Which of the following is a factor that resulted in the establishment of the European Union (EU)?devastation of Western Europe during two world wars and the desire for a lasting peace
The European Community was established with the signing in 1957 of the Treaty ofRome.
The European Community became the European Union in 1993 following the ratification of theMaastricht Treaty.
Which of the following is true of the Treaty of Rome?It committed the European Community to establish common policies in agriculture and transportation.
Which of the following is responsible for proposing European Union legislation, implementing it, and monitoring compliance with European Union laws by member-states?European Commission
Which of the following institutions has a monopoly in proposing European Union legislation?European Commission
Which of the following is true about the European Commission?The European Union’s competition commissioner has been gaining influence as the chief regulator of competition policy in the member nations of the European Union.
Which of the following is considered to be the ultimate controlling authority within the European Union?European Council
The European Council is considered to be the ultimate controlling authority within the European Union (EU) becausedraft legislation from the European Commission can become EU law only if the council agrees.
Which of the following has 751 members as of 2016, and is directly elected by the populations of the member-states?European Parliament
Which of the following meets in Strasbourg, France, is primarily a consultative rather than a legislative body, and debates legislation proposed by the commission and forwarded to it by the council?European Parliament
Which of the following is true about the European Parliament?It is directly elected by the populations of the member-states.
Which of the following is true of the Treaty of Lisbon that was signed in 2007?It created the position of the president of the European Council.
Which of the following is true of the Court of Justice?It is the supreme appeals court for European Union law.
Which of the following was a change proposed by the Single European Act?apply the principle of “mutual recognition” to product standards
The _____ proposed that all impediments to the formation of a single market be eliminated by December 31, 1992, resulting in the Single European Act.Delors Commission
Which of the following is true of the Single European Act?It provided the impetus for the restructuring of substantial sections of European industry.
The _____ committed European Community members to adopt a common currency by January 1, 1999Maastricht Treaty
The euro zone is comprised of the19 member nations who use the euro as their currency
Which of the following countries has adopted the euro as its currency?France
Establishment of the euro required participating national governments togive up control over monetary policy.
The member countries of BERPHO, a regional free trade area wanted to adopt a common currency, the “BERPH.” The “BERPH” was modeled after and, in fact, was exactly similar to the euro. Establishment of the “BERPH” requires participating national governments togive up control over monetary policy.
The price of a bouquet of roses in France is 4 euros. Tom Smith, a frequent international traveler found that a similar bouquet of roses cost only 3 euros in Germany. A benefit of adopting the euro as a common currency is that itmakes it easier to compare prices across Europe.
A key advantage of adopting the euro is that itlowers foreign exchange and hedging costs in Europe.
Over time the euro will impact the pan-European capital market by leading toan increased efficiency with which investment funds are allocated.
Which of the following is a drawback of adopting the euro?loss of control over national monetary policy
The Maastricht Treaty called forestablishment of the independent European Central Bank (ECB).
Which of the following is the reason that Great Britain, Denmark, and Sweden have stayed out of the euro zone?implied loss of national sovereignty to the European Central Bank
Minto and Maily, two neighboring countries, have the same wage rates, tax regimes, and business cycles. In addition, the two countries have reacted similarly to past economic shocks. Minto and Maily can adopt a common currency because they form a(n)optimal currency area.
Finland and Portugal have different wage rates, tax regimes, and business cycles. The two countries have also reacted differently in the past to external economic shocks. The dissimilarities are an example of one of the drawbacks of the euro that economists refer to as the EU not being in a(n)optimal currency area.
Which of the following is true of the euro since its establishment in 1999?The euro has had a volatile trading history against the U.S. dollar.
Which of the following refers to a permanent bailout fund, worth about €500 billion, set up by the euro zone nations to restore confidence in the euro?European Stability Mechanism
Binopa wanted to apply for membership to the European Union. Its application was, however, rejected. Which of the following is likely to have been the cause of Binopa’s rejection?It nationalized private assets.
Which of the following is true of the provisions of the North American Free Trade Agreement?It seeks the removal of most barriers on the cross-border flow of services.
Which of the following is an expected consequence of the implementation of the North American Free Trade Agreement?Some U.S. and Canadian firms would move production to Mexico to take advantage of lower labor costs.
An argument against the North American Free Trade Agreement centered on the fear that ratification would result inmass exodus of jobs from the United States into Mexico.
Which of the following is a significant impact of the North American Free Trade Agreement (NAFTA)?It helped create the background for increased political stability in Mexico.
Which of the following is a major issue confronting the North American Free Trade Agreement?expanding the membership of the agreement
The _____ is a 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union.Andean Pact
Which of the following is true of the Andean Pact of 1969?Political and economic problems seem to have hindered cooperation among member countries of the Andean Pact.
Which of the following is true of the Andean Pact during the mid-1980s?The Pact had failed to achieve the objective of a common external tariff.
The Andean Community now operates as ancustoms union.
_____ is a pact that originated in 1988 to establish a free trade area now including Argentina, Brazil, Paraguay, and Uruguay.Mercosur
Which of the following is true of Alexander Yeats’s criticism of Mercosur?He pointed out that Mercosur countries were insulated from outside competition by tariffs that run as high as 70 percent of value.
Which of the following is a reason why Mercosur was temporarily suspended in 2001?economic crisis in Argentina
_____ is a trade pact among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collapsed in 1969 due to war.Central American Common Market
As a result of _____, the Central American Common Market collapsed in 1969.war between Honduras and El Salvador after a riot at a soccer match between teams from the two countries
The agreement of the member-states of the Central American Common Market joined by the Dominican Republic to trade freely with the United States is known as theCentral American Free Trade Agreement.
Which of the following is the aim of the Central America Free Trade Agreement?Lowering of trade barriers between the United States and the Central American Common Market countries
Which of the following refers to an association of English-speaking Caribbean states that are attempting to establish a customs union?CARICOM
The goal of the Caribbean Single Market and Economy is toharmonize macroeconomic and monetary policy between member-states.
Which of the following countries is NOT a member of the Central American Common Market?Mexico
The _____ was an attempt to establish a free trade area between Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.Association of Southeast Asian Nations
Vietnam is a member ofAFTA.
The Central America Free Trade Agreement (CAFTA) is a 2004 agreement between the members of the Central American Common Market andthe United States.
Which of the following is true of the East African Community (EAC)?Its program includes cooperation on immigration, road and telecommunication networks, investment, and capital markets.
Which of the following is a threat facing the emergence of single markets?increased price competition throughout the European Union
Maastricht TreatyCreated the EU and EMU; signed in 1992.
Established Euro
Benefits of the euroHand lining one currency.
Easily compare prices
Investments increase
Costs of the EuroLoss of control over monetary policy
Eu not an optimal currency area
Optimal currency areaUsing a single currency and exchange rate
NOT EU
The euro has aVolatile trading history with the US dollar
North American Free Trade Agreement (NAFTA)Abolished 99% of tariffs on goods traded
Removed barriers on the cross border flow of services
Protects intellectual property rights
NAFTA resultsTrade increased 250%
More integration
Productivity increased in all nations
Small welfare gains
How many trade blocs in Africa17