IBA Chapter 7
Free Trade Area
1st Level of Regional Integration- simplest, most common; member countries agree to gradually eliminate formal trade barriers within the bloc, while each member maintains an independent international trade policy with countries outside the bloc (NAFTA)
Customs Union
2nd Level of Regional Integration- similar to a free trade area except the members harmonize their trade policies toward nonmember countries, by enacting common tariff and nontariff barriers on imports from nonmember countries (MERCOSUR)
Common Market
3rd Level of Regional Integration- like customs union, except products, services, and factors of production such as capital, labor, and technology can move freely among the member countries (EU countries put a lot of these in place)
Economic Union
4th Level of Regional Integration- like a common market, but members also aim for common fiscal and monetary policies, and standardized commercial regulations (EU is moving toward an economic union, by forming a monetary union with a single currency, the euro)
Political Union
5th Level of Regional Integration
Tariff
A tax on imports
Which of the following was NOT a step taken by the European Union (EU) in becoming an economic union?
Creation dispute settlement methods in areas such as investment, unfair pricing, labor issues, and the environment
The second level of regional integration is a(n) ________.
Customs union
Nontariff Trade Barrier
Government policy, regulation, or procedure that impedes trade
Why would a nation choose to be a member of an economic bloc?
It is easier to reach an agreement on free trade with a few nations than with numerous countries
Which of the following is a disadvantage of regional integration?
Loss of direct investment
Which of the following statements about the General Agreement on Tariffs and Trade (GATT) is FALSE?
According to the GATT, a trade concession to one country did not become a concession to all countries
TDC Industries, a U.S. firm, has established operations in Germany, so TDC Industries has free trade access to ________ of the EU market.
All
Nationalization
Government put their hands on firms
Which of the following is an example of protectionism used to support local businesses?
Governments institute trade barriers on foreign imports to let young, domestic firms gain market share
What type of government intervention encourages foreign companies to enter a host country market?
Investment incentives
Which of the following coordinates economic, social, and cultural affairs among Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates?
The Gulf Cooperation Council (GCC)
You own a firm that engages in overseas business. Recently, the exchange rate became much higher for your country's currency. How would the new exchange rate most likely affect your sales?
Your sales would likely decrease because your goods are now more expensive than those of your local counterparts
Economic Bloc
A geographic are consisting of two or more countries that agree to pursue economic integration by reducing tariffs and other barriers to the cross-border flow of products, services, capital, and in more advanced cases, labor
Nationalism
Feelings of national pride and unity
Which statement about free trade zones (FTZs) is true?
Firms can use FTZs to assemble foreign materials and components into finished products, which are re-exported
A(n)________ is a designated location within a country that receives imported goods for assembly and then re-exports finished products.
Foreign trade zone
What effect do import licenses have on businesses overseas?
Import licenses allow companies to do business legally overseas by allowing them to import products
Government Intervention
In trade and investment to achieve political, social, or economic objectives. It alter the competitive landscape by hindering or helping the ability of firms to compete internationally
National Defense
Industries vital to national security must be kept operating even though not competitive with foreign suppliers
Regional integration leads to increased ________ by firms inside their economic bloc.
Internationalization
MERCOSUR
Leading economic bloc in South America, accounting for nearly all of the region's GDP, established free movement of products and services, common external tariff and trade policy, and coordinated monetary and fiscal policies
Economists Debbie and Don are discussing the effect of government intervention on business. Debbie believes that businesses that operate internationally have a more difficult time succeeding than those that operate solely domestically because of government intervention abroad. Don disagrees and asserts that international businesses experience ease of trade more readily than exclusively domestic businesses. Which of the following is the strongest argument for Debbie's point of view?
Many governments enforce strict tariffs and restrictions on imports
NAFTA
Most significant economic bloc in the Americas
Which of the following statements about NAFTA is true?
NAFTA allowed member country firms to submit bids for government contracts in the three countries
National Sovereignty
Nation that is free from all external control, it is independent, enjoys full legal equality with other states, governs its own territory, selects its own political and economic systems, can enter into agreements with other nations, implies that nations have control within its borders
Protectionism
National economic policies that restrict free trade, usually intended to raise revenue or protect domestic industries from foreign competition
The United States blocks exports of nuclear and military technology to nations considered state sponsors of terrorism, such as Iran and Syria. This is an example of which defensive motive by the U.S. government?
National security
A government policy or procedure that restricts trade through means other than tariffs is known as a(n) ________.
Nontariff trade barrier
________ pertains to national economic policies that restrict free trade and protect domestic industries from foreign competition.
Protectionism
Quota
Quantitative restriction on imports of a specific product
Investment Barriers
Rules or laws that hinder foreign direct investment
The World Bank has published an index entitled Ease of Doing Business. Which of the following is most likely to make a country "easy" to do business in?
Subsidies
What ethical concerns do government intervention and trade barriers raise for developing economies?
Tariffs can hurt poor countries like Bangladesh, where clothing exporters are concentrated
Customs
The checkpoint at national ports of entry where officials inspect imported goods and levy tariffs
How can export led development models help countries improve their economies?
The export led development model enables countries to make goods and then sell them to the world
If you are a business looking for a foreign market in which to sell goods, what does economic freedom in a country mean to your business?
The government will support foreign business by enacting laws that decrease import quotas
Regional Economic Integration
The growing economic interdependence that results when nations within a geographic region for an alliance aimed at reducing barriers to trade and investment
Which of the following statements best describes the European Union (EU)?
Trade among the EU members takes place unobstructed
Privatization
Transfer of public sector assets to the private sector
Privatization
Transfer of public sector assets to the private sector OR transfer of management of state activities through contracts and leases
You own a company in Texas and have an offer to open up a manufacturing plant as a maquiladora within the territory of one of your largest customers, Mexico. Why is this scenario beneficial to your business's profit?
You can manufacture your goods in the destination country and take advantage of low cost labor
