int business chapter 9

Example of political union

United States

Treaty of Rome

a pact, created in 1957, that set up the European Economic Community(that became the European Union).

Economic Case for Regional Integration

achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international agreements such as the World Trade Organization.

Regional Economic Integration

agreements between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

Objectives of Single European Act

(1) the removal of all frontier controls between EC countries (2) mutual recognition of standards to apply the principle of "mutual recognition," which is that a standard developed in one EC country should be accepted in another, provided it meets basic requirements in such matters as health and safety (3) open public procurement to non-national suppliers (4) financial services to lift barriers to competition in the retail banking and insurance businesses (5) the removal of all restrictions on foreign exchange transactions between members by the end of 1992 (6) the abolishment of all restrictions on cabotage (the right of foreign truckers to pick up and deliver goods within another member's borders), by the end of 1992

Political Case for Integration

1) by linking countries together, making them more dependent on each other, and forming a structure where they regularly have to interact, the likelihood of violent conflict and war will decrease, and 2) by linking countries together, they have greater clout and are politically much stronger in dealing with other nations.

Levels of Economic Integration

1. Free Trade Area 2. Customs Union 3. Common Market 4. Economic Union 5. Political Union

Free Trade Area

all barriers to the trade of goods and services among member countries are removed. In a theoretically ideal free trade area, no discriminatory tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between member nations. Each country, however, is allowed to determine its own trade policies with regard to nonmembers. An example is the European Free Trade Association(IFTA) with Iceland and Norway.

Treaty of Lisbon

allows the European Parliament to become the co-equal legislator for almost all European laws. Gave more power to European Parliament.

Optimal Currency Area

an area where similarities in the underlying structure of economic activities make it feasible to adopt a single currency and use a single exchange rate as an instrument of macro-economic policy. The Euro is NOT an optimal currency area.

Common Market

no barriers to trade between member countries and a common external trade policy. Unlike a customs union, in a common market, factors of production are allowed to move freely between members. Thus, labor and capital are free to move, as there are no restrictions on immigration, emigration, or cross-border flows of capital between markets. Mercosur(Brazil, Argentine, Paraguay, and Uruguay) is aiming to establish itself as a common market.

Trade Diversion

occurs when higher cost 3 suppliers within the free trade area replace lower cost external suppliers

Trade Creation

occurs when low cost producers within the free trade area replace high cost domestic producers

Andean Community

operates as a customs union between Latin American governments.

Central American Free Trade Agreement (CAFTA)

trade agreement designed to reduce tariff barriers between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, and the United States

European Council

ultimate controlling authority within the EU

Single European Act

A 1997 act, adopted by members of the European Community, that committed member countries to establishing an economic union

Political Union

A central political apparatus coordinates the economic, social, and foreign policy of the member states. United States

Central American Common Market

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.

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico. removes most barriers on the cross-border flow of services • protects intellectual property rights • removes most restrictions on FDI between the three member countries • allows each country to apply its own environmental standards, provided such standards have a scientific base

CARICOM

An association of English-speaking Caribbean states that are attempting to establish a customs union.

An example of a customs union?

Andean Community - Bolivia, Columbia, Ecuador, Peru

Benefits and Costs of the Euro

Benefits: they believe that business and individuals will realize significant savings from having to handle one currency, rather than many. The adoption of a common currency makes it easier to compare prices across Europe. Costs: national authorities lose control over monetary policy.

Customs Union

Eliminates trade barriers between countries and adopts a common external trade policy. Most countries in a customs union desire even greater economic integration down the road. The current version of the Andean Community among Bolivia, Columbia, Ecuador, and Peru is a Customs Union.

4 institutions of the EU

European Commission European Council European Parliament Court of Justice

Example of economic union:

European Union

2 Impediments to integration

First, although economic integration benefits the majority, it has costs. Although a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. A second impediment to integration arises from concerns over national sovereignty.

Example of common market?

MERCOSUR (Brazil, Argentina, Paraguay, and Uruguay)

Mercosur

Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area

Which level of economic integration is Norway, Iceland, and Switzerland?

free trade area

Maastricht Treaty

committed the EU to adopt a single currency, the euro. Created the EU, made them commit to the Euro.

European Parliament

debates legislation proposed by the commission and forwarded to it by the Council

Economic Union

entails even closer economic integration and cooperation than a common market. Like the common market, an economic union involves the free flow of products and factors of production between members and the adoption of a common external trade policy. Unlike a common market, a full economic union also requires a common currency, harmonization of the member countries' tax rates, and a common monetary and fiscal policy. The European Union(EU) is an economic union.

European Commission of the EU

responsible for proposing EU legislation, implementing it, and monitoring member states to ensure they are complying with EU laws

Case Against Regional Integration

some economists have expressed concern that the benefits of regional integration have been oversold, while the costs have often been ignored.

What factors led to the creation of the European Union?

the devastation of two World Wars on Western Europe and the desire for a lasting peace, and second, the European nations' desire to hold their own on the world's political and economic stage.

Court of Justice

the supreme appeals court for EU law