MGT CH 9, p. 1-10
How did Greece hurt the euro value?
-Extensive public spending to buy off powerful interest groups w/ high pay and extensive benefits -Lied to international community about debt levels with book cooking (5% actually 12.7%)
What is the most enduring free trade area in the world?
European Free Trade Association: '60 -Norway -Iceland -Liechtenstein -Switzerland Free trade in industrial goods, excluding agriculture
How is EU a partial political union?
European Parliament has been directly elected by EU member citizens since 1970s to CONSULT on European Commission issues
What is the permanent bailout fund for euro zone nations to restore faith in the euro?
European Stability Mechanism: 500B euros
What are WTO rules that try to prevent trade diversion b/c of free trade agreements?
External tariffs cannot be higher/more restrictive than they were previously in free trade areas
How has the CARICOM failed at customs union?
Fail to meet deadline to establish common external tariff
What was done to get euro back on track and make sure profligate governments couldn't cost the entire euro zone?
Fiscal pact: 25/27 EU countries -Tight new government deficits rules -2 countries abstain: UK, Czech Republic
How does the EU become an optimal currency area even tho it has strong opposition?
Fiscal transfers: take money from prosperous regions and pump into depressed regions
How did U.S. benefit from NAFTA?
Flood Mexico with low priced auto imports which mexicans snapped up because car prices 2-3x higher than U.S. cars
Relationship between China and ASEAN?
Free trade agreement in 2010: -Remove tariffs on 90% of traded goods -Spur further trade growth
What is the most popular form of REI?
Free trade agreements - 90% of regional agreements
Objectives of ASEAN?
Free trade, achieve industrial policy cooperation -0% import tariffs amongst 6 original members by 2010 -0% import tariffs amongst new members by 2015
What is involved in a financial services single market?
-Banking services -Insurance services -Investment products (French citizen use German for basic banking, borrow Italian mortgage)
How many European Council votes does Britain get versus Denmark?
-Britain: 29 votes -Denmark: 7 votes
What is the role of the European Parliament?
-Commission proposals forwarded by the Council are debated on -Can propose legislation amendments (commission and then council do not have to do but often) -Vote on commissioner appointment -Veto some laws
How do the small size of Eastern European economies impact enlargement of EU?
Should create added benefits for all -Small initial impact -Even if more difficult budget negotations
How is EU an imperfect economic union?
-Not all member countries adopted the common currency (euro) -Tax rates and regulations still have differences -Some of markets are not fully deregulated (energy market)
Why did Greece contracting its economy led to worse-off situations?
-Plunging tax revenues -Smaller economy -More unemployment -Limit ability to pay down debt
Why has the Andean Pact failed its objectives?
-Political problems > Radical-socialist oppose free market principles -Economic problems > Low economic growth > Hyperinflation > High unemployment > Political unrest > Crushing debt burden
What were some of strict austerity measures given to Greece?
-Tax increases -Major cuts in public-sector pay -Reductions in benefits by public-sector employees: lowered retirement age, pension limits -Reduce # of public-sector enterprises
What is the biggest concern about REI and regional trade blocs and what could it result in?
-The blocs turning into economic fortresses that compete against each other and shit test w/ raised tariffs -Declining trade between blocs would override any benefits of free trade within each bloc
How has Mercosur contributed to economic growth rates of members?
-Trade 4x -GDP of all grew 3.5% average rate/yr
What came out of the 2-day 1993 APEC talks in Seattle?
-Vague commitments -Possibility of further REI -Further talks
What does a single financial services market create?
A single European capital market > Firms more easily: -Borrow funds -Lower cost of capital/price of money -Stimulate European FDI -Create more jobs
Define regional economic integration (REI)?
Agreements among countries in a geographic region to reduce/remove tariff and nontariff barriers to free flow of goods/services/factors of production between each other
How does the European Commission work with the other EU institutions?
Commission proposal to Council of European Union approve then European Parliament consults on
What is the 1st level in REI?
Committed to removing all trade barriers for goods/services among member countries. Ideally no discriminatory tariffs/quotas/subsidies/administrative impediments
What was the EU for years after it passed it customs union stage?
Common market
What is the 3rd level of economic integration post-free trade and customs union?
Common market: -No internal trade barriers among member countries -Common external trade policy (tariff) -Allows factors of production to move freely among members (free labor and capital)
How has English-speaking Caribbean countries attempted to create a customs union?
CARICOM, 1973 -Caribbean Community -Formal commitment to economic and monetary union
What happened when Mexico expressed concerns about maintaining control of its oil interests?
Canada and U.S. exempted Mexican oil industry from any deregulation of FDI policy achieved under NAFTA
Example of certain groups losing because of REI?
Canadian and U.S. textile workers (low-cost, low-skilled labor) lost jobs when moved production to mexico after establishment of NAFTA
How has the CAFTA progressed post-HondurasxEl Salvador War (riot after soccer match) 1969 collapse?
Central America Free Trade Agreement (CAFTA), 2004: -U.S. enter bilateral free trade negotiation with the group -Joined by Dominican Republic -Lower trade barriers for most goods/services
How has Central America attempted to REI?
Central American Common Market -Costa Rica -El Salvador -Guatemala -Honduras -Nicaragua
What is the Court of Justice?
EU Supreme Appeals Court - 1 judge/each member country (like commissioners) who independently act -No biased representation for the nation's interests
How can companies bypass "trade fortress?"
EU indicate raise barriers to imports and FDI in "politically sensitive" areas (auto) --> non-EU firms set up own EU operations
How does each EU member have a say in the EU?
Each EU member gives gov't ministers to the Council of the EU/Council of Ministers - EU's controlling, decision-making body
Why is REI a good compromise between achieving more free trade gains while also allowing for government intervention?
Easier to establish free trade and investment among a limited number of adjacent countries
Most important benefit of the euro?
Easy comparison of Euro prices > Increase competition -Easier to shop around -Arbitrage: sell less in foreign country than in national - buy foreign car then resell in national -Lower prices -Substantial consumer gains
Define sovereign debt crisis
Economic and financial problems b/c of critical high public debt and low economic growth
What is the 4th level of economic integration - post free trade, customs union, and common market?
Economic union: group of countries -remove barriers of goods/services/factors of production -adopt common currency -harmonize tax rates -common monetary and fiscal policy -common external trade policy
What is the role of the competition commissioner?
Ensure no enterprise uses its market power to drive out competitors and monopolize markets and no mergers/acquisitions create a dominant enterprise with substantial market power
What are the plans of Mercosur to go through REI levels?
Establish a free trade area, common market, hope to accomplish a full customs union within 5 years
What do people call the 19/28 members that adopted the euro?
Euro Zone -330 mil EU citizens -Includes Germany, France
Which euro zone countries bailed out?
Euro zone nations (sober: Germany, France) + IMF: 2010: -110B euro bailout for Greece -85B euro bailout for Ireland 2011: -78B euro bailout for Portugal
Who brings who to Court of Justice for what?
-Commission/member country <> other members (fail to meet treaty obligations) -Member countries/member companies/member institutions <> European Commission/European Council (fail to act according to EU treaty)
Why was the European Community to unite Europe created?
-Prevent another European war after 2 wars fueled by nation-states' ambition devastated Europe in 20th century -Each nation-state too small to hold own in world markets and politics, post-WW2 -Deal with U.S. -Deal with Soviet Union
How do countries qualify for EU membership?
-Privatize state assets -Deregulate markets -Restructure industries -Tame inflation -Place complex EU laws into own system -Establish stable democratic governments -Respect human rights
How did the Single European Act eliminate all impediments to a single market and lower business costs?
-Remove all frontier controls among EC countries - abolish delays and reduce compliance resources required -Apply "mutual recognition" to product standards - EC countries accept each other's standards (meets basic reqs in health and safety) -Institute open public procurement to nonnational suppliers - allow lower-cost suppliers in and force competition to reduce costs -Lift competition barriers in retail banking and insurance biz --> financial service costs down -Remove all foreign exchange transaction restrictions -Abolish restrictions on cabotage to reduce cost of haulage
Why has EAC failed to make progress on free trade?
-Tanzania and Uganda scrapped immediate free trade zone plans b/c believe power imbalance with Kenya -Give 4 years to negotiate customs plan
Why was the euro establishment an amazing almost unprecedented political feat?
-National gov'ts gave up own currencies and monetary policy sovereignty -Was for the greater good -Now the second most widely traded currency in the world after the USD
Where has succeeded the most at regional economic integration?
Europe. '93: formally removed business barriers within the EU. -Boldest attempt -Most implications for world economy Now: Single market with 500 million consumers, and GDP: $18.5 (slightly bigger than U.S.)
What started in 1951 by European countries to _________?
European Coal and Steel Community Remove barriers to intragroup shipments of coal, iron, steel, and scrap metal?
Why do groups of countries enter regional agreements instead of relying on GATT and WTO to reduce trade barriers?
Multilateral agreements reduce trade barriers a lot faster than 160 global POV of WTO can make an agreement
Example of free trade area for REI level?
NAFTA
What was the initial stimulus to Mexico auto expansion?
NAFTA (North American Free Trade Agreement) removed most tariff and nontariff barriers between Mexico, US, Canada
How did ________ change how European Council issues were decided?
Single European Act: -Majority voting on single market establishment and functioning -Unanimous votes on tax regulations and immigration policy that are across multiple markets
How does the Single European market fall short of its ideal?
Slow progress and uneven implementation b/c of established legal, cultural, and language differences
What were the actual results of NAFTA?
Small but positive -1993-2005: Trade grew by 250%, top three trading partners of the U.S. -Closely integrated economies -Strong productivity growth: labor -U.S. lost 110,000 jobs/yr between 1994-2000 -U.S. created 2mil jobs/yr
What happens to new EU countries and euros?
Takes years to adopt euros -Prohibit free movement of labor among new/existing members
Why did European Commission block the WorldCom-Sprint merger?
Too much market power and dominance if combine European Internet infrastructure holdings
What is a risk of REI?
Trade diversion
How was the European Community established in 1957?
Treaty of Rome -Creation of a common market -Harmonize member states' laws -> free movement of goods/services/factors of production -Establish common agriculture and transportation policies
How did the euro overtake USD value?
U.S. financial markets crashed in 07-08 -Investors now take money out of U.S. markets by sell USD assets (stocks and bonds) -Put money into Euro markets purchasing euro assets -Foreign central banks added more euros to their supply of foreign currencies to show confidence in euro and ECB's aility
What is an example of trade diversion if U.S. and Mexico set up their own free trade area and import tariffs?
U.S. imported Costa Rica textiles which is cheaper than U.S./Mexico -> now import from Mexico and divert away from low-cost source
What is an example of trade creation if U.S. and Mexico set up their own free trade area and import tariffs?
U.S. previously produced own textiles at higher costs --> import textiles from Mexico and shift production to the cheaper source
How has NAFTA stayed consistent with International Trade Theory predictions?
U.S. sectors lost some jobs --> Benefits of greater regional trade outweigh any costs
What precondition for FTAA is necessary even if now mixed?
US and Brazil support
What is the role of the European Council?
Ultimate controlling authority that approves commission legislation
How does the European Commission monitor EU law compliance?
Ask state to comply with any broken laws -> If no, bring case to Court of Justice
____ suggested APEC be founded in _____
Australia; 1990
Will NAFTA be enlargened?
Wait & see -No governments eager to repeat process Chile-US sign bilateral free trade pact even if not part of NAFTA
Which 3 long-term EU members refuse to adopt euro?
1. Great Britain 2. Denmark 3. Sweden
What are two high profile companies the European Commission fined for violating competition policy?
1. Intel 2. Microsoft
How does EU allow companies mergers/acquisitions?
Significant concessions to maintain single market competition and consumer benefits
Post-08, the euro weakened why?
'08-'09: Global financial crisis -Slow economic growth -Large public spending deficits couldn't finance -Private investors sold off troubled nations gov't bonds because no faith in pay off > Plunging bond prices, skyrocketing interest rates
What is Great Britain's stance on the euro?
-'92: opted out of any single currency agreement -'15: Won't reverse its decision, esp. since European sovereign debt crisis strained the euro
What did the eastern european nations + Mediterranean island nations enlargement do to the EU?
-23% more landmass -75 mil new citizens > total population: 450M people -Single GDP: 11 trillion euros
What were the contents of NAFTA?
-Abolish 99% MEX/CAN/US tariffs on goods -Remove cross-border flow of services' barriers (unrestricted market access) -Protect IP rights -Remove FDI restrictions (excl. Mexican energy and railway, American airline and radio comms, Canadian culture) -National environmental scientific-based standards applied -Establish 2 commissions to impose fines and remove trade privileges if ignore environmental standards, health/safety/minimum wage/child labor legislation
What did the Treaty of Lisbon in 2007 do to the major council/parliament power debate and how change the European Council?
-Allows the European Parliament (more direct democracy accountability) to be co-legislator for almost all European Laws with the Council (elected governments), start '09 -European Council now has a president - 30 month term, represents the nation-states
How has the euro created long-term gains for economic efficiency?
Since have to charge lower prices -Reduce production costs
How did Atag Holdings NV realize cultural differences doesn't make it easy to standardize products for a whole single market?
-Consumer preferences much more varied than thought EX: Ceramic cooktops, 2 across EU -> 11 varieties 1. Belgians: extra large burners 2. Germans: oval burners -Oven knobs on top -Black and white 3. French: small burners -Oven knobs front -Black and white 4. British: range of colors -Peach -Pigeon blue -Mint green
What did Atag Holdings management believed could benefit from single market?
-Could totally cater to both "potato" and "spaghetti" belts since near German and EU center -Produce 2 main product lines of standardized "euro-products" for "euro-consumers" to gain economies of scale
What are some gains that come with free trade and investment?
-Countries specialize in what most efficiently produce -Greater world production -Dynamic gains from trade -FDI transfers tech, marketing, managerial knowledge into host nations -Stimulates economic growth
What are the limitations for NAFTA and EU REI?
-Cultural differences -Different competitive practices
Why is Africa REI slow?
-Dormant trade blocs -Significant political turmoil -Suspicious of free trade / need protection from unfair foreign competition
What were the supply-side effects of the Single European Act?
-EC firms could exploit economies of scale by creating EU-spanning production and distribution systems -EC firms forced to become more efficient because of increased competition -Faster economic growth
What were the Andean Pact's objectives?
-Establish free trade =Reduce internal tariff -Common external tariff of 5-20% on imported products -Transportation policy -Common industrial policy -Concessions for Bolivia and Ecuador, smallest members
What're the benefits of a financial services single market?
-Forced to become more efficient b/c of competition and then creates a global competitive advantage -Consumers have more choices, lower prices b/c of competition -Increase EU's GDP by 11%/yr, create billions additional wealth -More employment, private consumption, total business investment
How did Intel illegally used market power to disadvantage their major rival, AMD, from reaching the European market?
-Give major rebates to PC manufacturers if purchase all/majority supplies from Intel -Pay manufacturers to postpone/cancel/restrict AMD-based products intro/distribution -Pay Media Saturn Holdings, Media Markt superstore chain, to only sell Intel-based computers across Europe (Germany, Belgium, etc.)
Why is a world w/o trade barriers for the flow of goods/services/factors of production just a theoretical ideal?
-Governments partially/completely intervene in international trade and FDI (because it's beneficial sometimes) -Difficult to get countries to agree to a common set of rules
How does trade creation create trade in a REI?
-High-cost domestic producers replaced by low-cost producers within the free trade area -Higher-cost external producers replaced by lower-cost external producers within the free trade area
Bumps in the EU road to creating a single financial services market even though made 40+ measures to harmonize conducts and standards?
-Historical segmentation - rarely do business with each other -Different national regulations -Long-standing cultural and linguistic barriers -German European Parliament shot down easy hostile cross-border acquisition legislation -Governments reserve right to block hostile/friendly cross-border financial service firm mergers -New regulations cost financial institutions
Political cases for REI?
-Incentivize political cooperation -Reduces violent conflict -Enhance political weight globally
What did international investors do when they heard about Greece's actual financial picture?
-Interest rates surged on Greek government debt -Downgrade ratings on Greek bonds by 2/3 international rating agencies
What are the threats that come with single markets for management?
-Internal increased price competition within blocs -Price differences decline -> firms must cut costs and make production more efficient (use opportunities) -Threat to global competitors because long-term efficiency improvement and now external must also reduce cost structures -Threat to external firms through "trade fortress" -EU's intervention for mergers/acquisitions limits firms to pursue corporate strategy of choice
Why were euro zone countries bailed out?
-Large debt loads and interest rates' -Afraid weaker nations large-scale default on sovereign debt -Plunge euro zone into economic crisis -Severely weakened euro value as investors move money out of euros
What have been some impediments to AFTA?
-Malaysia wants to protect Proton, local carmaker, and tariff is now 20% instead of 5% as stated by AFTA -Philippines won't lower tariffs on petrochemicals and rice
How has Mercosur progress stalled?
-Members recession -Intrabloc trade slumped -Brazilian financial crisis hurt other 3's exports b/c all their products are now more expensive -Argentina and Brazil wanted to suspend Mercosur's tariff (14% on consumer goods and capital equipment) and make own tariffs
What is the design for the European Central Bank?
-Modeled after German Bundesbank (historically most independent and successful European central bank) -Maastricht Treaty prohibits ECB from taking politician orders
What are the benefits of the euro on investment?
-More investment options for institutions and individuals across Europe -Better diversify risk -Lower cost and more efficiency
What are the implications of NAFTA and EU REI's developments for international business practices?
-More single market opportunities -Lower costs of doing business in a single market -Realize cost economies by centralizing production to key locations (factor costs and skills) > Free good movement > Harmonized product standards > Simplified tax regimes -Serve whole EU/NA market from one location with standardized product
How has Alexander Yeats, World Bank senior economist, criticized Mercosur?
-More trade diversion than creation -Fastest-growing items internal trade were products that were inefficiently produced -Make products too expensive to sell externally -Can't compete once external trade barriers come down -External trade barriers keep out more efficient manufacturing barriers
What're the savings benefit of the euro?
0.5% EU's GDP saved -Lower foreign exchange costs -Lower hedging costs
What does the Council of Ministers/Council of the EU/European Council of the EU consist of?
1 head of state representing each EU member (type of gov't representative varies depending on issue discussed - agriculture ministers re: agricultural issues) + European Commission President
2 impediments to REI that makes it difficult to achieve and hard to sustain?
1. Certain groups lose and aren't comforted by net national benefits 2. Concerns about national sovereignty since REI gives up some control over monetary policy, fiscal policy (tax), trade policy
What are the 2 European trade blocs?
1. EU 2. EFTA
What are the 4 EU institutions?
1. European Commission 2. Council of the European Union 3. European Parliament 4. Court of Justice
What are two high profile mergers the European Commission blocked?
1. TIme Warner US - EMI UK 2. WorldCom US - Sprint US
What are stumbling blocks for FTAA?
1. US wants Southern neighbors to enforce IP rights and have lower manufacturing tariffs 2. Brazil and Argentina want US to reduce domestic agricultural subsidies and scrap agricultural import tariffs
When did members joined to enlargen EU into a global superpower?
1951: European Coal and Steel Community -1) Belgium -2) France -3) W. Germany -4) Italy -5) Luxembourg -6) Netherlands 1957: European Community rebrand post-Treaty of Rome 1973: -7) Great Britain -8) Ireland -9) Denmark 1981: -10) Greece 1986: -11) Spain -12) Portugal 1990: East Germany joined post-reunification 1993: European Union rebrand post-Maastricht Treaty 1995: -13) Austria -14) Finland -15) Sweden 2004: -16-23) 8 eastern Europe countries (Baltic countries, Czech Republic, Hungary, Poland) -24) Mediterranean nation, Malta -25) Mediterranean nation, Cyprus 2007: -26) Bulgaria -27) Romania 2013: -28) Croatia
Design of ASEAN (Association of Southeast Asian Nations)?
1967: -Brunei (original) -Indonesia (original) -Malaysia (original) -Phillippines (original) -Singapore (original) -Thailand (original -2006: Vietnam -2008: Laos -2008: Myanmar -2010: Cambodia 600M people, GDP $2T
What was the timeline for adoption of the euro in the euro zone?
1999: Lock exchange rates against each other and national currency stood for a defined amount of euros 2002: Issue euro notes and coins, take out national currencies, all prices and routine economic transactions in euros
When did euro hit the 13% of global reserves mark set by former national currency, deutsche mark?
2002
How has ASEAN progress been kickstarted?
2003: ASEAN Free Trade Area (AFTA) -Original 6 -Cut manufacturing and agricultural product tariffs to 5 or less%
Relationship between two trading blocs, Andean Community and Mercosur?
2005: -Sign agreement to restart negotiations to create a free trade area
Did EAC follow through with free trade plans?
2005: Implement customs union 2010: Established common market 2015: Trying to create a monetary union
How has CARICOM succeeded at customs union?
2005: now 15 members 2006: Caribbean Single Market and Economy (CSME) -Modeled after EU -Lower trade barriers -Harmonize macroeconomic and monetary policy
How did Intel attempt to appeal their European Commission fine and results of appeal?
2014: Rejected appeal -Never coerced -Never paid to stop AMD products -Offer rebates w/o conditions to limit AMD
Why did EU and IMF orchestrate a partial default on Greek sovereign debt?
2014: yields on bonds below 8%, budget surplus before interest payments -Didn't have funds to repay creditors on time New anti-bailout government financial minister defaulted on debt repayment to Germany -Euro zone crisis -Euro value felllllll
By ____, nearly all members notified WTO of their 1+ regional trade agreements that totalled ____?
2014; 500+
Design of APEC?
21 member states: -US -Japan -China 54% of world's GNP 54% of world trade
Current % of global reserves held by euro/
26.3%
Basic facts about European Parliament?
754 members -Meets in Strasbourg, France
How has Mercosur improved trade in Argentina and Brazil?
80% increase in trade
How has parts of Africa attempted to REI?
9 trade blocs -Overlapping member nations -East African Community (EAC): Kenya, Uganda, Tanzania, Brundi, Uganda > 80M ppl
Why did European Commission fined Intel 1.06B euros in 2009?
Abused market power in computer chip market. Market share exceeded 70% consistently b/c illegally disadvantaged AMD Must change practices immediately with bank guarantee for the fine (both held until appeal process exhausted)
What were the main impact of the Maastricht Treaty?
Adopt common currency: euro by Jan 1, 1999
A regional free trade agreement will benefit the world only if?
Amount of trade it creates > amount it diverts
Example of other countries that do customs union?
Andean Community (Pact)
How has S. America's Andean region moved towards REI?
Andean Community (previously Pact) -Bolivia -Colombia -Ecuador -Peru
What is US' equivalent of a competition commissioner?
Antitrust authorities - Federal Trade Commission, Department of Justice
How has Southeast Asia attempted to REI even if just mere figureheads?
Association of Southeast Asian Nations (ASEAN) Asia-Pacific Economic Cooperation (APEC) forum
How does network for free trade deals give Mexico automobile industry an edge?
Attract more FDI. Currently 5th largest auto exporter + 8th largest automaker in world. Many companies construct state-of-the-art factories in Mexico (Audi incl. with luxury) --> will be 6th largest producer by 2020
Why is establishing a common market so difficult?
Because it demands significant cooperation on fiscal, monetary, and employment policies
Why did European Commission fined Microsoft 497B euros in 2004?
Blocked market competition for server computers and media software
According to theory of _____, U.S. and Mexico trade creation example - trade has been ______ within the _______ and there is no _______ in trade with the rest of the world
Comparative advantage; created; regional bloc; decrease
What does economic union demand?
Coordinating bureaucracy and sacrifice national sovereignty
How were the frustrations with the European Community resolved in 1980s?
Created the Delors Commission under chairperson, Jacques Delors -Created the Single European Act, EU law in 1987 -Eliminated all impediments to a single market by 1992
What did the EU started out as?
Customs union
What is the 2nd level for REI post-free trade area?
Customs union: group of countries eliminate trade barriers between each other and adopt a common external trade policy
How many votes does each member country get in the European Council?
Depends on country size
Why has Great Britain held out from signing onto EU's euro, common currency?
Doesn't want to relinquish monetary policy control to a bureaucracy run by foreigners
Example of how much WTO can fail at rapidly reducing trade barriers?
Doha Round, 2001 started now in limbo, failed to make any progress
How has Africa REI attempts been re-energized?
EAC, 2001: Relaunch bloc after collapse > Intend to establish customs union > Regional court > Legislative assembly > Political federation > Immigration, road and telecommunication, investment, capital markets cooperation
Example of economic union for REI level?
EU (2003)
Which European trade bloc is more significant in terms of membership and economic/political global influence?
EU (28 versus 4 members)
Why did countries put their euro adoption plans on hold?
EU Sovereign Debt Crisis 2010-2012 -No desire to have taxpayers bail out profligate governments -Fiscally conservative governments couldn't limit other governments' spending
Which EU institution proposes EU legislation, implement, monitor EU law compliance?
European Commission -Brussels, Belgium HQ -28 commissioners appointed by each member for 5-year renewable terms -Appointments approved by European Parliament Members choose the commission President who chooses other members through consulting
What is the EU's chief regulator of competition policy?
European Commission's Competition Commissioner - started in 1990
What variation of the EU was the Single European Act formed under?
European Community
What was the forerunner to the EU?
European Community
When conditions do current/new EU countries have to meet to switch to euro?
Fulfill economic criteria: -High degree of price stability -Sound fiscal situation -Stable exchange rates -Converged long-term interest rates
What can WTO do to prevent trade diversion loopholes?
GATT and WTO needs to cover nontariff barriers so regional trade blocs can't protect themselves from competition with high nontariff barriers
Agreements designed to promote freer trade within regions are believed to produce _____________ from trade for all member countries based on predictions of _________ theory and theory of ________?
Gains; intentional trade; comparative advantage
What is the design for the European Central Bank governing council?
Governing council, vote on interest rate changes and sets monetary policy -Executive board -17 euro zone countries' central bank governors
What do countries that enter customs union desire down the line?
Greater economic integration
What were conditions for troubled nations to reduce government debt to more sustainable levels?
Greece (free spend), Ireland, Portugal bailouts: -Reduce government spending > Slower economic growth > High unemployment Italy (free spend), Spain falling bond prices: -Austerity programs: reduce government spending
What progress around the world has been made toward REI?
Hemispherewide Free Trade Area of the Americas (FTAA): -Progress stalled -34 heads of state from North and South America summits -Venezuela block Bush administration's agenda for further FTAA talks (believe will benefit US more than Latin America)
What does the European Commission delegate to members?
Implementing EU Law
Objective of APEC?
Increase multilateral cooperation -Economic rise of Pacific nations -More interdependence Become the largest free trade area
How is the U.S. a political union?
Independent states combined into a single nation - every level of gov't elected for
How was the Andean Community revived?
Late '80s: -Heads of AC met in Galapagos Islands Galapagos Declaration: -Relaunch Andean Pact as Andean Community -free trade area by 1992 -Customs union by 1994 (Peru opt out, Bolivia given special treatment until 2003), still operates as customs union -Common market by 1995 > hasn't been reached
What are the different levels of REI?
Least integrated to most integrated -Free trade area -Customs union -Common market -Economic union -Full political union
What has happened to Turkey joining the EU?
Long lobbied to join and has been a customs union with EU since 1995 and half of its international trade already with the EU Human rights issues -Turkish policies towards Kurdish minority -Isn't eager to let primarily Muslim nation of 74M people with 1 foot in Asia join EU 2004: No more delays 2005: Start accession talks -Unclear if will join or not
How does trade diversion diverts trade in REI?
Lower-cost external suppliers replaced by higher-cost suppliers within the free trade area
How did the European Community show how important the Single European Act?
Maastricht Treaty -> rebrand as European Union
What are the costs of the euro that makes the Big 3 EU members not partake?
Maastricht Treaty created the European Central Bank (ECB) in Frankfurt -Lost of control over monetary policy -Don't trust ECB to stay politically independent -Don't trust ECB to set interest rate/ensure price stability that will control inflation
How did the European Community become the European Union?
Maastricht Treaty in 1993
Why is US in the APEC?
Make sure not excluded from Asian groupings
What does "potato" belt mean?
Marketing term - Northern Europe
What does "spaghetti" belt mean?
Marketing term - Southern Europe
What are the 3 cases against NAFTA?
Mass exodus of U.S. and Canadian jobs -Ross Perot: 5.9M jobs! gone! alarmist - $300B trade surplus - size of Mexican's More environmental pollution as air and waste standards degraded -Rio Grande sludge -Mexico City smog Lost of national sovereignty -Mexico worry that will be used as low-cost assembly site with no real job prospects
What is an exception to free trade area in REI level?
Member countries can pursue independent external trade policies re: nonmembers -> members vary on tariffs places on nonmember country products
What regional bloc wants to establish itself as a common market but can't?
Mercosur - Paraguay refuses to ratify Venezuela's membership (2015) and Venezuela withdrew from Andean Community in order to join Mercosur
How has South America moved towards regional economic integration and reduce trade barriers even if progress has stalled?
Mercosur, '91: -Argentina (original) -Brazil (original) -Paraguay -Uruguay External tariffs can reach 70% of value on motor vehicles
Why do Mexico and foreign companies both benefit from many free trade deals?
Mexico manufacturers now had -Duty-free access to different markets Foreign companies benefit -So much cheaper to export from Mexico -Cheaper labor costs in Mexico then export into U.S. market -Better infrastructure and customs clearance
Why was Mexico unlikely to hurt US/Canada for NAFTA?
Mexico's economy is 5% size of U.S. economy
Greece debt crisis resulted in?
More bailout plans -Bondholders agreed to write off 53.5% of debt -Biggest sovereign debt restructuring
Why is it harder to establish free trade and investment regimes under a WTO global agreement instead of REI?
More countries, more perspectives > makes it harder to coordinate, agree, and harmonize policies
What is the case for NAFTA?
More enlarged and efficient production base -Lower labor costs -Comparative advantage -More investment and employment internal -More external import and job creation -Lower consumer prices -Enhance competitive advantage, compete with international rivals
Why is it important that the euro created benefits of a liquid capital market?
More liquid pan-European capital market -Lower cost of capital -Increase capital resource allocation efficiency -Increase investment level -Smaller businesses can more easily borrow money from the pan-European liquid capital market if domestic banks very small and illiquid
What is a terrible political side effect of NAFTA?
More powerful drug cartels b/c can sell drugs to the US, have guns made in the US > All-out drug war with lots of violence -Fight President Felipe Calederon and authorities -Fight other drug cartels -60k people killed
Why not everybody happy with Mexican auto industry boom?
No new factories or expansion in the U.S. plants even if still operational
Why are labor and capital free to move in common markets?
No restrictions on: -Immigration -Emigration -Cross-border flows of capital among member countries
How has Canada, Mexico, and U.S. attempted regional economic integration?
North American Free Trade Agreement - NAFTA to remove all free flow goods/services trade barriers (1988)
WTO members are required to ______ of any _______?
Notify WTO; regional trade agreements
Why is ASEAN progress so limited?
Only 5% of intra-SEAN trade had their goods tariffs reduced
What are Canadian and U.S. textile workers on forefront of?
Opposing NAFTA
What did the EFTA originally look like?
Originally decided not to be part of the European Community/EU -A lot of countries now part of EU (Austria, Finland, Sweden, Great Britain, Denmark)
Why was MEX taking a leap of faith for NAFTA?
Painful restructuring and unemployment since now competing with U.S. and Canadian competition > Accelerated economic growth rate once readjusted
What do customs union agreements need for trade relations with nonmembers?
Significant administrative machinery b/c common external trade policy
What is the last/5th level of economic integration post-free trade area, customs union, common market, and economic union?
Political union: -Central political apparatus coordinates economic, social, and foreign policy of member states -Make coordinating bureaucracy accountable to the citizens of member nations
What significant impact of NAFTA?
Political: -More political stability in Mexico (stable democratic nation with steadily growing economy)
Free trade and investment is a _____ as predicted by _____ theories of _________________?
Positive-sum game; economic; international trade
How were European Council issues used to be decided?
Pre-1987: All unanimous -No progress/agreement on commission on proposals -Marathon sessions
How can Mercosur progress again?
President Lula de Silva 2003 -Support Mercosur modeled after EU (a president, more members, a common currency) 2010: -Agree on common customs code so outside goods don't have to pay tariffs more than once
What is the design for the ECB's executive board?
President, VP, 4 members -Issue instruction to national central banks to carry out policy -8-yr nonrenewable terms
Why have most attempts to achieve REI been contentious and halting?
Pros for REI involves economic and political maneuvers, which typically isn't accepted by many groups within a country
Why did European Commission block the Time Warner-EMI merger in 2000?
Reduce major record companies from 5 to 4; too dominant player in $40B global music industry
What is an optimal currency area and why is the EU not one?
Region w/ similar economic activity make it feasible to adopt single currency, use single exchange rate -Instruments of macroeconomic policy Many EU countries are very different -Complicates macroeconomic policy -Different economic growth rates -Exchange rates help/hurt different countries
____ promotes regional economic integration?
Regional trade blocs
Define cabotage?
Right of foreign truckers to pick up and deliver goods within another member state's borders
Why did the euro fail to meet USD's standard?
Value of euro dived: 1 euro = $0.83 International investors invested money in U.S. with Europe money. -Sell euros to buy dollars in USD markets -Increase USD demand -Decreased euro demand
Why were people frustrated with the European Community in 1980s?
Wasn't removing trade barriers and harmonizing business standards -So many economic divisions