Chapter 9

European Union (EU)

An economic and political union of 28 countries (2017) that are located in Europe.

The European Economic Community was established with the signing in 1957 of the Treaty of

Rome

trade diversion

Trade diverted due to regional economic integration; occurs when low-cost foreign suppliers outside a free trade area are replaced by higher-cost suppliers within a free trade area.

The countries of the Andean Pact have faced

high unemployment?

One political reason for economic integration is the potential to minimize violent conflict between nations.

true

Which two reasons are given as to why Europeans decided to establish a single currency?

-Businesses would achieve significant savings from having to handle just one currency. -A single currency makes it easier to compare prices across Europe.

What are two impediments to establishing economic integration?

-Concerns over national sovereignty -Costs of integration

What two political factors led to the development of the European Union?

-Europe's desire to hold its own on the world's political and economic stage. -The devastation of western Europe during the two world wars.

What are three advantages of regional market integration that can result in cost savings to a business?

-Harmonized product standards -Free movement of goods across borders -Simplified tax regimes

Which two political factors support the idea for economic integration of nations through trade?

-Interdependency among nations decreases the potential for violent conflict. -It can enhance the political weight of those countries in the world.

What are two requirements countries must take to qualify for EU membership?

-Respect human rights -Establish stable democratic government

Under the Andean Pact, which two members received special concessions based on the size of these countries?

-bolivia -ecuador

Forms of economic integration (from least to most integrated)

-free trade area -customs union -common market -economic union -full political union

To qualify for EU membership applicants had to:

-privatize state assets -deregulate markets -restructure industries -tame inflation

What was proposed by the single European Act?

-remove all frontier controls among EC countries, thereby abolishing delays and reducing the resources required for complying with trade bureaucracy -apply the principle of "mutual recognition" to product standards -institute open public procurement to nonnational suppliers -lift barriers to competition in the retail banking and insurance businesses -remove all restrictions on foreign exchange transactions between member countries by the end of 1992 -abolish restrictions on cabotage (the right of foreign truckers to pick up and deliver goods within another member state's borders

The European Union is the product of two political factors:

-the devastation of Western Europe during two world wars and the desire for lasting peace -the European nations' desire to hold their own on the world's political and economic stage.

Four main institutions of the EU

1. the European Commission - proposes EU legislation, implements it, and monitors compliance 2. the European Council - the ultimate controlling authority within the EU 3. the European Parliament - debates legislation proposed by the commission and forwarded to it by the council 4. the Court of Justice - the supreme appeals court for EU law

The euro zone is comprised of the

19 member nations who use the euro as their currency

After the British government formally notified of its intent to exit the European Union, the country had _____ to negotiate the terms of the exit.

2 years

Before the United Kingdom decided to exit the EU, how many total countries were involved by 2014?

28

The United States-Mexico-Canada Agreement renegotiated NAFTA and requires automakers to produce ______ of a vehicle's content in North America to qualify for zero tariffs.

75 percent

regional economic integration

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

Mercosur is a free trade pact started in 1988 by which two South American economies?

Argentina and Brazil

In 1969, which countries created the Andean Pact that was modeled on the EU, but was not as successful in achieving regional groups objectives?

Bolivia, Chile, Colombia, Ecuador, Peru

__________ 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

Shondra Thibbs wants to make a political case for regional economic integration to her electorate. Which valid statement can she make in this regard?

Countries can enhance their political weight in the world by grouping their economies.

The __________ proposed that all impediments to the formation of a single market (the EC) be eliminated by December 31, 1992, resulting in the Single European Act.

Delors Commission

Two trade blocs in Europe:

EU and EFTA

What is a defining characteristic of a free trade area?

Each member country is allowed to determine its own trade policies with regard to nonmembers.

Because of its economic and political influence, the _____ is considered the most significant trading bloc in Europe.

European Union

One of the reasons the European Union was originally formed was because

Europeans desired a lasting peace after enduring two devastating world wars.

Which three long-term members of the EU were NOT receptive to the euro as a common currency as set forth by the Maastricht Treaty?

Great Britain, Denmark, Sweden

What committed EU members to adopt a common currency by January 1, 1999?

Maastricht Treaty

The trade pact developed in 1988, initially between Argentina and Brazil, is called ______.

Mercosur

The biggest leap of economic faith came from __________ when signing the NAFTA agreement.

Mexico

Opponents of NAFTA in Mexico were concerned that

Mexico would be used as an assembly site and higher-paying jobs would be kept in the U.S. and Canada.

Which agreement was an attempt at regional economic integration in the United States?

NAFTA

Which nations are a part of ASEAN?

Singapore, Philippines, Malaysia, Brunei, Cambodia, Indonesia, Laos, Myanmar, Thailand, Vietnam

______ is considered the most successful attempt at regional economic integration.

The EU

trade creation

Trade created due to regional economic integration; occurs when high-cost domestic producers are replaced by low-cost foreign producers within a free trade area.

Maastricht Treaty

Treaty agreed to in 1992, but not ratified until January 1, 1994, that committed the 12 member states of the European Community to a closer economic and political union.

What three countries made up NAFTA?

US, Canada, Mexico

Which statement best describes the response by EU members to the introduction of the euro as a common currency?

While many members accepted the euro, several long-term members did not.

Economic theories for integration imply that free trade and investment create __________ for participants.

a positive-sum game

The Maastricht Treaty committed EU members to

adopt a common currency by January 1, 1999.

Which industry is most affected by stipulations of USMCA?

automobile

The euro was established because a _____ currency would make it easier for Europeans to compare prices.

common

An argument against regional free trade agreements contends that the benefits have been oversold, but ______ have often been ignored.

costs

One result of the Treaty of Lisbon that was signed in 2007 is that it

created the position of president of the European Council.

There are presently 19 trade blocs in Africa, and many of these blocs have been _____ for years.

dormant

The goal of NAFTA was to

eliminate tariffs on trade between the nations

The political structure responsible for economic policies in the EU consists of a single office known as the Court of Justice.

false

Under a common market agreement, you would find

free movement of labor because there are no restrictions on immigration or emigration.

The Association of Southeast Asian Nations was formed with the intent to foster _____.

free trade

What is the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements?

free trade agreements

Assume that France and Italy agree to remove all barriers to the trade of goods between them. However, the countries agree that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration between these countries is called a(n)

free trade area

What is the least integrated form of economic integration?

free trade area

A key advantage of adopting the euro is that it

helps in reduction of competition in Europe

Great Britain, Denmark, and Sweden have stayed out of the euro zone because of the

implied loss of national sovereignty to the European Central Bank

There has been a(n) _____ in regional economic integration in the past two decades.

increase

The creation of a single market creates _____ costs of doing business.

lower

Based on the objectives of the Single European Act, the principle of _____ states that a product standard developed in one EC country should be accepted in another.

mutual recognition

In the campaign to leave the EU, certain groups voted to stay and others voted to leave. What were two characteristics of those who wanted to leave?

older and less educated

Greece 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

African countries have attempted to form a continental trade agreement, but have been stymied by significant ______ turmoil.

political

Based on economic theories, free trade is viewed as a ______ as all participating nations stand to gain.

positive-sum game

Economic theories suggest that free trade allows countries to

specialize in producing goods and service that they are most efficient at producing.

A key impediment to economic integration is that although a majority of citizens may benefit from free trade, certain groups may lose their jobs to low-cost and low-skilled labor in other countries as was the experience of some U.S. and Canadian workers in the ______ industry following the establishment of NAFTA.

textile

Costa Rica, El Salvador, Guatemala, and other countries formed a common market in the early 1960s that was called

the Central American Common Market

The Caribbean Single Market and Economy is modeled after

the EU's single market

A regional free trade agreement will benefit the world only if

the amount of trade it creates exceeds the amount it diverts.

The purpose of the single European Act was:

to have one market in place in place by December 31, 1992

After the creation of a free trade area involving five nations, higher-cost external producers of rice were replaced by lower-cost external rice producers within the free trade area. This is known as

trade creation

Some economists argue that regional free trade agreements will provide global benefits only if

trade creation exceeds trade diversion.

The collapse of the Central American Common Market was a result of ______.

war between Honduras and El Salvador