Exam Ch 9

Benefits of the Euro

-Handling one currency, rather than many -Easier to compare prices across Europe -Increased competition promotes greater efficiencies in production -The pan-European capital market should further develop -Range of investment options open both to individuals and institutions should increase

The Case against NAFTA:U.S. and Canada

-Jobs could be lost -Wage levels could decline

The Case against NAFTA:Mexico

-Workers would emigrate north of the border -Environmental degradation

European Commission

-proposes EU legislation, implements it, and monitors compliance

Impediments to Integration

1.It can be costly - while a nation as a whole may benefit from a regional free trade agreement, certain groups may lose 2.It can result in a loss of national sovereignty

Economic Integration in Europe

Europe has two main trading blocs we will discuss next... 1.The European Union with 28 members (Britain has voted to exit; i.e., Brexit) 2.The European Free Trade Association with 4 members ----These trading blocks are significant for international business growth...

Court of Justice

is the supreme appeals court for EU law

Association of Southeast Asian Nations ASEAN/AFTA

- ASEAN(1967) fosters freer trade and cooperation between members -AFTA(2003) expanded ASEAN from the original members to its current level* -*Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Myanmar, Laos, and Cambodia -ASEAN(2010) signed a free trade agreement with China to remove tariffs

Regional integration

- an attempt to achieve gains from the free flow of trade and investment -Beyond those attainable under international agreements - such as the WTO -Easier to form an agreement with a few countries than across all nations -There has been a push toward regional economic integration

What is the 'North American Free Trade Agreement - NAFTA?'

- which eliminated most tariffs on trade between Mexico, Canada and the United States, went into effect in 1994. - purpose is to encourage economic activity between North America's three major economic powers. -Numerous tariffs, particularly those related to agriculture, textiles and automobiles, were gradually phased out between 1994 and 2008. -Negotiations to revisit NAFTA are ongoing.

Regional Economic Integration Threats

-A return to economic nationalism, mercantilist and/or unilateral approaches to trade -MNE's outside the trade blocs risk being shut out of the single market -Firms may be unable to pursue the strategy of their choice if the EU or other entity intervenes (e.g., M&A; taxes) -Lower trade and investment barriers could lead to increased price competition and lower margins

The North American Free Trade Agreement - NAFTA

-Abolished tariffs on 99% of goods traded -Removed barriers on the cross-border flow of services -Protects intellectual property rights -Removal of most restrictions on FDI among members -Application of national environmental standardsEconomic Integration Economic Integration of the Americas of the Americas

The Case for NAFTA:U.S. and Canada

-Access to a large and increasingly prosperous market and lower prices for consumers from goods produced in Mexico -U.S. and Canadian firms with production sites in Mexico are more competitive in world markets

What is 'Regional Economic Integration?'

-Arrangement between different regions that often includes the reduction or elimination of trade barriers, and the coordination of monetary and fiscal policies. -The aim of economic integration is to reduce costs for both consumers and producers and to increase trade between the countries involved in the agreement.

Regional Economic Integration of Asia

-Association of Southeast Asian Nations (ASEAN); The ASEAN Free Trade Area (AFTA)

Free Trade Area

-Barriers to the trade of goods and services among member countries are removed, but members determine their own trade policies with regard to nonmembers -Examples: The European Free Trade Association (between Norway, Iceland, Liechtenstein, and Switzerland); The North American Free Trade Agreement (between the U.S., Canada, and Mexico)

Customs Union

-Eliminates trade barriers between member countries and adopts a common external trade policy -Most countries that enter a customs union desire further integration in the futureThe Andean Community (between Bolivia, Columbia, Ecuador, and Peru)

Economic Union

-Involves the free flow of products and factors of production between members, and adoption of a common external trade policy -Involves common currency, harmonization of the member countries' tax rates, common monetary and fiscal policy -Involves sacrificing a significant amount of national sovereignty (The European Union (EU) is an example of economic union)

Establishment of the Euro

-Maastricht Treaty committed EU members to adopt a single currency, the euro (introduced in 1999) -The euro is used by 19 of the 28 member states -Created the euro zone, the second largest currency zone in the world after that of the U.S. Dollar -Countries that participate have agreed to give up control of their monetary policy

Costs of the Euro

-Membership implies a loss of control over monetary policy -Countries may react differently to changes in the euro -Common currency may blunt a country's ability to conduct fiscal policy

Common Market

-No barriers to trade between member countries, a common external trade policy, and the free movement of the factors of production -Requires significant harmony among members in fiscal,monetary, and employment policies -Mercosur (between Brazil, Argentina, Paraguay, and Uruguay) hopes to achieve this status

Regional Economic Integration Opportunities

-Regional economic integration has provided opportunities in the EU, the Americas, Southeast Asia, and Africa -Open markets in these regions has provided opportunity for exports and foreign direct investment -Firms can capitalize on opportunities for growth in regions outside the home country, and be closer to customer base -Firms can realize economies by producing in regions where the mix of factor costs and skills is optimal

The Euro Experience

-Since its establishment, the euro has had a volatile trading history with the U.S. dollar -Currently € 1 = $1.18 -The current account is at a rolling high (Eurozone exports up; with a surplus trade in goods and services on BoP) -Euro affected by many variables within the EU and external factors - can you think of some?

Political Union

-State which is composed of, or created out of smaller states (a process called unification)States that used to be together and are reuniting is referred to as reunification -Requires that a central political apparatus coordinate economic, social, and foreign policy for member states -The EU is headed toward at least partial political union (U.S is example of closer political union)

Regional Economic Integration of Europe

-The European Union (EU) and the European Free Trade Association

Regional Economic Integration of the Americas

-The North American Free Trade Agreement (NAFTA); Regional Economic Integration

Mercosur(also known as Mercosul or Ñemby Ñemuha)

-is a South American trade bloc established by the Treaty of Asunción in 1991 and Protocol of Ouro Preto in 1994. -Its full members are Argentina, Brazil, Paraguay and Uruguay. Venezuela is a full member but has been suspended since December 1, 2016. -Pros - has been successful increasing trade among member states. Cons - critics call it a 'trade-diverter' favoring malinvestment in non-competitive industries.

Transatlantic Trade and Investment Partnership (TTIP)

-is a proposed trade agreement between the U.S. and EU -TTIP would include the world's two regions with the largest economies (U.S. $19.4T; the EU $19.9T)

Single European Act (SEA)

-was the first major revision of the 1957 Treaty of Rome -The Act set the European Communityan objective of establishing a single market by 1992. -It was signed in 1986, and came into effect in 1987, under the Delors Commission. -intended to remove barriers and to increase harmonization and competitiveness.

The Case for NAFTA:Mexico

Increased jobs as low cost production moves south and more rapid economic growth

Optimal currency area

a geographic area in which a single currency would create the greatest economic benefit

European Parliament

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

Trans Pacific Partnership (TPP)

is a trade agreement between the U.S. with 11 other Pacific Rim countries -The agreement was not ratified when the U.S. withdrew, and the remaining countries signed a new agreement

CAFTA -The Central America Free Trade Agreement (CAFTA)

is an expansion of NAFTA; opening markets, eliminating tariffs, reducing barriers to servicesFive Central American nations (Guatemala, El Salvador, Honduras, Costa Rica and Nicaragua), and the Dominican Republic

The European Council

the ultimate controlling authority within the EU