Chapter 9: Regional Economic Integration

Regional Economic Integration

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

5 things the North American Free Trade Agreement (NAFTA) did

1. Abolished tariffs on 99% of goods traded 2. Removed barriers on the cross-border flow of services 3. Protect intellectual property rights 4. Application of national environmental standards 5. Established two commissions to impose fines and remove trade privileges when environmental standard or legislation involving health and safety, minimum wages, or child labor are ignored

What are the benefits of NAFTA for the U.S and Canada (4 things)

1. Access to a large and increasingly prosperous market 2. Lower prices for consumers from goods produced in Mexico 3. Increased competitiveness in world markets (U.S and Canadian firms with production sites in Mexico) 4. Increased the neighbor's stability (political and economic)

Economic arguments for regional integration (2 things)

1. Achieve additional gains from the free flow of trade and investments between countries beyond those attainable under international agreements such as the WTO 2. Easier to form an agreement with a few countries than across all nations

Who's included in ASEAN (1968) and ASEAN Free Trade Area (2003) (9 things)

1. Brunei 2. Indonesia 3. Malaysia 4. The Philippines 5. Singapore 6. Thailand 7. Vietnam 8. Laos 9. Cambodia

5 levels of economic integration

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

2 main 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

3 examples of economic integration of the Americas

1. JFK's alliance for Progress (Inter-American Conference, Punta del Este) 2. ALALC (Latinamerican Free Trade Association, Monteviedo Treaty) 3. ALADI (Latinamerican Integration Association, Montevideo Treaty)

4 drawbacks of NAFTA

1. Jobs could be lost and wage levels could decline in the U.S and Canada 2. Mexican workers could emigrate north 3. Pollution could increase due to Mexico's more lax standards 4. Mexico would lose its soverignty

Political arguments for regional integration (2 things)

1. Likelihood of violent conflict and war will decrease (due to increase inter-dependency and interactions) 2. As a group, they have greater clout and are politically much stronger in dealing with other nations

The Andean Community (5 things)

1. More or less failed by the mid 1980's 2. In the late 1980's, Latin American governments began to adopt free market economic policies 3. In the the 1900's, the Andean Pact was re-launched, ad now operates as a customs union 4. In 2003, it signed an agreement with Mercosur to restart negotiations towards the creation of a free trade area 5. Current members include Bolivia, Ecuador, Peru, and Colombia

Should NAFTA accept new members? (2 things)

1. Several other Latin American countries have indicated their desire to eventually join NAFTA 2. Currently both Canada and the U.S are adopting a wait and see attitude with regards to most countries

4 main institutions of the EU

1. The European Commission 2. The European Council 3. The European Parliament 4. The Court of Justice

2 European trade blocs

1. The European Free Trade Association (Switzerland, Norway, Liechtenstein, Iceland) 2. The European Union (with 28 members)

Free Trade of The Americas (FTAA) (3 things)

1. The FTAA was not established as planned 2. Current support for the agreement by the U.S and Brazil is limited 3. If the FTAA is established, it would create a free trade area of 580 million people

The European Union (EU) is the result of...(2 things)

1. The devastation of two world wars on Western Europe and the desire for a lasting peace 2. The desire by the European nations to hold their own on the world's political and economic stage

How successful has NAFTA been? (5 things)

1. Trade between the thee countries increased by 250% 2. The members have become more integrated 3. Productivity has increased in member nations 4. Employments effects have been small 5. Mexico initially became more politically stable, but drug related violence remains a problem

Who's in NAFTA? (3 things)

1. U.S 2. Canada 3. Mexico

6 things the Single European Act (198) proposed

1.Remove all frontier controls between EC countries 2. Apply the principle of mutual recognition to product standards 3. Institute open procurement to non-national suppliers 4. Lift barriers to competition in retail banking and insurance 5. Remove all restrictions on foreign exchange transactions between member countries 6. Abolish restriction on cabotage

Generally, ________ groups within a country oppose the notion of economic intergration

many

How many members are in the Asian Pacific Economic Cooperation APEC

21 members including USA, Japan, and China

Mercosur

A free trade pact (Brazil and Argentina, later includes Paraguay and Uruguay) that has been successful at reducing trade barriers between member states

The Single European Act (1987)

Committed EC countries to work toward establishment of a single market by 1992

The Treaty of Rome

Established the Common Market. Specifically included to establish common policies in agriculture and transportation

Free Trade Area

Free trade among members, but members determine their own trade policies with nonmembers

Customs Union

Free trade between member countries and common external trade policy

Common Market

Free trade between member countries and common external trade policy and free movement of production factors

Economic Union

Free trade between member countries and common external trade policy, free movement of production factors, and common currency, tax policy harmonization, common monetary and fiscal policy

What are the benefits of NAFTA for Mexico?

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

Political Union

Independent states are combined into a single union

Trade Diversion

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

Trade Creation

Occurs when low cost producers withing the free trade area replace high cost domestic producers

What committed the EC members to an economic union?

The Treaty of Maastricht (name changed to EU in 1994)

What established the European Economic Community

The Treaty of Rome

European Coal and Steel Community

The forerunner of the EU establishing free trade on Coal and Steel industries. (Germany, France, Belgium, Italy, Luxembourg, the Netherlands)

NAFTA's impact by proponents and detractors have been _______

exaggerated

Regional economic integration only makes sense when the amount of trade it creates ______ the amount it diverts

exceeds

The Court of Justice

The supreme appeals court for EU law

The European Parliament

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

The European Commision

proposes EU legislation, implements it, and monitors compliance

Regional economic integration has been on the ______ in the last two decades

rise

The European Council

the ultimate controlling authority within the EU