International Business Chapter 9

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

True or False: The European Union is considered an optimal currency area.

False

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

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

Common Market

a group of countries that acts as a single market, without trade barriers between member countries, includes a common external trade policy

Association of Southeast Asian Nations (ASEAN)

a trade alliance that promotes trade and economic integration among member nations in Southeast Asia;

Maastricht Treaty

a treaty created in 1991 that set strict financial criteria for joining the proposed monetary union, with it single currency and set 1999 as the start date for its establishment.

While the loss of national sovereignty has been the major reason for the British exit from the EU, more recently concerns over _____ have added to reasons for the exit.

immigration

Politicians on both sides of the table in the United States claim that NAFTA is responsible for significant _____ in the US and as a result, it has now been renegotiated to the USCMA.

job losses

One argument explaining the difficulty of establishing trade areas in Africa is that these countries have _______ and therefore need to be "protected" by tariff barriers from unfair foreign competition. Multiple choice question.

less- developed economies

According to the Single European Act, a product standard developed in one EC country should be accepted in another. This is known as the principle of ______ recognition. Multiple choice question.

mutual

Trade Creation

occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher cost external producers are replaced by lower cost external producers within the free trade area

trade diversion

occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area

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

political

Economic theories point toward the idea that all participating countries will gain from regional integration. In other words, it is a _____-sum game.

positive

Under the new USCMA, in order to qualify for zero tariffs, automakers are required to

produce 75% of a vehicle's content in North America.

The Central America Free Trade Agreement was designed to ______ between the member nations.

reduce trade barriers

A customs union is put in place to _____.

regulate foreign trade policy among members

Once the British government gave formal notification of its exit from the EU, it was given ____ to negotiate the terms of the exit. Multiple choice question.

two years

European Council

ultimate decision-making body of the EU, it passes legislation from the commission into law and is comprised of one representative from each member state's government; represents the interests of member states

The euro zone is made up of the European Union members who _____. Multiple choice question.

use the euro as currency

What was an attempt at regional economic integration for the United States?

NAFTA

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico.

The European ____ must approve draft legislation from the European Commission before it becomes EU law.

council

European Parliament

Elected EU body that provides consultation on issues proposed by European Commission

Andean Community

(integration and economic and social cooperation between Bolivia, Columbia, Ecuador, Peru and Venezuela); based on the EU model

What are Europes two trade blocs

1) EU-more significant than EFTA bcs has a lot of power 2)EFTA

European Union is the product of two political factors:

1) the devastation of western Europe during two world wars and the desire for a lasting peace 2)Europeans nations desire to hold their own on the worlds political and economic stage; many europeans were aware of the benefits of closer economic integration of the countries

What are the four main institutions of the European Union

1)European Commission 2)Council of the European Union 3)European Parliament 4)Court of Justice

Two main reasons integration has not been easy:

1)painful adjustments in cost and some benefit it a region while some don't 2)concerns over national sovereignty and maintaining certain production factors in certain countries

Treaty of Rome (1957)

1. Created the European Economic Community (EEC), generally known as the Common Market 2. Marked the beginning of European economic integration

Single European Act

A 1997 act, adopted by members of the European Community, that committed member countries to establishing an economic union 1)apply principles of mutual recognition 2)lift barriers to competition in retail banking

Treaty of Lisbon

A European Union-sanctioned treaty that will allow the European Parliament to become the co-equal legislator for almost all European laws

European Free Trade Association (EFTA)

A free trade association including Norway, Iceland, Liechtenstein, and Switzerland; most enduring free trade area in the world; emphasis is on free trade of industrial goods and agricultural goods is left out of it

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; made to reduce trade barriers between the member nations

Free Trade Area

A zone in which there are no tariffs or other restrictions on the movement of goods and services across borders

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

In 2004, the US and six Central American countries formed a free trade agreement called

CAFTA

The European Parliament must approve all members of the European ______ before this body can begin its work.

Commission

The movement toward regional economic integration has been most ambitious in _____.

Europe

What is the name of the bank established in the EU to ensure price stability and is intended to be independent from political pressure? Multiple choice question.

European Central Bank

Which of these trade unions is made up of European countries that initially decided NOT to be part of the European Community and emphasized free trade in industrial goods?

European Free Trade Association

Economic Union

Having all the features of a common market, members also coordinate and harmonize economic policies (in areas such as monetary, fiscal, and taxation) to blend their economies into a single economic entity.

Mercosur

Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area; started by brazil and argentina

European Commission

Responsible for proposing EU legislation, implementing it, and monitoring compliance

What are two benefits of a common currency in the European Union?

Savings from handling just one currency Easier to compare prices across Europe

True or false: All WTO members were participating in regional trade agreements by 2019.

True

True or false: As a consequence of competitive pressure in the European automobile industry, the introduction of the euro has led to lower prices for consumers.

True

True or false: NAFTA provided protection for intellectual property rights.

True

political union

a central political apparatus coordinates economic, social, and foreign policy

The ASEAN Free Trade Area has cut tariffs on what two products to less than 5 percent?

agricultural manufacturing

Court of Justice of the European Union

composed of one judge from each country, is the supreme appeals court for EU law

The weakening of which currency helped raise the value of the euro from $1.17 in 1999 to $1.54 in 2008?

dollar

Customs Union

eliminates trade barriers between member countries and adopts a common external trade policy

Restrictions have been placed on new members to the EU to combat the potential problems associated with _____.

enlargement

True or false: Atag, a Dutch maker of kitchen appliances, was successful in marketing to the "euro-consumer" and realized it could make fewer products because demand was consistent across Europe. Cultural differences did not affect Atag's approach.

false

The two restrictions put on new members that joined the EU were _____.

free movement of labor among the new and existing members was prohibited for several years. they could not adopt the euro for several years.

What are two responsibilities of The European Central Bank?

set monetary policy and set interest rates

The number of votes a country gets in the European Council is related to the _____. Multiple choice question.

size of the country

What is considered the most successful attempt at regional economic integration?

the European Union

Over the past two decades, there has been an increase in regional ______ that encourage regional economic integration.

trade blocs