chapter 9 regional economic integration

regional economic integration (regionalism)

(NAFTA & EU) agreements between countries in a geographic region to reduce tariff and non tariff barriers, allow the free flow of goods, services, and factors of production

Economic reasons

free trade applied by WTO members, beneficial to countries, trade barriers still exist though

European council

the ultimate controlling authority within the EU

European Commission

responsible for proposing EU legislation

British Exit from EU

-voted to leave june 23, 2016 -2 years to negotiate with EU -havent been comfortable with national sovereignty -immigration issue -Britain was the second largest economy and was counterweight to germany -will likely see short to medium term costs --less likely to attract inward investment from foreign multinationals --exports to EU may fail

Single European Act

committed EC countries to work toward establishment of a single market by 1992, allowing faster economic growth was born out of frustration.

The Maastricht Treaty

committed the EU to adopt a single currency 1999, created second largest currency zone in the world

how has Mercosur helped Uruguay?

common market- level mercosur aspires to be would be economic

why do countries integrate their economies?

countries integrate economic and political reasons

all barriers to the free flow of goods services between member countries are removed and a common policy towards nonmembers is established

customs union

Regional Economic Integration is only beneficial

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

Political union

independent states combined into single union where economic, social, foreign policy of members is coordinated. (EU) headed toward partial political union and the US is example of closer political union.

Diversion of trade

when higher cost suppliers within a free trade area replace lower cost external suppliers.

Trade Creation

when low cost producers within the free trade area replace high cost domestic producers

Nafta

example of free trade area

Main institutions in the EU

1. European council - ultimate control authority within the EU 2. European Commission- responsible for proposing EU legislation, implementing, monitoring with EU laws by member states. 3. European Parliament: debates legislation proposed by the commission 4. Court of Justice: supreme appeals court for EU law

5 levels of economic integration

1. Free Trade Area: reduce tariffs 2. Customs Union: common external trade policy 3. Common Market: no barriers between member countries 4. Economic Union: (EU) all policies in one 5. Political Union: independent states combined into one single union

Political reasons

1. linking countries together making them more dependent on each other, chance for violence to decrease 2. economic integration gives more power in numbers, much stronger politically.

Disadvantages of common currency

1. lose control over monetary policy/major cost 2. EU is not optimal currency area ex: a change in the euro exchange rate that helps Finland might hurt Portugal

Benefits of common currency

1. no need to convert currencies, save cost and risks of converting currencies 2. compare prices across Europe, force companies to lower prices 3. highly liquid turnover, no currency risk

limits of integration

1. while nation benefits, some groups may actually lose. critics of NAFTA, ex: job losses in US 2. economies lose some degree of national sovereignty. lose control over policies. (not alone anymore, part of group ex: adopting EU)

economic integration in Europe

2 trade blocs 1. European Union (28 members) 2. European Free Trade Area (EFTA) 4 members seen as worlds next economic+political superpower.

Evolution of the European Union

2 world wars wanted long lasting peace. wanting common market. EU created in 1993 formed at the treaty of Rome.

North American Free Trade Agreement (NAFTA)

Agreement signed by the United States, Canada, and Mexico in 1992 to form the largest free trade zone in the world.

Should EU continue to expand

Many countries have applied for EU membership Ten countries joined in 2004 expanding the EU to 25 states In 2007, Bulgaria and Romania joined bringing membership to 27 countries Turkey has been denied full membership because of concerns over human rights

Supporters of NAFTA

Mexico: increased jobs US & Canada: lower prices from goods produced in Mexico. larger increasingly prosperous market NAFTA credited with helping create increased political stability in Mexico

European free trade association

Norway, Iceland, Liechtenstein, Switzerland

NAFTA

US, Canada, Mexico. abolished tariffs on 99% goods between members, removed most barriers, protects intellectual property rights, removes most restrictions on FDI, allows each country to apply own environmental standards.

MERCOSUR update (Southern Common Market)

Venezuela became a full member 2012 considered a key member due to energy resources, suspended in 2016 due to concerns to human rights.

which of the following is not true of NAFTA? a) It created a free trade area of nearly 800 million people b) It created the background for increased political stability in Mexico c) Several other Latin American countries have indicated their desire to eventually join NAFTA d) Its participants are the United States, Canada, and Mexico

a) It created a free trade area of nearly 800 million people

Mercosur (Common Market of the South)

customs union of Argentina, Paraguay, Brazil, and Uruguay. 1988 diverting trade, higher tariffs to outside countries.

free trade area (NAFTA)

eliminates all barriers to the trade of goods + services among member countries.

Customs union

eliminates trade barriers between member countries common external trade policy. 1 common trade policy with outsiders.

Critics of NAFTA

jobs would be lost/wage levels decline in US & Canada. Pollution increase due to Mexicos lax standards Mexico would lose its sovereignty.

Status of Economic Integration in the Americas

move towards greater regional economic integration in the Americas. NAFTA, Mercosur

Common Market

no barriers to trade between member countries, common external trade policy, and the free movement of the factors of production. Mercosur

trade diversion

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

Regional Economic Integration

offers countries a way to achieve gains from free trade more quickly than would be possible under the WTO process

economic union

the free flow of products and factors of production between members, a common external trade policy, a common currency, a harmonized tax rate, and a common monetary and fiscal policy. all the policies in one, (EU)

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

there is a trade diversion