MGT 302 EXAM 2 QUESTIONS AND ANSWERS

MGT 302 EXAM 2 QUESTIONS AND ANSWERS Chapter 9 Regional Economic Integration agreements among countries in a geographic location to reduce, and ultimately remove, tariff and non-tariff to free flow of g/s/FOP between each other. WTO members are required to _______ the WTO of all trade agreements in which they participate. notify Regional Economic Integration Helps to reduce trade barriers more quickly. Ex: The EU (European Union) European Union Created in Jan 1993; 1 single market with 340 million consumers. The EU is larger than the US in __________ terms. economic Countries that use NAFTA: US, Mexico, Canada NAFTA Ultimately, this aims to remove all barriers to the free flow of g/s between the US/Mexico/Canada. Most economists argue that the _______ of greater regional trade ________ any costs. benefits/outweigh Fears of Regional Economic Integration That it will lead to a world that competes in trade blocs (trade will exist within each bloc, but it will be protected from outside competition with high tariffs) Free Trade Area All barriers to the trade of g/s are removed Free trade agreements are the most popular form of: Regional economic integration (90%) Levels of Economic Integration (Largest level of integration) Free trade --> Customs Union --> Common Market --> Economic Union --> Political Union (Smallest level of integration) European Free Trade Association (EFTA) Norway, Iceland, Litchensutein, and Switzerland, the 4 countries who initially decided to not be part of the EU. The emphasis of EFTA is free trade on industrial goods. Agriculture was NOT included in agreement. Customs Union Eliminates trade barriers between member countries and establishes a common external trade policy. Ex: The EU BEGAN as a customs union, but it has now moved beyond this stage. Economic Union Free flow of products and FOP among member countries and the adoption of a common external trade policy. Note: this must include a common currency, harmonization of members' tax rates, and common monetary/fiscal policy. Ex: EU Political Union Central political apparatus coordinates the economic, social, and foreign policy of member states. Ex: EU is on the road to being at least a partial political union Economic theories suggest that free trade and investment is a... positive-sum game Positive-Sum game all countries stand to gain it is easier to establish a a free trade and investment regime among a limited number of adjacent countries than... among a global community By grouping economies, countries can enhance their ______ ______ in the world political weight What is the reason that the European Community (EC) formed in 1957? The two world wars. Many of Europe's countries could not hold their own following the war. Two reasons that integration is hard to achieve and sustain: 1. Costs. Certain groups can lose (ex: low cost/low skilled labor workers lose jobs. These groups are the main opposers to NAFTA) 2. Concerns over national sovereignty. (ex: Mexican oil industry exempt from liberalization of foreign investment regulations) Issues arise because nations must give up some control over key issues (ex: monetary policy). Trade Creation Occurs when high cost domestic producers are replaced by low cost producers within a free trade area. It can also occur when higher cost external producers are replaced by lower cost external producers within a free trade area. Trade Diversion Occurs when lower cost external producers are replaced by higher cost suppliers in a free trade area. A regional free trade agreement will benefit the world only if the amount of _____ it creates exceeds the amount it _______. trade/diverts How many trade bloc's does Europe have? 2. The European Union and the European Free Trade Association. The EU is far more significant (often referred to as an emerging economic/political superpower). Treaty of Rome Goal to remove boundaries to intragroup shipments of coal, iron, steel, and scrap metal. Provided for the creation of a COMMON MARKET. Established the European Community. What did the Treaty of Rome require? The harmonization of countries' laws. Common policies in agriculture and transportation. Called for the elimination of internal