Summary Chapter 2
There are four levels of trading arrangements
1. Free-trade bloc
- There are no trade restrictions among the participating countries. For trade with
non-participating countries each participant operates its own customs policy.
Countries strive for free trade because this form of trade has advantages:
An efficient use of factors of production
Stimulations of competition
Prevention of trade wars
Promotion of trade and investment
Promotion of welfare
- European Free Trade Association (EFTA)
Norway, Switzerland, Iceland and Liechtenstein. Their goal is the promotion
of free movement of people, goods, services and capital among these
countries. EFTA have an agreement with the EU together they form the
European Economic Area (EEA).
- The North American Free Trade Agreement (NAFTA)
Canada, USA and Mexico. Strives to abolish impediments to trade and
investment between the US, Canada and Mexico. For example, it has lifted
trade barriers on agricultural products between the US and Mexico.
2. Customs union
- A customs union exists when two or more countries abolish all mutual import tariffs.
Besides mutual free trade, the participating countries have a joint external tariff; that
is to say, with respect to non-member countries the same import duties are levied.
- A customs union is necessary because otherwise importers would import goods intro
the country with the lowest import duties and subsequently transport them to a
country with high import duties.
3. Common market
- A common market is a customs union supplemented by provisions concerning the
stimulation of mutual trade. There is free traffic of goods, factors of production and
services. On all product originating in the EU, nor import duties are levied. If goods
are imported from outside the EU, there is an EU-standard import duty for and every
member state. In this way the community strives for among other things
Balanced and sustainable development of economic activity
A high level of protection and improvement of standards of living and quality
of life
Solidarity among the member states.
- The recognition of technical standards and the effort to improve the position of
third-world countries in the world market
4. Economic and monetary union
- Is composed of EU member states that have adopted the euro as legal tender. The
EUMU involves the coordination of economic and fiscal policies, a common monetary
policy and a common currency, the euro (€). The monetary policy of the EMU is
determined by the European Central Bank (ECB)
There are four levels of trading arrangements
1. Free-trade bloc
- There are no trade restrictions among the participating countries. For trade with
non-participating countries each participant operates its own customs policy.
Countries strive for free trade because this form of trade has advantages:
An efficient use of factors of production
Stimulations of competition
Prevention of trade wars
Promotion of trade and investment
Promotion of welfare
- European Free Trade Association (EFTA)
Norway, Switzerland, Iceland and Liechtenstein. Their goal is the promotion
of free movement of people, goods, services and capital among these
countries. EFTA have an agreement with the EU together they form the
European Economic Area (EEA).
- The North American Free Trade Agreement (NAFTA)
Canada, USA and Mexico. Strives to abolish impediments to trade and
investment between the US, Canada and Mexico. For example, it has lifted
trade barriers on agricultural products between the US and Mexico.
2. Customs union
- A customs union exists when two or more countries abolish all mutual import tariffs.
Besides mutual free trade, the participating countries have a joint external tariff; that
is to say, with respect to non-member countries the same import duties are levied.
- A customs union is necessary because otherwise importers would import goods intro
the country with the lowest import duties and subsequently transport them to a
country with high import duties.
3. Common market
- A common market is a customs union supplemented by provisions concerning the
stimulation of mutual trade. There is free traffic of goods, factors of production and
services. On all product originating in the EU, nor import duties are levied. If goods
are imported from outside the EU, there is an EU-standard import duty for and every
member state. In this way the community strives for among other things
Balanced and sustainable development of economic activity
A high level of protection and improvement of standards of living and quality
of life
Solidarity among the member states.
- The recognition of technical standards and the effort to improve the position of
third-world countries in the world market
4. Economic and monetary union
- Is composed of EU member states that have adopted the euro as legal tender. The
EUMU involves the coordination of economic and fiscal policies, a common monetary
policy and a common currency, the euro (€). The monetary policy of the EMU is
determined by the European Central Bank (ECB)
