Chapter 8

Question 1

Economic integration

Answer 1

the political and monetary agreements among nations and world regions in which preference is given to member countries

Question 2

Effects of regional integration

Answer 2

• Static effects (trade creation, trade diversion)
• Dynamic effects
• Economies of scale

Question 3

Global integration

Answer 3

Countries from all over the world decide to cooperate through the World Trade Organization (WTO)

Question 4

Bilateral integration

Answer 4

Two countries decide to cooperate more closely together, usually in the form of tariff reductions

Question 5

Regional integration

Answer 5

A group of countries located in the same geographic proximity decide to cooperate (e.g. European Union)

Question 6

Approaches to economic integration - political & economic agreements among countries in which preference is given to member-countries may be

Answer 6

• bilateral
• regional
• global

Question 7

Regional trade agreements

Answer 7

integration confined to a region and involving more than two countries

Question 8

Geographic proximity

Answer 8

is an important reason for economic integration

Question 9

Major types of economic integration

Answer 9

• Free trade area | no internal tariffs
• Customs union | no internal tariffs plus common external tariffs
• Common market | customs union plus factor mobility, etc.

Question 10

Common market

Answer 10

Adding free mobility of production factors to a customs union

Question 11

Regional integration

Answer 11

has social, cultural, political, and economic effects

Question 12

Static effects of integration

Answer 12

the shifting of resources from inefficient to efficient companies as trade barriers fall

Question 13

Dynamic effects of integration

Answer 13

the overall growth in the market and the impact on a company caused by expanding production and by the company’s ability to achieve greater economies of scale

Question 14

Trade creation

Answer 14

production shifts to more efficient producers from reasons of comparative advantage

Question 15

Trade diversion

Answer 15

trade shifts to countries in the group at the expense of trade with countries not in the group

Question 16

Economies of scale

Answer 16

the average cost per unit falls as the number of units produced rises; occurs in regional integration because of the growth in the market size

Question 17

The European Union:

Answer 17

• Changed from the European Economic Community to the European Community to the European Union
• The largest and most successful regional trade group
• Free trade of goods, services, capital, and people
• Common external tariff
• Common currency

Question 18

European Free Trade Association

Answer 18

FTA involving Iceland, Liechtenstein, Norway, and Switzerland, with close ties to the EU

Question 19

European Commission

Answer 19

provides political leadership, drafts laws, and runs the various daily programs of the EU

Question 20

Council of the EU

Answer 20

composed of the heads of state of each member country, the President of the European Commission, and the High Representative of Foreign Affairs and Security Policy

Question 21

European Parliament

Answer 21

3 major responsibilities:
- legislative power
- control over the budget
- supervision of executive decisions

Question 22

European Court of Justice

Answer 22

ensures consistent interpretation and application of EU treaties

Question 23

Treaty of Maastricht

Answer 23

sought to foster political union and monetary union

Question 24

The euro €

Answer 24

• is a common currency in Europe
• is administered by the European Central Bank
• was established on January 1, 1999
• resulted in new banknotes in 2002

Question 25

Migration and terrorism

Answer 25

are threatening the open borders that are at the heart of the Schengen Agreement

Question 26

EU History

Answer 26

expanded from 15 to 25 countries in 2004 with countries from mostly Central & Eastern Europe. Romania & Bulgaria were admitted in 2007 and Croatia in 2013, bringing the number to 27, after the loss of the UK.

Question 27

Implications of the EU for corporate strategy:

Answer 27

• Companies need to determine where to produce products
• Companies need to determine what their entry strategy will be
• Companies need to balance the commonness of the EU with national differences

Question 28

North American Free Trade Agreement (NAFTA)

Answer 28

• includes Canada, the United States, and Mexico
• went into effect on January 1, 1994
• involves free trade in goods, services, and investment
• is a large trading bloc but includes countries of different sizes and wealth

Question 29

NAFTA rationale:

Answer 29

• U.S.-Canadian trade is the largest bilateral trade in the world
• The U.S. is Mexico’s and Canada’s largest trading partner

Question 30

US|M|CA

Answer 30

calls for the elimination of tariff and nontariff barriers, the harmonization of trade rules, the liberalization of restrictions on services and foreign investment, the enforcement of intellectual property rights, and a dispute settlement process

Question 31

USMCA

Answer 31

is a good example of trade diversion; some U.S. trade with and investment in Asia has been diverted to Mexico

Question 32

Rules of origin

Answer 32

goods and services must originate in North America to get access to lower tariffs

Question 33

Regional content:

Answer 33

• The % of value that must be from North America for the product to be considered North American in terms of the country of origin
• Regional content for USMCA was raised from 62.5% under NAFTA to 75% on autos

Question 34

A major challenge to NAFTA

Answer 34

is illegal immigration

Question 35

Caribbean Community (CARICOM)

Answer 35

working to establish an EU-style form of collaboration

Question 36

Mercosur

Answer 36

is a customs union among Argentina, Brazil, Paraguay, and Uruguay

Question 37

Pacific Alliance

Answer 37

Mexico, Colombia, Peru, Chile

Question 38

Andean Community

Answer 38

one of the original regional economic groups but has not been successful in achieving its original goals.

Question 39

ASEAN Free Trade Area

Answer 39

is a successful trade agreement among countries in Southeast Asia

Question 40

Asia Pacific Economic Cooperation (APEC)

Answer 40

comprises 21 countries that border the Pacific Rim; progress toward free trade is hampered by size and geographic distance between member countries and by the lack of a treaty

Question 41

African trade groups

Answer 41

There are several, but they rely more on their former colonial powers and other developed markets for trade than they do on each other

Question 42

The UN was established in

Answer 42

1945 following World War II to promote international peace and security. It deals with economic development, antiterrorism, and humanitarian movements

Question 43

United Nations Conference on Trade and Development (UNCTAD)

Answer 43

established to help developing countries participate in international trade

Question 44

Nongovernmental Organizations (NGOs)

Answer 44

private nonprofit institutions that are independent of the government

Question 45

The attempts of countries to stabilize commodity prices

Answer 45

through producer alliances and commodity agreements have been largely unsuccessful

Question 46

Many commodity agreements now exist for the purpose of

Answer 46

• discussing issues
• disseminating information
• improving product safety

Question 47

Organization of the Petroleum Exporting Countries (OPEC)

Answer 47

is a producers’ alliance in oil that has been successful in using quotas to keep oil prices high

Question 48

The downside of high oil prices for OPEC:

Answer 48

• producers investing in countries outside of OPEC
• complication of balancing social, political, and economic objectives