Economic Integration Flashcards
(34 cards)
refers to the commercial
policy of discriminately reducing or eliminating
barriers to trade between a select group of
countries.
Economic integration
Provides lower barriers to trade among
participating nations than on trade with
non-participating nations.
Preferential trade arrangements
The loosest form of economic integration
Preferential trade arrangements
Removes all barriers to trade among members, but
each nation retains its own barriers on trade with
non-members
Free trade areas
The North American Free Trade Agreement
(NAFTA) is an example of
free trade area
Removes all barriers to trade among members and
harmonizes trade policies toward the rest of the
world.
Customs union
Removes all barriers to trade among members,
harmonizes trade policies toward the rest of the
world, and allows free movement of labor and
capital among member nations.
Common market
The European Union (EU) is an example of a
common market
Removes all barriers to trade among members,
harmonizes trade policies towards the rest of the
world, allows free movement of labor and capital
among member nations, and unifies monetary,
fiscal, and tax policies of members
Economic union
Areas established to attract foreign investments by
allowing raw materials and intermediate products
in duty free.
Duty free zones
Forms of economic integration
Preferential trade arrangements
Free trade areas
Customs union
Common market
Economic union
Duty free zones
Free trade areas offer no barriers to flows of
commodities internally but allow differential
barriers to non-members.
Trade deflection
offer no barriers to flows of
commodities internally but allow differential
barriers to non-members.
Free trade areas
This may bias patterns of international trade as exporters will target their goods to the
low-protection member of the free trade area to
gain entry to the entire free trade area.
Trade deflection
Dynamic benefits from customs
unions
■ Increased competition
Economies of scale in production
Stimulus to investment
tend to spur more rapid
innovation and growth
Competitive pressures
limits the ability of a
domestic producer to exercise its monopoly power
■ External competition
By being a member of a customs union,
producers have access to larger markets that
allow them produce on a larger scale and exploit
any available economies of scale
Economies of scale in production
Production within a customs union may be sold
within the customs union without tariffs.
Stimulus to investment
This advantage may induce investors outside the
customs union to invest in production facilities
within the customs union.
Stimulus to investment
Steps towards economic unification
■ Internal tariffs and duties have been removed
■ Impediments to the free movement of labor and
capital have been removed.
■ Corporate law practices have been harmonized.
■ Environmental regulations have been harmonized.
■ Labor standards have been harmonized
The North American Free Trade Agreement
(NAFTA) came into force in what year
1994.
What is NAFTA
North American Free Trade Agreement
(NAFTA)
Objectives of the NAFTA
■ Eliminate barriers to trade between the US,
Mexico, and Canada.
■ Improve intellectual property rights protections
between the member nations.
■ Provide a dispute resolution mechanism for
trade disputes under this agreement
