Economic Integration and Trading Blocs Flashcards
(12 cards)
What is economic integration?
Economic integration is the process by which countries reduce trade barriers and work to harmonize monetary and fiscal policy, aiming for closer economic cooperation.
What is a trading bloc?
A trading bloc is a group of countries that form an agreement to increase trade among themselves by reducing or eliminating tariffs and quotas.
What is a bilateral or multilateral trade agreement?
An agreement between two (bilateral) or multiple (multilateral) countries to reduce or eliminate trade barriers like tariffs or quotas.
What is a Preferential Trading Area (PTA)?
A PTA is where member countries agree to reduce tariffs and quotas on certain goods only, not all products.
What is a Free Trade Area (FTA)?
An FTA is a group of countries that eliminate all trade barriers between each other, but each country can still set its own trade policy with non-members.
Example: NAFTA (now USMCA).
What is a Customs Union?
A customs union is a free trade area where members agree to a common external tariff on imports from non-members.
Example: The EU Customs Union.
How does a Customs Union differ from a Free Trade Area?
In a Customs Union, members have a shared external tariff; in a Free Trade Area, each country has its own external trade policy.
What is a Common Market?
A Customs Union with deeper integration, allowing free movement of labour, capital, and businesses between member countries.
Example: European Union (EU)
What is an Economic and Monetary Union?
Countries share the same currency, central bank, and monetary policy.
Example: The Eurozone
What is Full Economic Integration?
Countries harmonize monetary, fiscal, and political policies by transferring power to a single governing authority.
Example: Hypothetical future integration of the UK
What is Trade Creation?
When a country joins a customs union and starts buying goods from a low-cost producer inside the union instead of a high-cost domestic producer, leading to economic gains.
What is the main benefit of Trade Creation?
It increases efficiency and consumer welfare by shifting production to the lowest-cost producers within the customs union.
