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Flashcards in Regional Economic Integration Deck (20):
1

Broadly what kinds of economic integration are there?

- Bilateral
- Two countries cooperate closely, usually in the form of tariff reductions
- Regional
- A group of countries located in the same geographic proximity decide to cooperate
- Global
- Countries worldwide cooperate through the WTO

2

What forms can economic integration take?

* FTA
* Customs union
* Common market
* Economic Union
* Political union

3

What is an FTA?

- “Free-er” trade agreement
- No internal tariffs
- Each country may determine its own trade policies with nonmembers

4

What is a customs union?

- No internal tariffs plus common external tariffs
- Necessitates significant administrative machinery

5

What is a common market?

Customs union plus factor mobility

6

What is an economic union?

- Characteristics of a common market, harmonised monetary and fiscal policies, and a common currency
- Demands a coordinating bureaucracy and sacrifice of sovereignty

7

What is a political union?

Common foreign and security policies, and judicial cooperation

8

What is regional economic integration?

- Agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services and factors of production between each other
- Overlapping group of nations
- Difference degrees of regional economic integration
- Five forms of integration

9

What are the benefits of regional economic integration?

- Trade Creation
- Occurs when low cost producers within the free trade area replace high cost domestic producers
- New employment opportunities
- New investment opportunities
- Closer political cooperation results in greater collective influence in dealing with other nations
- Greater consensus e.g. lower risk of violent conflicts

10

What are the drawbacks of regional economic integration?

- Trade diversion
- Occurs when higher cost suppliers within the free trade area replace lower cost external suppliers
- In theory the WTO should ensure that this does not occur
- Shifts in employment
- Loss of national sovereignty
- May lead to increased competition between regional trade blocs

11

What is ASEAN?

- 1967: Political organisation in SE Asia
- 1992: Initiative for AFTA (ASEAN FTA)
- EU, NAFTA
- SE Asia to compete as bloc for foreign investment

12

What is APEC?

21 members including US, Japan, China

13

What are commodity agreements?

Commodities-raw materials or primary products that enter intro trade, such as metals or agricultural products

14

What are the overall downsides of regional economic integration for businesses?

- Cultures don’t change
- Within each grouping, the environment becomes competitive
- There is a risk of being shut out of the single market by the creation of a “trade fortress”

15

What are the benefits of regional economic integration for businesses?

- Lower costs of doing business in single markets
- Opens new markets
- Allows firms to realise cost economies by centralising production in those locations when the mix of factor costs and skills is optimal
- Free movement of inputs and good
- Simplified tax regimes

16

What is an example of a FTA?

NAFTA

17

What is an example of a customs union?

MERCOSUR

18

What is an example of a common market?

EEA

19

What is an example of a economic union?

EU

20

What is an example of a political union?

USA