9. Regional Economic Integration

regional economic integration

Agreements among countries in a geographic region to reduce and ultimately remove tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other.

free trade area

A group of countries committed to removing all barriers to the free flow of goods and services between each other but pursuing independent external trade policies.

rules of origin

A certain percentage of the value of a good has to be produced by countries within the free trade area.

European Free Trade Association (EFTA)

A free trade association including Norway, Iceland, Liechtenstein, and Switzerland

customs union

A group of countries committed to (1) removing all barriers to the free flow of goods and services between each other and (2) the pursuit of a common external trade policy.

common market

A group of countries committed to (1) removing allbarriers to the free flow of goods, services, and factors of production between each other and (2) the pursuit of a common external trade policy.

economic union

A group of countries committed to (1) removing all barriers to the free flow of goods, services, and factors of production between each other; (2) the adoption of a common currency; (3) the harmonization of tax rates; and (4) the pursuit of a common external trade policy

political union

A central political apparatus coordinates economic, social, and foreign policy.

trade creation

Trade created due to regional economic integration; occurs when high-cost domestic producers are replaced by low-cost foreign producers within a free trade area.

trade diversion

Trade diverted due to regional economic integration; occurs when low-cost foreign suppliers outside a free trade area are replaced by higher-cost suppliers within a free trade area.

European Union (EU)

An economic and political union of 27 countries (2020) that are located in Europe.

Treaty of Rome

The 1957 treaty that established the European Community.

European Commission

Responsible for proposing EU legislation, implementing it, and monitoring compliance.

European Council

The heads of state of EU members and the president of the European Commission.

European Parliament

Elected EU body that provides consultation on issues proposed by the European Commission.

Treaty of Lisbon

A European Union–sanctioned treaty that allowed the European Parliament to become the co-equal legislator for almost all European laws.

Court of Justice

Supreme appeals court for EU law.

Maastricht Treaty

Treaty agreed to in 1992, but not ratified until January 1, 1994, that committed the 12 member states of the European Community to a closer economic and political union

optimal currency area

Region in which similarities in economic activity make a single currency and exchange rate feasible instruments of macroeconomic policy.

North American Free Trade Agreement (NAFTA)

Free trade area among Canada, Mexico, and the United States.

United States–Mexico–Canada Agreement (USMC)

A trade deal between the United States, Mexico, and Canada ratified in 2020 that was negotiated as a replacement to NAFTA.

Andean Community

A 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union.

Mercosur

Pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.

Central American Common Market

A trade pact among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, which began in the early 1960s but collapsed in 1969 due to war.

Central America Free Trade Agreement (CAFTA)

The agreement of the member states of the Central American Common Market joined by the Dominican Republic to trade freely with the United States.

CARICOM

An association of English-speaking Caribbean states that are attempting to establish a customs union.

Caribbean Single Market and Economy (CSME)

The six CARICOM members that agreed to lower trade barriers and harmonize macroeconomic and monetary policies.

Association of Southeast Asian Nations (ASEAN)

Formed in 1967, an attempt to establish a free trade area among Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Vietnam, and Thailand

EU–UK Trade and Cooperation Agreement

An agreement between the UK and the EU that specifies the terms of post-Brexit trade between the EU and the UK.