T4 | GLOBAL AND REGIONAL ECONOMIC COOPERATION AND INTEGRATION

REVIEWER FOR MITERM

What are the causes of trade barriers?

• Limited choice of products, forcing customers to pay higher prices and accept inferior quality

• Detrimental and decrease overall economic efficiency

• Generally favor rich countries because they set international trade policies and standards

• Governments impose barriers to protect local industry or to “punish” a trading partner

What are the types of trade barriers?

• Tariffs

• Non-tariff

• Natural

A system of government-imposed duties levied on imported or exported goods; a list of such duties, or the duties themselves.

TARIFF

A _____ is a tax imposed by a nation on imported goods.

TARIFF

It may be:

• A charge per unit (e.g., per barrel of oil or per new car)

• A percentage of the value of the goods (e.g., 5% of a $500,000 shipment of shoes)

• A combination of both

TARIFF

What are examples of non-tariff trade barriers?

• Import/export licenses

• Import quotas

• Subsidies

• Voluntary export restraints

• Local content requirements

• Embargo

• Currency devaluation

• Trade restrictions

What is the purpose of protective tariffs?

To make imported products less attractive to buyers than domestic products.

Why do trade barriers generally favor rich countries?

Because these countries tend to set international trade policies and standards.

Why do governments impose barriers?

To protect local industry or to “punish” a trading partner.

Identifies what products are shipped or delivered between international locations.

Import-export Licenses

Limits on the quantity of a certain good that can be imported to protect certain industries.

IMPORT QUOTA

Can be used to give an advantage to a domestic producer over a foreign producer.

EXPORT SUBSIDY

A restriction set by a government on the quantity of goods that can be exported out of a country during a specified period of time.

VOLUNTARYEXPORT RESTRAINTs (VERs)

Policy measures that typically require a certain percentage of intermediate goods used in the production processes to be sourced from domestic manufacturers.

Local Content Requirements (LCRs)

A total ban on imports or exports of a product.

EMBARGO

Barriers that can be either physical or cultural.

NATURAL BARRIERS

What are examples of natural barriers?

Distance, Language, Culture.

What has regional economic integration enabled countries to do?

a. focus on issues that are relevant to their stage of development
b. encourage trade between neighbors.

What are the four main types of regional economic integration?

Free trade area, Customs union, Common market, Economic union.

The most basic form of economic cooperation; member countries remove all barriers to trade between themselves but are free to independently determine trade policies with nonmember nations.

FREE TRADE AREA

Give an example of a free trade area.

North American Free Trade Agreement (NAFTA).

Barriers to trade are removed between member countries, and members agree to treat trade with nonmember countries in a similar manner.

CUSTOMS UNION

Give an example of a customs union.

The Gulf Cooperation Council (GCC).

Economically integrated markets between member countries; trade barriers are removed; no restrictions on movement of labor and capital; common trade policy.

COMMON MARKET

What is an advantage of a common market?

Workers no longer need a visa or work permit to work in another member country.

Example of a common market.

Common Market for Eastern and Southern Africa (COMESA).

Countries enter an economic agreement to remove barriers to trade and adopt common economic policies.

economic union

Example of an economic union.

European Union (EU).

A free-trade zone or near-free-trade zone formed by one or more tax, tariff, and trade agreements between two or more countries.

TRADE BLOC

What are the pros of regional agreements?

A. Trade creation
B. Employment opportunities
C. Consensus and cooperation

What are the cons of regional agreements?

A. Trade diversion
B. Employment shifts and reductions
C. Loss of national sovereignty

The removal of barriers creates more opportunities for countries to trade with one another.

TRADE CREATION

How do regional agreements create employment opportunities?

By removing restrictions on labor movement, they help expand job opportunities.

How do regional agreements improve consensus and cooperation?

Fewer countries make agreements easier; similarities may aid closer political cooperation.

Why does trade creation benefit member nations economically?

It increases market access, reduces costs, and encourages production efficiency.

How can employment opportunities improve regional development?

Workers can relocate freely to areas with labor shortages, improving productivity and income.

Why does having fewer member countries in a regional agreement make cooperation easier?

Fewer countries reduces negotiation complexity and increases policy alignment.

Member countries may trade more with each other than with nonmembers.

TRADE DIVERSION

How do regional agreements cause employment shifts or reductions?

Countries may move production to cheaper labor markets in member nations.

Countries may lose some control over economic policies to comply with group rules.

LOSS OF NATIONAL SOVEREIGNTY

Why is trade diversion considered harmful?

It replaces efficient global trade with limited regional trade, reducing total economic welfare.

How might production relocation negatively impact a country’s workforce?

Workers may lose jobs if industries move to regions with lower labor costs.

Why does joining a regional agreement reduce national sovereignty?

Members must follow group-wide economic policies, limiting independent decision-making.

What was the goal of NAFTA?

To encourage trade between Canada, the United States, and Mexico by reducing tariffs and trade barriers to create a free-trade zone.

What requirement does NAFTA impose on product origin?

At least 50 percent of the net cost of most products must come from or be incurred in the NAFTA region.

What earlier agreement led to NAFTA?

The 1988 Canada–United States Free Trade Agreement.

How have Canadian and US consumers benefited from NAFTA?

They gained access to lower-cost Mexican agricultural products.

Why have some US and Canadian companies located production in Mexico?

It is geographically closer than Asia and economically advantageous.

A series of trade rules created in 1947 by 23 countries to reduce tariffs and expand global trade.

General Agreement on Tariffs and Trade (GATT)

What was GATT’s basic principle?

Trade should be free and equal.

In what year was the General Agreement on Tariffs and Trade (GATT) created?

1947.

How many countries originally created GATT?

Twenty-three countries

How many member nations did GATT have by the time it was replaced with the WTO?

125 member nations.

What is GATT credited with doing for global trade?

Substantially expanding global trade, primarily through the reduction of tariffs.

What was GATT’s initial focus?

Tariffs, which are taxes placed on imports or exports.

Countries involved in CAFTA-DR (Central America–Dominican Republic Free Trade Agreement)

• United States

• Costa Rica

• El Salvador

• Guatemala

• Honduras

• Nicaragua

• Dominican Republic

What does CAFTA-DR stand for?

Central America–Dominican Republic Free Trade Agreement.

What is the main purpose of CAFTA-DR?

To reduce or eliminate trade barriers between the U.S. and participating Central American countries and promote economic integration.

Enumerate all member countries of CAFTA-DR.

United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Dominican Republic.

Which CAFTA-DR member is not part of Central America?

The Dominican Republic.

hat percentage of US exports to the region became tariff-free?

80 percent.

Why was the EU originally established?

To end frequent wars between neighboring countries in Europe.

Who were the six founding nations of the EU?

France, West Germany, Italy, Belgium, Luxembourg, and the Netherlands.

What is the biggest advantage of the EU?

Monetary union—16 countries use the euro.

How large is the EU single market?

Over 500 million people (7% of the world population).

A political and economic union of European countries that aims to ensure free movement of goods, services, people, and capital, and promote economic cooperation and integration.

EUROPIAN UNION

Who were the five founding members of ASEAN (1967)?

Malaysia, Thailand, Indonesia, Singapore, the Philippines.

What is ASEAN’s primary focus?

Economic, social, cultural, and technical cooperation; regional peace and stability.

When was ASEAN created

1967

What makes APEC unique in terminology?

It uses “member economies” rather than “countries.”

What does APEC primarily focus on?

Economic growth, free trade, and cooperation.

In what year was APEC founded?

APEC was founded in 1989.

How many member economies does APEC have today?

Twenty-one member economies.

Why does APEC use the term “member economies” instead of countries?

To show deference to China, because Taiwan was allowed to join only under the name "Chinese Taipei."

List some countries in APEC’s geographic grouping.

• United States
• Canada
• Mexico
• Chile
• Peru
• Russia
• Papua New Guinea
• New Zealand
• Australia
…and their Asia Pacific Rim counterparts.

What was APEC originally founded as?

An informal forum.

How did World War II influence global trade thinking?

Nations sought trade-increasing policies for mutual benefit and peace.

In what areas does the UN most affect businesses?

Staffing, operations, regulations, and currency convertibility.

What are the six main bodies of the UN?

• Secretariat

• Security Council

• General Assembly

• Economic and Social Council

• International Court of Justice

• UN Trusteeship Council

What shift in thinking occurred after World War II regarding global trade?

A shift toward trade-increasing trade for the benefit of all.

What were nations eager for after World War II destroyed nations and resources?

A new model that would promote and expand free trade and contribute to world peace by creating international economic, political, and social cooperative agreements and institutions.

What have international agreements and institutions achieved at a minimum?

They have created an ongoing forum for dialogue on trade and related issues.

What became a key global institution impacting free and fair global trade?

The United Nations.

Who leads the United Nations?

The Secretary-General.

Provides a stable means to exchange currencies and facilitate trade.

GOLD STANDARD

What system replaced the gold standard?

The Bretton Woods system, based on the US dollar.

How long did the Bretton Woods system last, and what did it provide?

The Bretton Woods system lasted until 1971 and provided the longest formal mechanism for an exchange-rate system and forums for countries to cooperate on coordinating policy and navigating temporary economic crises.

Has any new formal system replaced Bretton Woods?

No new formal system has replaced Bretton Woods.

Which key elements of Bretton Woods have endured?

Some of its key elements have endured, including a modified managed float of foreign exchange, the International Monetary Fund (IMF), and the World Bank.

What role did Bretton Woods provide besides an exchange-rate mechanism?

Forums for countries to cooperate on coordinating policy and navigating temporary economic crises.