INTB 200 TEST 2 STUDY GUIDE
Levels of Economic Integration - Answers - 1. Free Trade Area
2. Customs Union
3. Common Market
4. Economic Union
5. Political Union
Free Trade Area - Answers - -All barriers to the trade of goods and services among
member countries are removed, but members determine own trade policies with
nonmembers.
-Accounts for almost 90 percent of regional agreements
-European Free Trade Association (E F T A): between Norway, Iceland, Liechtenstein,
and Switzerland began in 19 60.
-United States Mexico-Canada Agreement (U S M C A): Free trade area between
United States, Mexico and Canada
Customs Union - Answers - -Eliminates trade barriers between member countries and
adopts a common external trade policy.
-The current version of the Andean Community (formerly known as the Andean Pact) is
a free trade area that includes:
Bolivia, Colombia, Ecuador, and Peru.
Common Market - Answers - -Has no barriers to trade between member countries, a
common external trade policy, and the free movement of the factors of production
-MERCOSUR: Brazil, Argentina, Paraguay, and Uruguay
Economic Integration (Economic Case) - Answers - Has the free flow of products and
factors of production between members, a common external trade policy, a common
currency, a harmonized tax rate, and a common monetary and fiscal policy
e.g European Union
Economic Integration (Political Case) - Answers - -Involves a central political apparatus
that coordinates the economic, social, and foreign policy of member states
-The EU is headed toward at least partial political union, and the U.S is an example of
even closer political union
Trade Creation vs. Trade Diversion - Answers - Trade Creation:
, -New products may now be shipped to these markets.
-New industries may develop as a result of these new products entering the market
-As a result, other industries are created in Country A.
Trade Diversion: -Occurs when companies trade with inefficient member countries
instead of efficient non-members when trade barriers fall.
-Assume Mexican producers now trade with efficient producers in Germany. The
Mexicans must pay high tariffs to Germany. Mexico forms FTA with US but US
producers are inefficient. Mexican trade gets diverted from Germany to US because
costs are lower due to the absence of trade barriers
Main examples of Regional Economic Integration block - Answers - EU, USMCA,
CAFTA, Mecrosur,
Andean Community, CARICOM, ASEAN, RECEP, integration in Africa etc
Main Institutions in EU - Answers - The European Council - the ultimate controlling
authority within the EU
The European Commission - responsible for proposing EU legislation, implementing it,
and monitoring compliance with EU laws by member states
The European Parliament - debates legislation proposed by the commission and
forwarded to by the council
The Court of Justice - the supreme appeals court for EU law
NAFTA (North American Free Trade Agreement) - Answers - Allows open trade
between the US, Mexico, and Canada.
Critics of NAFTA - Answers - Jobs would be lost and wage levels would decline in the
US and Canada
Pollution would increase due to Mexico's more lax standards
Mexico would lose its sovereignty
Andean Pact - Answers - Formed in 1969 using the EU model
Had more or less failed by the mid-1980s
Was relaunched in 1990, and now operates as a customs union
Renamed the Andean Community in 1997
Signed an agreement in 2003 with MERCOSUR to restart negotiations towards the
creation of a free trade market
Levels of Economic Integration - Answers - 1. Free Trade Area
2. Customs Union
3. Common Market
4. Economic Union
5. Political Union
Free Trade Area - Answers - -All barriers to the trade of goods and services among
member countries are removed, but members determine own trade policies with
nonmembers.
-Accounts for almost 90 percent of regional agreements
-European Free Trade Association (E F T A): between Norway, Iceland, Liechtenstein,
and Switzerland began in 19 60.
-United States Mexico-Canada Agreement (U S M C A): Free trade area between
United States, Mexico and Canada
Customs Union - Answers - -Eliminates trade barriers between member countries and
adopts a common external trade policy.
-The current version of the Andean Community (formerly known as the Andean Pact) is
a free trade area that includes:
Bolivia, Colombia, Ecuador, and Peru.
Common Market - Answers - -Has no barriers to trade between member countries, a
common external trade policy, and the free movement of the factors of production
-MERCOSUR: Brazil, Argentina, Paraguay, and Uruguay
Economic Integration (Economic Case) - Answers - Has the free flow of products and
factors of production between members, a common external trade policy, a common
currency, a harmonized tax rate, and a common monetary and fiscal policy
e.g European Union
Economic Integration (Political Case) - Answers - -Involves a central political apparatus
that coordinates the economic, social, and foreign policy of member states
-The EU is headed toward at least partial political union, and the U.S is an example of
even closer political union
Trade Creation vs. Trade Diversion - Answers - Trade Creation:
, -New products may now be shipped to these markets.
-New industries may develop as a result of these new products entering the market
-As a result, other industries are created in Country A.
Trade Diversion: -Occurs when companies trade with inefficient member countries
instead of efficient non-members when trade barriers fall.
-Assume Mexican producers now trade with efficient producers in Germany. The
Mexicans must pay high tariffs to Germany. Mexico forms FTA with US but US
producers are inefficient. Mexican trade gets diverted from Germany to US because
costs are lower due to the absence of trade barriers
Main examples of Regional Economic Integration block - Answers - EU, USMCA,
CAFTA, Mecrosur,
Andean Community, CARICOM, ASEAN, RECEP, integration in Africa etc
Main Institutions in EU - Answers - The European Council - the ultimate controlling
authority within the EU
The European Commission - responsible for proposing EU legislation, implementing it,
and monitoring compliance with EU laws by member states
The European Parliament - debates legislation proposed by the commission and
forwarded to by the council
The Court of Justice - the supreme appeals court for EU law
NAFTA (North American Free Trade Agreement) - Answers - Allows open trade
between the US, Mexico, and Canada.
Critics of NAFTA - Answers - Jobs would be lost and wage levels would decline in the
US and Canada
Pollution would increase due to Mexico's more lax standards
Mexico would lose its sovereignty
Andean Pact - Answers - Formed in 1969 using the EU model
Had more or less failed by the mid-1980s
Was relaunched in 1990, and now operates as a customs union
Renamed the Andean Community in 1997
Signed an agreement in 2003 with MERCOSUR to restart negotiations towards the
creation of a free trade market
