Chapter 08 Regional Economic Integration by 5iC78p6

VIEWS: 140 PAGES: 44

									Chapter 08 - Regional Economic Integration


                                                                           Chapter 08
                                                         Regional Economic Integration




True / False Questions


1. (p. 274) One notable trend in the global economy in recent years has been the accelerated
movement toward regional economic integration.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



2. (p. 274) World Trade Organization members are required to notify the UN of any regional
trade agreements in which they participate.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



3. (p. 275) In 1991, Argentina, Brazil, Chile, and Bolivia implemented an agreement known as
MERCOSUR to start reducing barriers to trade between each other.
FALSE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                               8-1
Chapter 08 - Regional Economic Integration



4. (p. 275) While the move toward regional economic integration is generally seen as a good
thing, some observers worry that it will lead to a world in which regional trade blocs compete
against each other.
TRUE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



5. (p. 276) In a free trade area, all barriers to the trade of goods and services among member
countries are removed.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



6. (p. 276) A free trade area has a higher level of integration than a common market.
FALSE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



7. (p. 277) A customs union eliminates trade barriers between member countries and adopts a
common external trade policy.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                                8-2
Chapter 08 - Regional Economic Integration



8. (p. 277) The UN began as a customs union and has moved beyond this point.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



9. (p. 277) In a common market, labor and capital are free to move, as there are no restrictions on
immigration, emigration, or cross-border flows of capital between markets.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



10. (p. 277) An economic union involves the free flow of products and factors of production
between members and the adoption of a common external trade policy.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



11. (p. 277) The European Committee has been directly elected by citizens of the EU countries
since the late 1970s.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                                8-3
Chapter 08 - Regional Economic Integration



12. (p. 278) Economic theories suggest that free trade and investment is a positive-sum game, in
which all participating countries stand to gain.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-2
Topic: The Case for Regional Integration



13. (p. 278) Given the central role of knowledge in stimulating economic growth, opening a
country to FDI also is likely to stimulate economic growth.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-2
Topic: The Case for Regional Integration



14. (p. 278) Because many governments have accepted part or all of the case for intervention,
unrestricted free trade and FDI have proved to be only an ideal.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-2
Topic: The Case for Regional Integration



15. (p. 278) It is harder to establish a free trade and investment regime among a limited number
of adjacent countries than among the world community.
FALSE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-2
Topic: The Case for Regional Integration




                                               8-4
Chapter 08 - Regional Economic Integration



16. (p. 278-279) The need for a united Europe to deal with the United States and the politically
alien Soviet Union loomed large in the minds of many of the EC's founders.
TRUE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-2
Topic: The Case for Regional Integration



17. (p. 279) Trade creation occurs when high-cost domestic producers are replaced by low-cost
producers within the free trade area.
TRUE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-3
Topic: The Case against Regional Integration



18. (p. 279) The benefits of regional integration are determined by the extent of trade creation, as
opposed to trade diversion.
TRUE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-3
Topic: The Case against Regional Integration



19. (p. 279) Trade distribution occurs when higher-cost external suppliers replace lower-cost
suppliers within the free trade area.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-3
Topic: The Case against Regional Integration




                                                8-5
Chapter 08 - Regional Economic Integration



20. (p. 280) Europe has two trade blocs: the European Union and the European Free Trade
Association.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



21. (p. 280) The Treaty of Athens provided for the creation of a common market for the
European Union.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



22. (p. 281) The two main institutions in the political structure of the EU are the European
Commission and the European Parliament.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



23. (p. 281-282) The European Commission is run by a group of commissioners appointed by
each member country for five-year renewable terms.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-6
Chapter 08 - Regional Economic Integration



24. (p. 282) The European Council is composed of the heads of state of the EU's member nations
and the president of the European Commission.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



25. (p. 282) Throughout the more recent years, the European Commission's role in competition
policy has become stagnant.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



26. (p. 283) The European Parliament represents the interests of member states and is the
ultimate controlling authority within the EU.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



27. (p. 283) The European Parliament has 732 members which are directly elected by the
populations of the member states.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-7
Chapter 08 - Regional Economic Integration



28. (p. 283) One major debate now being waged in Europe is whether the council or the
parliament should ultimately be the most powerful body of the EU.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



29. (p. 285) To signify the importance of the Single European Act, the European Union decided
to change its name to the European Community once the act took effect.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



30. (p. 285) One of the objectives of the Single European Act was to establish more stringent
restrictions on foreign exchange transactions between member countries.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



31. (p. 285) The Single European Act has had a significant impact on the EU economy.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-8
Chapter 08 - Regional Economic Integration



32. (p. 285) The euro is now used by 18 of the 25 member states of the European Union; these
18 states are members of what is often referred to as the euro zone.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



33. (p. 285) Establishing the euro required participating national governments not only to give up
their own currencies, but also to give up control over monetary policy.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



34. (p. 287) The development of a pan-European, euro-dominated capital market will increase
the range of investment options to both individuals and institutions.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



35. (p. 288) The implied loss of national sovereignty to the ECB underlies the decision by Great
Britain, Germany, and Denmark to stay out of the euro zone for now.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-9
Chapter 08 - Regional Economic Integration



36. (p. 288) One way of dealing with divergent economic effects within the euro zone is for the
EU to engage in fiscal transfers, taking money from prosperous regions and pumping it into
depressed regions.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



37. (p. 289) One reason for the rise in the value of the euro was that the flow of capital into the
United States had increased in 2001.
FALSE


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



38. (p. 291) Protection of intellectual property rights was one of the contents of NAFTA.
TRUE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



39. (p. 293) Due to NAFTA, Mexico is now viewed as an unstable democratic nation.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas




                                                       8-10
Chapter 08 - Regional Economic Integration



40. (p. 300) A firm cannot serve the whole EU or North American market from a single location;
it has to produce the product in each of the 27 EU countries or the 3 NAFTA countries.
FALSE


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-5
Topic: Focus on Managerial Implications




Multiple Choice Questions


41. (p. 274) An agreement between countries in a geographic region to reduce tariff and nontariff
barriers to the free flow of goods, services, and factors of production between each other is
referred to as:
A. regional economic integration.
B. cross-cultural economic integration.
C. geographic economic-political integration.
D. cross-cultural economic-political integration.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



42. (p. 274) The North American Free Trade Agreement is an example of:
A. western economic integration
B. regional economic integration
C. eastern economic integration
D. global economic integration


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                              8-11
Chapter 08 - Regional Economic Integration



43. (p. 274-275) By 2008, _____ WTO members had notified the organization of participation in
one or more regional trade agreements.
A. one-third of
B. one half of
C. two-thirds of
D. almost all


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



44. (p. 275) According to the textbook, by entering into _____, groups of countries aim to reduce
trade barriers more rapidly than can be achieved under the WTO.
A. regional agreements
B. synergistic agreements
C. global agreements
D. local agreements


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



45. (p. 275) Nowhere has the movement toward regional economic integration been more
successful than in:
A. Africa.
B. South America.
C. Asia.
D. Europe.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                              8-12
Chapter 08 - Regional Economic Integration



46. (p. 275) Which three countries implemented NAFTA?
A. Panama, Mexico, and the United States.
B. Canada, Brazil, and the United States.
C. United States, Argentina, and Mexico.
D. Canada, Mexico, and the United States.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



47. (p. 275) NAFTA stands for:
A. North Asian Free Trade Agreement.
B. North African Free Trade Association.
C. North Atlantic Free Trade Agreement.
D. North American Free Trade Association.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



48. (p. 275) Which countries are members of the free trade area known as MERCOSUR?
A. Chile, Mexico, Columbia, and Paraguay.
B. Argentina, Brazil, Paraguay, and Uruguay.
C. Chile, Brazil, Uruguay, and Columbia.
D. Mexico, Columbia, Paraguay, and Uruguay.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                             8-13
Chapter 08 - Regional Economic Integration



49. (p. 275) The specter of the _____ turning into economic fortresses that shut out foreign
producers with high tariff barriers is worrisome to those who believe in unrestricted free
trade.
A. EU and NAFTA
B. EFTA and UN
C. UN and WTO
D. NAP and IMF


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



50. (p. 276) Which of the following selections accurately depicts the levels of economic
integration, from least integrated to most integrated?
A. Common market, economic union, full political union, free trade area, and customs union
B. Economic union, common market, free trade area, full political union, and customs union
C. Free trade area, customs union, common market, economic union, and full political union
D. Full political union, free trade area, common market, customs union, and economic union


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



51. (p. 276) In a _____, theoretically, no discriminatory tariffs, quotas, subsidies, or
administrative impediments are allowed to distort trade between members.
A. free trade area
B. collective bargaining act
C. common exchange policy
D. customs exchange committee


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                                 8-14
Chapter 08 - Regional Economic Integration



52. (p. 276) The most enduring free trade area in the world is the:
A. Asian Free Trade Association.
B. MERCOSUR.
C. European Free Trade Association.
D. North American Trade Association.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



53. (p. 276) In a _____, all barriers to trade of goods and services are removed between member
countries.
A. collective bargaining
B. unionized territory
C. no man's land
D. free trade area


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



54. (p. 276) Which type of agreement is the most popular form of regional economic integration,
accounting for almost 90 percent of regional agreements?
A. Customs union agreement
B. Free trade agreement
C. Common market agreement
D. Political union agreement


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                                8-15
Chapter 08 - Regional Economic Integration



55. (p. 276) Which of the following has the highest level of integration?
A. An economic union
B. A free trade area
C. A customs union
D. A common market


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



56. (p. 276) Which four countries are currently members of the European Free Trade
Association?
A. Ireland, Iceland, Denmark, and Belgium
B. Norway, Iceland, Switzerland, and Liechtenstein
C. Finland, Great Britain, Belgium, and Denmark
D. Sweden, Norway, Austria, and Finland


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



57. (p. 276) During the establishment stage, The European Free Trade Association's emphasis
has been on free trade in:
A. services.
B. agricultural products.
C. industrial goods.
D. construction materials.


AACSB: Reflective thinking
BT: Knowledge
Difficulty: Hard
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                               8-16
Chapter 08 - Regional Economic Integration



58. (p. 277) A _____ eliminates trade barriers between member countries and adopts a common
external trade policy.
A. free trade area
B. global union
C. tariff union
D. customs union


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



59. (p. 277) A common market includes all of the following characteristics, EXCEPT:
A. factors of production are allowed to move freely between members.
B. there are no restrictions on immigration between members.
C. harmonization of members' tax rates, and a common monetary and fiscal policy.
D. there are no restrictions on the cross-border flow of capital between members.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



60. (p. 277) Like the common market, a(n) _____ involves the free flow of products and factors
of production between members and the adoption of a common external trade policy.
A. free trade area
B. economic union
C. global union
D. customs union


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                             8-17
Chapter 08 - Regional Economic Integration



61. (p. 277) The _____, which plays an important role in the EU, has been directly elected by
citizens of the EU countries since the late 1970s.
A. North Atlantic Parliament
B. North Atlantic Trade Commission
C. European Parliament
D. European Trade Commission


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



62. (p. 277) For years, _____ has functioned as a common market, although it has now become
an imperfect economic union.
A. EFTA
B. NAFTA
C. MERCUSOR
D. EU


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration



63. (p. 277) A central political apparatus that coordinates the economic, social, and foreign
policy of its member states is a(n):
A. economic union.
B. customs union.
C. political union.
D. free trade area.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                               8-18
Chapter 08 - Regional Economic Integration



64. (p. 277) Which of the following provides the closest example to a political union?
A. The European Union
B. The United States
C. NAFTA
D. MERCUSOR


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



65. (p. 278) Because many governments have accepted part or all of the case for intervention,
_____ have proved to be only an ideal.
A. unrestricted free trade and FDI
B. restricted free trade and international mergers
C. exporting and importing
D. customs unions and common markets


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-2
Topic: The Case for Regional Integration



66. (p. 279) The two main reasons that have made economic integration difficult to achieve are:
A. concerns over the safety of travel from one nation to another and concerns over dissimilar
political ideologies.
B. concerns over costs and concerns over national sovereignty.
C. concerns over immigration and emigration and concerns over economic and political
ideologies.
D. concerns over the safety of travel from one nation to another and concerns over national
sovereignty.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-2
Topic: The Case for Regional Integration




                                               8-19
Chapter 08 - Regional Economic Integration



67. (p. 279) In the context of regional trade integration, concerns about _____ arise because
close economic integration demands that countries give up some degree of their control over
such key policy issues as monetary policy, fiscal policy, and trade policy.
A. cost
B. national sovereignty
C. financial stability
D. cultural uniformity


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-2
Topic: The Case for Regional Integration



68. (p. 279) In 1992, the _____ won the right to opt out of any single currency agreement.
A. German
B. Russian
C. Spanish
D. British


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-2
Topic: The Case for Regional Integration



69. (p. 279) The phenomenon that occurs when high-cost domestic producers are replaced by
low-cost producers within the free trade is called:
A. trade alteration.
B. trade qualification.
C. trade creation.
D. trade diversion.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-3
Topic: The Case against Regional Integration




                                               8-20
Chapter 08 - Regional Economic Integration



70. (p. 279) _____ occurs when lower-cost external suppliers are replaced by higher-cost
suppliers within the free trade area.
A. Trade diversion
B. Trade qualification
C. Trade synergy
D. Trade creation


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-3
Topic: The Case against Regional Integration



71. (p. 279-280) If the U.S. started to import textiles from Mexico according to a free trade
agreement, but the U.S. previously acquired textiles from Costa Rica for less money, what
kind of trade situation would the U.S. be in?
A. Trade generation
B. Trade creation
C. Trade diversion
D. Trade notification


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-3
Topic: The Case against Regional Integration



72. (p. 280) In theory, _____ rules should ensure that a free trade agreement does not result in
trade diversion.
A. International Monetary Fund
B. World Bank
C. United Nations
D. World Trade Organization


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-2
Topic: The Case against Regional Integration




                                               8-21
Chapter 08 - Regional Economic Integration



73. (p. 280) There are now two trade blocs in Europe. These are the:
A. European Union and European Free Trade Association.
B. European Federation and North Atlantic Trade Block.
C. North Atlantic Trade Block and European Union.
D. European Federation and European Trade Association.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



74. (p. 280) Many now see the _____ as the emerging economic and political superpower of the
same order as the United States and Japan.
A. European Federation
B. North Atlantic Trade Block
C. European Union
D. North Atlantic Federation


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



75. (p. 280) The European Union is the product of two political factors. The devastation of
Western Europe during the two world wars and:
A. the European nations' desire to hold their own on the world's political and economic stage.
B. the European nations' unawareness of potential economic benefits.
C. the European nations' desire to make a coordinating bureaucracy accountable to the
citizens of member nations.
D. the emergence of United States as an economic superpower.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-22
Chapter 08 - Regional Economic Integration



76. (p. 280) The original forerunner of the EU, the _____ was formed in 1951 by Belgium,
France, West Germany, Italy, Luxembourg, and the Netherlands.
A. European Union
B. European Coal and Steel Community
C. European Agricultural and Energy Union
D. European Textiles and Agricultural Community


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



77. (p. 280) With the signing of the _____ in 1957, the European Community was established.
A. Treaty of Paris
B. Treaty of Brussels
C. Treaty of Switzerland
D. Treaty of Rome


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



78. (p. 280) The European Community became the European Union with the signing of:
A. the Maastricht Treaty.
B. the Warsaw Pact.
C. The Treaty of Rome.
D. the Unification Treaty


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-23
Chapter 08 - Regional Economic Integration



79. (p. 281) Which of the following countries is currently in the European Union?
A. Turkey
B. Moldova
C. Belarus
D. Romania


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



80. (p. 281) Which of the following is NOT one of the four main institutions in the political
structure of the European Union?
A. The European Council
B. The European Social Committee
C. The European Commission
D. The European Parliament


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



81. (p. 281) Which European institution is responsible for proposing EU legislation,
implementing it, and monitoring compliance?
A. The European Commission
B. The European Council
C. The Court of Justice
D. The European Judicial Court


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-24
Chapter 08 - Regional Economic Integration



82. (p. 282) In 2000, a proposed merger between Time Warner of the United States and EMI of
the United Kingdom was withdrawn by _____, which expressed concern that the proposed
merger would create a dominant player in the global music industry.
A. the Council of the European Union
B. the European Parliament
C. the Court of Justice
D. the European Commission


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



83. (p. 282) The European Commission's role in _____ policy has become increasingly
important in recent years.
A. FDI
B. security
C. legal
D. competition


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



84. (p. 283) The _____, which now accounts for 732 members, is directly elected by the
populations of the member states.
A. European Committee
B. European Parliament
C. European Union
D. European Task Force


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-25
Chapter 08 - Regional Economic Integration



85. (p. 283) _____ now has the right to vote on the appointment of commissioners as well as
veto some laws.
A. The European Commission
B. The Court of Justice
C. The Council of the European Union
D. The European Parliament


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



86. (p. 283) Where does the European Parliament meet at in the European Union?
A. Great Britain
B. France
C. Germany
D. Spain


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



87. (p. 284) The purpose of the _____ was to have a single market in place by December 31,
1992.
A. North Atlantic Sovereignty Act
B. Single European Act
C. European Primacy Act
D. European Sovereignty Act


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-26
Chapter 08 - Regional Economic Integration



88. (p. 284) The _____ was born of a frustration among EC members that the community was
not living up to its promises.
A. European Unification Act
B. Single European Act
C. European Free Trade Act
D. European Common Commerce Act


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



89. (p. 284) Which institution is comprised of one judge from each country, and is the supreme
appeals court for EU law?
A. The European Parliament
B. The Court of Justice
C. The Council of the European Union
D. The European Commission


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-3
Topic: Regional Economic Integration in Europe



90. (p. 284) Which two revolutions occurred in Europe in the late 1980s that set the course for
eventual adoption of the European Union?
A. The collapse of communism and adoption of the Single European Act.
B. An increased reliance on communism and increased trade barriers.
C. The collapse of communism and adoption of the European Parliament.
D. An increased reliance on totalitarianism and adoption of NAFTA.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-27
Chapter 08 - Regional Economic Integration



91. (p. 284) Which of the following was NOT one of the purposes of the Single European Act?
A. Remove all frontier controls between EU countries.
B. Remove the principle of "mutual recognition" as it pertains to product standards.
C. Open public procurement to nonnational suppliers.
D. Lift barriers to competition in the EC's retail banking and insurance businesses.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



92. (p. 285) Which of the following is NOT a key economic criterion for a country to join the
EU?
A. High tourism revenues
B. A high degree of price stability
C. Stable exchange rates
D. Converged long-term interest rates


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



93. (p. 286) When were euro notes and coins issued across Europe, replacing national
currencies?
A. January 1994
B. January 1998
C. January 2000
D. January 2002


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-28
Chapter 08 - Regional Economic Integration



94. (p. 287) Which of the following is NOT a benefit of the Euro?
A. A common currency will make it easier to compare prices across Europe.
B. Producers will be forced to look for ways to reduce their production costs to maintain their
profit margins.
C. EU having an advantage of being an optimal currency area and hence increased interest
rates.
D. A common currency will should give a strong boost to the development of a highly liquid
pan-European capital market.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



95. (p. 287) For participating countries, a drawback of a single currency in Europe is that:
A. costs for doing business will increase.
B. it will be more difficult to attract imports.
C. national authorities will lose control over monetary policy.
D. it will be more difficult to compare prices across Europe.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



96. (p. 287) The development of a pan-European, euro-denominated capital market will increase
the range of investment open to:
A. communist countries.
B. socialist economies.
C. government officials.
D. individuals and institutions.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-29
Chapter 08 - Regional Economic Integration



97. (p. 288) Which of the following EU countries has stayed out of euro zone because of an
implied loss of national sovereignty?
A. Turkey
B. Denmark
C. Hungary
D. Germany


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



98. (p. 288) Similarities in the underlying structure of economic activity make it feasible to adopt
a single currency and use a single exchange rate as an instrument of macroeconomic policy in
a(n):
A. political union.
B. economic union.
C. double currency area.
D. optimal currency area.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



99. (p. 288) EU critics argue that the Euro will unleash enormous pressures for tax
harmonization and fiscal transfers from the center, which cannot be pursued without the
appropriate political structure. In their view:
A. the EU should be disbanded.
B. many foreign central banks should add more euros to their supply of foreign currencies.
C. a single currency should follow a political union.
D. EU should engage in fiscal transfers.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-30
Chapter 08 - Regional Economic Integration



100. (p. 289) A major reason for _____ in October 2000 was that international investors were
investing money in booming U.S. stocks and bonds and taking money out of Europe to
finance these investments.
A. the fall of the dollar's value
B. the fall of the euro's value
C. mass migration from Europe
D. burst of the American stock market bubble


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



101. (p. 289) Which of the following makes it harder for euro zone exporters to sell their goods
abroad?
A. A weak Asian economy
B. A strong European economy
C. A depreciation in dollar value
D. A strong euro


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



102. (p. 289-290) In December 2002, which of the following countries did not become a member
of EU?
A. Czech Republic
B. Hungary
C. Romania
D. Poland


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-3
Topic: Regional Economic Integration in Europe




                                                 8-31
Chapter 08 - Regional Economic Integration



103. (p. 290) In December 2002, the EU formally indicated that it would allow the _____
application to proceed with no further delay in December 2004 if the country improved its
human rights record to the satisfaction of the EU.
A. Romanian
B. Turkish
C. Bulgarian
D. Polish


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe



104. (p. 291) Which of the following was NOT a content of NAFTA?
A. Abolition on 100 percent of barriers on goods traded between Mexico, Canada, and the
United States.
B. Protection of intellectual property rights.
C. Applications of national environmental standards.
D. Establishment of two commissions with the power to impose fines and remove trade
privileges.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



105. (p. 292) According to the textbook, one likely short-term effect of NAFTA will be that
many U.S. and Canadian firms will move some production to Mexico to take advantage of:
A. cheaper transportation costs.
B. lower interest rates.
C. lower labor costs.
D. a higher skilled labor force.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas




                                                       8-32
Chapter 08 - Regional Economic Integration



106. (p. 292) The principle argument of those who opposed NAFTA centered on the fear that
ratification would result in:
A. higher interest rates in the U.S.
B. mass exodus of jobs from the United States into Mexico.
C. a move towards a common currency for NAFTA member nations.
D. retaliation from the European Union.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



107. (p. 293) Advocates of NAFTA claimed there would be long-run dynamic gains in the
efficiency of _____ firms as they adjusted to the rigors of a more competitive marketplace.
A. Mexican
B. U.S
C. Canadian
D. Mexican and Canadian


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



108. (p. 293) _____ is credited with helping to create the background for increased political
stability in Mexico.
A. The Andean Pact
B. MERCOSUR
C. NAFTA
D. The South American Federation of Independent States


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas




                                                       8-33
Chapter 08 - Regional Economic Integration



109. (p. 294) Bolivia, Chile, Ecuador, Colombia, and Peru signed an agreement in 1969 to create
the:
A. Andean Pact.
B. Bolivian Pact.
C. NW South America Group.
D. South American Federation of Independent States.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



110. (p. 294) MERCOSUR originated in 1988 as a free trade pact between:
A. Mexico and Brazil.
B. Peru and Chile.
C. Brazil and Argentina.
D. Venezuela and Peru.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



111. (p. 294) In 1990, the MERCOSUR pact was expanded to include:
A. Mexico and Brazil.
B. Peru and Brazil.
C. Paraguay and Uruguay.
D. Venezuela and Peru.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas




                                                       8-34
Chapter 08 - Regional Economic Integration



112. (p. 295) According to Alexander Yeats, a senior economist at the World Bank, the trade
diversion effects of _____ outweigh its trade creation effects.
A. MERCOSUR
B. CARICOM
C. ASEAN
D. FTAA


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



113. (p. 296) The customs union CARICOM applies to:
A. East Asian nations.
B. Middle Eastern nations.
C. Central American nations.
D. Caribbean nations.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



114. (p. 296) Molded on _____ single market, the goal of CSME is to lower trade barriers and
harmonize macro-economic and monetary policy between nations.
A. the Asian
B. United States'.
C. the EU's
D. Latin America's


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas




                                                       8-35
Chapter 08 - Regional Economic Integration



115. (p. 296) If the _____ were established, which would include the United States and Brazil, it
would open a free trade umbrella over nearly 850 million people who accounted for more than
$16 trillion in GDP in 2007.
A. FTAA
B. ANSCAN
C. AEC
D. CARICOM


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



116. (p. 297) Formed in 1967, ASEAN currently includes:
A. Indonesia, Hong Kong, Singapore, Taiwan, Thailand, Malaysia, and Japan.
B. Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam.
C. Japan, Taiwan, Hong Kong, Singapore, China, Thailand, and Malaysia.
D. Brunei, Indonesia, Hong Kong, Thailand, India, Malaysia, and Japan.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration Elsewhere



117. (p. 297) The United States, Japan, and China are among 18 members of a trade organization
referred to as:
A. AAFTC.
B. APEC.
C. USAEU.
D. ANAEPC.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration Elsewhere




                                                       8-36
Chapter 08 - Regional Economic Integration



118. (p. 297) The stated aim of _____ is to increase multilateral cooperation in view of the
economic rise of the Pacific nations and the growing interdependence within the region.
A. EAC
B. APEC
C. ASEAN
D. ANAEPC


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration Elsewhere



119. (p. 299) On the African continent, there are currently:
A. two trade blocks.
B. five trade blocks.
C. nine trade blocks.
D. twelve trade blocks.


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-4
Topic: Regional Economic Integration Elsewhere



120. (p. 300) Currently, _____ have more profound and immediate implications for business
practice.
A. ASEAN and APEC
B. The EU and NAFTA
C. NAFTA and APEC
D. ASEAN and NAFTA


AACSB: Analytic
BT: Knowledge
Difficulty: Easy
Learning Objective: 8-5
Topic: Focus on Managerial Implications




                                                 8-37
Chapter 08 - Regional Economic Integration


Essay Questions


121. (p. 274) Describe the concept of regional economic integration. Do you believe that
regional economic integration is a good thing? Explain your answer.

Regional economic integration refers to agreements made by groups of countries in
geographic regions to reduce, and ultimately remove, tariff and nontariff barriers to the free
flow of goods, services, and factors of production between each other. The North American
Free Trade Agreement, which is an agreement between the United States, Mexico, and
Canada to reduce and eliminate tariffs between the three countries, is an example of regional
economic integration.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                              8-38
Chapter 08 - Regional Economic Integration



122. (p. 276-277) Please briefly explain the following forms of economic integration: free trade
area, customs union, common market, economic union, and full political union. Provide an
example of each form of economic integration.

Free Trade Area: In a free trade area, all barriers to the trade of goods and services among
member countries are removed. In a theoretically ideal free trade area, no discriminatory
tariffs, quotas, subsidies, or administrative impediments are allowed to distort trade between
member nations. Each country, however, is allowed to determine its own trade policies with
regard to nonmembers. The European Free Trade Association, involving Norway, Iceland,
and Switzerland, is an example of a free trade area.
Customs Union: A customs union eliminates trade barriers between member countries and
adopts a common external policy. The Andean Pact, which involves Bolivia, Columbia,
Ecuador, and Peru, is an example of a customs union.
Common Market: A common market eliminates trade barriers between member countries and
adopts a common external policy. In addition, factors of production are also allowed to move
freely between member countries. Thus, labor and capital are free to move, as there are no
restrictions on immigration, emigration, or cross-border flows of capital between members.
Hence, a much closer union is envisaged in a common market than a customs union. The
European Union is currently a common market, although it has now moved beyond this stage.
Economic Union: An economic union eliminates trade barriers between member nations,
adopts a common external policy, and permits factors of production to move freely between
member countries. In addition, a full economic union requires a common currency,
harmonization of the member countries' tax rates, and a common monetary and fiscal policy.
There are no true economic unions in the world today.
Political Union: is a central political apparatus coordinates the economic, social, and foreign
policy of the member states. As a result, all of the components of an economic union would
apply, in addition to the political coupling of the countries involved. The United States is an
example of a political union, in which previously separate "states" combined into one country.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Hard
Learning Objective: 8-1
Topic: Levels of Economic Integration




                                               8-39
Chapter 08 - Regional Economic Integration



123. (p. 276-277) Describe the difference between a free trade area and a common market?

In a free trade area all barriers to the trade of goods and services among member countries are
removed. In a common market, the factors of production are also allowed to move freely
between member countries and a common external trade policy is adopted. In addition, in a
common market, labor and capital are free to move because there are no restrictions on
immigration, emigration, or cross-border flows of capital between member nations.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-1
Topic: Levels of Economic Integration



124. (p. 279) What are the primary impediments to integration? Are these impediments difficult
to overcome? Explain your answer.

Even though there may be a clear rationale for economic integration, there are two
impediments that make integration difficult in many cases. First, although economic
integration typically benefits the majority of the people in a country, certain groups may lose.
For example, according to the textbook, as a result of the 1994 establishment of NAFTA some
Canadian and U.S. workers in such industries as textiles, which employ low-cost, low-skilled
labor, will lose their jobs as Canadian and U.S. firms move their production to Mexico. As a
result, even though the population as a whole may gain as a result of an agreement like
NAFTA, these individuals may lose
The second impediment to integration arises from concerns over national sovereignty. For
example, for a full economic union to become a reality, the countries involved have to
establish a common currency. Concerns about national sovereignty arise because close
economic integration demands that countries give up some degree of control over such key
issues as monetary policy, fiscal policy (e.g., tax policy), and trade policy. This has been a
major stumbling block in the EU. To achieve full economic union, the EU introduced a
common currency, the euro, controlled by a central EU bank. Although most member states
have signed on, Great Britain remains an important holdout.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-2
Topic: The Case for Regional Integration




                                              8-40
Chapter 08 - Regional Economic Integration



125. (p. 279) Define trade creation and trade diversion with respect to regional economic
integration. Given that integration can both create and divert trade, under what circumstances
will regional integration be in the best interest of the world economy?

Trade creation occurs when high-cost domestic producers are replaced by low-cost producers
within the free trade area. It may also occur when higher-cost external producers are replaced
by lower-cost external producers with the free trade area. Trade diversion occurs when lower-
cost external suppliers are replaced by higher-cost suppliers within the free trade area. A
regional free trade agreement will benefit the world only if the amount of trade it creates
exceeds the amount it diverts.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-3
Topic: The Case against Regional Integration



126. (p. 281-284) Name the four political institutions that formulate and implement the European
political structure, and describe their roles.

The four main institutions are the European Commission, the Council of the European Union,
the European Parliament, and the Court of Justice. The European Commission is responsible
for proposing EU legislation, implementing it, and monitoring compliance with EU laws by
member states. Its role in competition policy has become increasingly important to business in
recent years. The Council of the European Union represents the interests of member states. It
is the ultimate controlling authority within the EU since draft legislation from the commission
can become EU law only if the council agrees. The European Parliament has about 732
members, and is the primary consultative body. It debates legislation proposed by the
commission and forwarded to it by the council. Finally, the Court of Justice, which is
comprised of one judge from each country, is the supreme appeals court for EU law. The
judges are required to act as independent officials, rather than as representatives of national
interests.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-41
Chapter 08 - Regional Economic Integration



127. (p. 284-285) What two revolutions occurred in Europe in the late 1980s? What are the
objectives of the Single European Act?

The two revolutions that occurred in Europe in the late 1980s were the collapse of
communism in Eastern Europe and the establishment of the Single European Act. The
objectives of the Single European Act include: removing all frontier controls between EC
countries, applying the principle of mutual recognition to product standards, opening public
procurement to nonnational suppliers, lifting barriers to competition in the retail banking and
insurance businesses, removing all restrictions on foreign exchange transactions between
member countries, and abolishing restrictions on cabotage.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in Europe




                                                 8-42
Chapter 08 - Regional Economic Integration



128. (p. 290-293) Describe the arguments for and against the North American Free Trade
Agreement (NAFTA). In your opinion, is the recent ratification of NAFTA a positive
development or a negative development for the citizens of the countries involved?

In general, the proponents of NAFTA have argued that NAFTA should be seen as an
opportunity to create an enlarged and more efficient productive based for the entire North
American region. The proponents concede that some lower-income jobs will move from the
United States and Canada to Mexico. However, they argue that in the end, this will benefit all
three countries involved because the movement of jobs to Mexico will create employment and
economic growth, and as Mexico's economy grows the demand for U.S. and Canadian
products in Mexico will increase. In addition, the international competitiveness of U.S. and
Canadian firms that move production to Mexico to take advantage of lower labor costs will be
enhanced, enabling them to better compete against Asian and European rivals.
Those that oppose NAFTA claim that U.S. and Canadian citizens will lose their jobs in
alarming numbers as low-income positions are moved to Mexico to take advantage of lower
wage rates. To date, the movement of jobs from the U.S. and Canada has not reached the
numbers that NAFTA's critics envisioned. Environmentalists have also voiced concerns about
NAFTA. Because Mexico has more lenient environmental protection laws than either the U.S.
or Canada, there is a concern that U.S. and Canadian firms will relocate to Mexico to avoid
the cost of protecting the environment. Finally, there is continued opposition in Mexico to
NAFTA from those who fear a loss of national sovereignty. Mexican critics fear that NAFTA
will allow their country to be dominated by U.S. and Canadian multinationals, and use
Mexico as a low-cost assembly site, while keeping their higher-paying jobs in their own
countries.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas




                                                       8-43
Chapter 08 - Regional Economic Integration



129. (p. 292-293) Describe the effects of NAFTA after the first decade. What are the plans for
possible enlargement of NAFTA?

Studies of NAFTA's early impact suggest its initial effects were at best muted. The initial
period after NAFTA took effect had little impact on trends that were already in place. Authors
agree that NAFTA had only a marginal impact on the level of trade between the United States
and Mexico. One study concluded that the impact on jobs in the United States was positive
but very small. NAFTA is credited with helping to create the background for increased
political stability in Mexico. A number of other Latin American countries have indicated their
desire to eventually join NAFTA. The U.S. and Canada have currently adopted a "wait and
see" approach. The Canadian, Mexican, and U.S. governments began talks in 1995 regarding
Chile's possible entry into NAFTA.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-4
Topic: Regional Economic Integration in the Americas



130. (p. 300) Explain how the creation of a single market through regional economic integration
offers significant opportunities. Provide an example.

The creation of a single market through regional economic integration offers significant
opportunities because markets that were formerly protected from foreign competition are
increasingly open. For example, in Europe before 1992 the large French and Italian markets
were among the most protected. These markets are now much more open to foreign
competition in the form of both exports and direct investment. Nonetheless, to fully exploit
such opportunities, it may pay non-EU firms to set up EU subsidiaries. Many major U.S.
firms have long had subsidiaries in Europe. Those that do not would be advised to consider
establishing them now, lest they run the risk of being shut out of the EU by nontariff barriers.


AACSB: Reflective thinking
BT: Comprehension
Difficulty: Medium
Learning Objective: 8-5
Topic: Focus on Managerial Implications




                                                       8-44

								
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