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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The opening case shows that the European Court of Justice can deal with matters involving:
A) the speed of integration
B) encouragement for EU integration
C) milk subsidies
D) opposition to EU integration
E) national television markets
Answer: E
2) An agreement 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 is referred to as
A) cross-cultural economic-political integration.
B) geographic economic-political integration.
C) cross-cultural economic integration.
D) regional economic integration.
E) transnational economic integration.
Answer: D
4) 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) transnational agreements
C) free trade zones
D) global agreements
E) synergistic agreements
Answer: A
5) Nowhere has the movement toward regional economic integration been more successful than in
________.
A) Europe
B) South America
C) Africa
D) North America
E) Asia
Answer: A
1
6) On January 1, 1993, the ________ effectively became a single market with 340 million consumers.
A) South American Union
B) European Union
C) North American Union
D) British Commonwealth
E) Southeast Asia Union
Answer: B
7) The following three countries implemented the North American Free Trade Agreement (NAFTA):
A) United States, Argentina, and Mexico
B) United States, Canada and Costa Rica
C) Canada, Brazil, and the United States
D) Panama, Mexico, and the United States
E) Canada, Mexico, and the United States
Answer: E
10) The free trade area known as MERCOSUR consists of the following four countries:
A) Mexico, Columbia, Paraguay, and Uruguay
B) Chile, Brazil, Uruguay, and Columbia
C) Chile, Mexico, Columbia, and Paraguay
D) Argentina, Brazil, Paraguay, and Uruguay
E) Argentina, Chile, Uruguay, and Brazil
Answer: D
11) Which of the following statement is NOT accurate in regard to the European Union?
A) Members of the European Union are discussing a common language
B) Members of the European Union have enlarged the EU to the current 27 countries
C) Members of the European Union have mostly established a single currency
D) Members of the European Union are discussing enlarging the EU to include another 4
European states
E) Members of the European Union are moving toward a closer political union
Answer: A
2
12) As predicted by the theory of comparative advantage, there should be a ________ from regional
trade agreements.
A) minor net gain
B) substantial net loss
C) substantial trade diversion
D) no economic impact
E) substantial net gain
Answer: E
13) Which of the following selections accurately depicts the levels of economic integration from least
integrated to most integrated?
A) Free market, economic union, full political union, free trade area, and customs union
B) Free trade area, common market, customs union, economic union, and full political union
C) Full political union, free trade area, common market, customs union, and economic union
D) Common market, economic union, full political union, free trade area, and customs union
E) Free trade area, customs union, common market, economic union, and full political union
Answer: E
14) In
a ________, theoretically, there are no discriminatory tariffs, quotas, subsidies, or administrative
impediments distorting trade between members.
A) collective bargaining act
B) free trade area
C) common exchange policy
D) customs exchange committee
E) free trade zone
Answer: B
16) The most enduring free trade area in the world is the
A) European Free Trade Association.
B) MERCOSUR.
C) European Union.
D) Asian Free Trade Association.
E) North American Trade Association.
Answer: A
3
17) Ina theoretically ideal ________, 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 non-members.
A) customs union
B) free trade area
C) political union
D) common market
E) economic union
Answer: B
19) The European Free Trade Association currently includes the following four countries:
A) Norway, Iceland, Switzerland, and Liechtenstein
B) Finland, Great Britain, Belgium, and Denmark
C) Sweden, Norway, Austria, and Finland
D) Ireland, Iceland, Denmark, and Belgium
E) Romania, Bulgaria, Turkey, Croatia
Answer: A
20) The European Free Trade Association's emphasis has been on free trade in what area?
A) capital
B) agricultural products
C) consumer goods
D) industrial goods
E) services
Answer: D
21) A ________ eliminates trade barriers between member countries and adopts a common external
trade policy.
A) tariff union
B) common market
C) customs union
D) global union
E) free trade area
Answer: C
4
22) The Andean Pact is a(n) ________.
A) customs union
B) common market
C) free trade area
D) economic union
E) political union
Answer: A
23) Likea customs union, the theoretically ideal ________ has no barriers to trade between member
countries and a common external trade policy.
A) free trade area
B) external market
C) common market
D) tariff union
E) regional market
Answer: C
5
27) Likethe 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) customs union
B) currency union
C) economic union
D) free trade area
E) global union
Answer: C
30) The ________, which is playing an even more important role in the EU, has been directly elected by
citizens of the EU countries since the late 1970s.
A) European Parliament
B) North Atlantic Trade Commission
C) European Trade Commission
D) European Union Commission
E) North Atlantic Parliament
Answer: A
31) According to the textbook, most attempts to achieve regional economic integration have been what?
A) contentious and halting
B) uneventful
C) failures
D) extremely successful
E) amicable and friendly
Answer: A
6
32) Economic theories suggest that free trade and investment is a positive-sum game, in which
A) more participating countries gain than lose.
B) at least one participating country gains.
C) participating countries lose a little.
D) most participating countries lose.
E) all participating countries stand to gain.
Answer: C
33) According to the textbook, in regard to international trade, the theoretical ideal is
A) an absence of barriers to the free flow of goods, services, and factors of production among
nations.
B) an absence of barriers to the free flow of goods, services and factors of production among the
member nations of a free trade agreement.
C) barriers to trade for developing nations, but not for industrial nations.
D) barriers to trade for industrial nations, but not for developing nations.
E) heavy barriers to the free flow of goods, services, and factors of production among nations.
Answer: A
34) Because many governments have accepted part or all of the case for intervention, unrestricted free
trade and FDI have proved to be
A) a goal for the WTO.
B) a reality.
C) only an ideal.
D) a goal which should be realized soon.
E) a goal that there is no rationale for.
Answer: C
36) The two main reasons that have made ________ difficult to achieve are cost and concerns over
national sovereignty.
A) political integration
B) cultural integration
C) religious integration
D) economic integration
E) sociological integration
Answer: D
7
37) The political case for regional ________ has also loomed large in most attempts to establish free
trade areas, customs unions, and the like.
A) economic spheres
B) free trade areas
C) economic integration
D) customs unions
E) political organizations
Answer: C
38) 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 the safety of travel from one nation to another and concerns over national
sovereignty.
C) concerns over costs and concerns over national sovereignty.
D) concerns over revenue sharing and political interdependence.
E) concerns over immigration and emigration and concerns over economic and political
ideologies.
Answer: C
39) Inthe context of regional trade integration, concern 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) cultural uniformity
C) tax sharing
D) national sovereignty
E) financial stability
Answer: D
40) Mexico'sconcerns about maintaining control of its oil interests resulted in an agreement with
Canada and the United States to exempt the Mexican oil industry from any liberalization of foreign
investment regulations achieved under NAFTA. This is an example of
A) concern over political ideologies.
B) concern over costs.
C) concern over safety.
D) concern over job losses.
E) a concern of national sovereignty.
Answer: E
8
41) ________ occurs when high-cost domestic producers are replaced by low-cost producers within the
free trade area.
A) Trade creation
B) Trade diversification
C) Trade alteration
D) Trade qualification
E) Trade diversion
Answer: A
42) Thephenomenon that occurs when high-cost domestic producers are replaced by low-cost producers
within the free trade area is called
A) trade diversion.
B) trade diversification.
C) trade creation.
D) trade qualification.
E) trade alteration.
Answer: C
43) ________ occurs when lower-cost external suppliers are replaced by higher-cost suppliers within
the free trade area.
A) Trade creation
B) Trade diversification
C) Trade diversion
D) Trade qualification
E) Trade synergy
Answer: C
44) A________ will benefit the world only if the amount of trade it creates exceeds the amount it
diverts.
A) trade development
B) trade diversion
C) regional free trade agreement
D) trade synergy
E) trade creation
Answer: C
45) ________ occurs when high-cost domestic producers are replaced by low-cost producers. ________
occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade
area.
A) Trade diversion; Trade creation
B) Trade creation; Trade diversion
C) Trade growth; Trade manipulation
D) Trade synergy; Trade qualification
E) Trade qualification; Trade synergy
Answer: B
9
46) Intheory, ________ rules should ensure that a free trade agreement does not result in trade
diversion.
A) United Nations
B) World Bank
C) World Trade Organization
D) GATT
E) International Monetary Fund
Answer: C
49) Many now see the ________ as the emerging economic and political superpower of the same order
as the United States and Japan.
A) North Atlantic Federation
B) European Free Trade Area
C) European Federation
D) European Union
E) North Atlantic Trade Block
Answer: D
50) The
European Union is the product of two political factors. The devastation of two world wars on
Western Europe and
A) the emergence of an economic superpower.
B) the threat of Soviet aggression.
C) the European nations' desire to hold their own on the world's political and economic stage.
D) the unawareness of potential economic benefits.
E) the removal of barriers to other countries.
Answer: C
10
51) Ofthe two trade blocks in Europe, the ________ is by far the more significant, not just in terms of
membership, but also in terms of economic and political influence in the world economy.
A) Mediterranean common market
B) European Union
C) North Atlantic Trade Block
D) European Free Trade Association
E) European Federation
Answer: B
52) Theoriginal forerunner of the EU, the ________ was formed in 1951 by Belgium, France, West
Germany, Italy, Luxembourg, and the Netherlands.
A) European Community
B) European Textiles and Agricultural Community
C) European Union
D) European Agricultural and Energy Union
E) European Coal and Steel Community
Answer: E
53) Theobjective of the ________ was to remove barriers to intragroup shipments of coal, iron, steel,
and scrap metal.
A) European Community
B) European Coal and Steel Community
C) North Atlantic Trade Area
D) European Union
E) European Federation
Answer: B
54) Withthe signing of the Treaty of Rome in 1957, the ________ was established.
A) European Textiles and Coal Community
B) European Community
C) European Coal and Steel Community
D) European Common Market
E) European Free Trade Association
Answer: B
55) Withthe signing of the ________ in 1957, the European Community was established.
A) Treaty of Rome
B) Treaty of Zurich
C) Treaty of Brussels
D) Treaty of Switzerland
E) Treaty of Paris
Answer: A
11
56) How many countries are members of the European Union?
A) 4 B) 36 C) 9 D) 15 E) 28
Answer: E
58) Thepurpose of the ________ was to have a single market in place by December 31, 1992.
A) European Market Integration Act
B) European Primacy Act
C) North Atlantic Sovereignty Act
D) Single European Act
E) European Sovereignty Act
Answer: D
60) The ________ was born of a frustration among EC members that the community was not living up
to its promises.
A) European Free Trade Act
B) European Unification Act
C) Single European Act
D) European Market Integration Act
E) European Common Commerce Act
Answer: C
61) To signify the importance of the ________, the European Community decided to change its name to
the European Union once the act took effect.
A) European Free Trade Act
B) European Market Integration Act
C) Single European Act
D) European Unification Act
E) European Common Commerce Act
Answer: C
12
62) Which of the following was created to end the EC's economic divisions?
A) Blair-Prodi Commission
B) The Delors Commission
C) European Commission
D) North Atlantic Community
E) The North Atlantic Trade Federation
Answer: B
63) 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) Lift barriers to competition in the EC's retail banking and insurance businesses
D) Open public procurement to non-national suppliers
E) Remove all restrictions on foreign exchange transactions between members
Answer: B
65) In
1999, the move toward a ________ in the EU was given a further push by the adoption of a
common currency, ________, among a majority of the EU's member states.
A) regional economic market; Pound Sterling
B) global market; the Rupee
C) transparent border; the Ecu
D) single market; the Euro
E) cross-cultural market; Franc
Answer: D
13
67) According to our textbook, the move to a single currency in Europe should
A) significantly decrease the cost of doing business in Europe.
B) have no effect on the cost of doing business in Europe.
C) increase the cost of doing business with Europe.
D) moderately increase the cost of doing business in Europe for North American nations, and
significantly increase the cost of doing business in the EU for the rest of the world.
E) significantly increase the cost of doing business in Europe.
Answer: A
69) Noother attempt at regional integration comes close to(the) ________ in its boldness or its potential
implications for the world economy.
A) MERCOSUR
B) EU
C) NAFTA
D) APEC
E) Andean Pact
Answer: B
70) One explanation for the continuing decline in the value of the Euro in 2001 was ________.
A) The U.S. dollar was seen as a safe haven in times of trouble
B) The Euro zone was economically weaker than the U.S
C) the Euro was seen as a temporary unit because the British refused to use it
D) the terrorist attacks of September 11, increased the vulnerability of Europe
E) the world was entering a recession and investors preferred the Swiss Franc
Answer: A
71) In
1988 the governments of the United States and Canada agreed to enter in a ________, which
went into effect on January 1, 1989.
A) political union
B) economic union
C) customs union
D) free trade agreement
E) common market
Answer: D
14
72) Theagreement that was designed to abolish within 10 years tariffs on 99 percent of the goods traded
between Mexico, Canada, and the United states is called the:
A) North American Trade Federation
B) American Federation
C) North American Free Trade Agreement
D) North Atlantic Trade Federation
E) American Community
Answer: C
73) According to the textbook, one likely short-term effect of NAFTA would be that many U.S. and
Canadian firms will move some production to Mexico to take advantage of
A) a higher skilled labour force.
B) lower labour costs.
C) cheaper transportation costs.
D) the Mexican market.
E) lower interest rates.
Answer: B
74) According to our textbook, the first year that NAFTA became a reality turned out to be
A) a largely positive one for Mexico and Canada and a somewhat negative one for the U.S.
B) a largely positive experience for the U.S. and Canada, and a largely negative experience for
Mexico.
C) a largely positive experience for all three countries.
D) a largely positive experience for Mexico, and largely negative experience for the U.S. and
Canada.
E) a largely negative experience for all three countries.
Answer: C
75) Theprinciple argument of those that opposed NAFTA centered around the fear that ratification
would result in:
A) higher interest rates in the U.S.
B) many Canadian and U.S. jobs transferred to Mexico
C) retaliation from the European Union
D) the move towards a common currency for NAFTA member nations
E) devalued currencies
Answer: B
76) Economic theory predicted that Canadian and U.S. producers would soon benefit from ________.
A) increased demand for transportation products due to increased exports and imports
B) there would be no benefit because economic benefits would only be realized in the long-run
C) from lower labour costs once they moved to Mexico
D) increased B2B demand in the expanding Mexican industries that were geared toward export
E) increased consumer demand in Mexico, because of better wages
Answer: E
15
77) The________ was formed in 1969 when Bolivia, Chile, Ecuador, Columbia, and Peru signed the
Cartagena Agreement.
A) Bolivian Pact
B) NW South America Group
C) Cartagena Pact
D) Andean Pact
E) South American Federation of Independent States
Answer: D
78) TheAndean Pact was formed in 1969 when ________ signed the Cartagena Agreement.
A) Bolivia, Chile, Ecuador, Colombia, and Peru
B) Argentina, Chile, Ecuador, Columbia, and Guyana
C) Bolivia, Chile, Argentina, French Guiana, and Venezuela
D) Brazil, Columbia, Venezuela, Ecuador and Chile
E) Brazil, Venezuela, Argentina, and Peru
Answer: A
79) Theinitial principles of The Andean Group included all of the following EXCEPT what?
A) transportation policy.
B) internal tariff reduction program.
C) common external tariff.
D) common currency among member nations.
E) common industrial policy.
Answer: D
81) The________ pact reportedly helped bring about an 80 percent increase in trade between Brazil and
Argentina in the 1980's.
A) NW Group
B) MERCOSUR
C) FTAA
D) Andean
E) CARICOM
Answer: B
16
82) In 1990, the MERCOSUR pact was expanded to include
A) Paraguay and Uruguay.
B) Mexico and Brazil.
C) Peru and Brazil.
D) Chile and Peru.
E) Venezuela and Peru.
Answer: A
17
87) The United States, Japan, and China are among 21 members of a trade organization referred to as
A) SEATO (South East Asia Treaty Organization).
B) AAFTC (American Asian Free Trade Congress).
C) ANAEPC (Asian-North American Economic and Political Coop).
D) APEC (Asia Pacific Economic Cooperation).
E) USAEU (United States Asian Economic Union).
Answer: D
88) APEC currently has ________ members including such economic powerhouses as the United
States, Japan, and China.
A) 21 B) 44 C) 25 D) 32 E) 6
Answer: A
89) According to the textbook, Countries in ________ have been, mostly unsuccessfully, experimenting
with regional trade blocks for 50 years.
A) Asia
B) Africa
C) Europe
D) South America
E) North America
Answer: B
91) The lowering of ________ between countries is likely to lead in increased price competition
throughout the EU and NAFTA.
A) military stability
B) administrative barriers
C) barriers to trade
D) perception of EU stability
E) single market solutions
Answer: C
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
92) The acronym BRIC stands for Britain, Russia, India, and China.
Answer: True False
18
93) Agreements among countries in a region to reduce and ultimately remove tariff and nontariff
barriers are known as regional economic integration.
Answer: True False
94) By 2008 few of the WTO's members were participating in regional trade agreements.
Answer: True False
95) The last few years has witnessed an unprecedented proliferation of regional trade agreements.
Answer: True False
96) All regional trade agreements reached in the past half century are still in force.
Answer: True False
97) Europe has been the most successful example of regional economic integration.
Answer: True False
98) Several levels of economic integration are possible in theory. From most integrated to the least
integrated they are area free trade area, a common market, a customs union, an economic union, and
finally, a full political union.
Answer: True False
99) In a free trade area all barriers to the trade of goods and services among member countries are
removed.
Answer: True False
100) The most enduring free trade area in the world is the European Free Trade Association.
Answer: True False
101) A customs union eliminates trade barriers between member countries and adopts a common external
trade policy.
Answer: True False
102) A full common market requires a common currency, harmonization of the member countries' tax
rates, and a common monetary and fiscal policy.
Answer: True False
103) In a theoretically ideal common market, labour and capital are free to move, as there are no
restrictions on immigration, emigration, or cross-border flows of capital between markets.
Answer: True False
104) Although the European Union is the best known, a number of successful common markets exist
throughout the world.
Answer: True False
19
105) An economic union entails even closer economic integration and cooperation than a common
market.
Answer: True False
106) An economic union involves the free flow of products and factors of production between members
and the adoption of a common external trade policy.
Answer: True False
108) The European Committee has been directly elected by citizens of the EU countries since the late
1970s.
Answer: True False
109) Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within
the free trade area.
Answer: True False
110) Most attempts to achieve regional economic integration have been very amicable.
Answer: True False
111) Trade diversion occurs when higher-cost external suppliers replace lower-cost suppliers within the
free trade area.
Answer: True False
112) Europe now has two trade blocs: the European Union and the European Free Trade Association.
Answer: True False
113) Throughout the more recent years, the European Commission's role in competition policy has
become less important.
Answer: True False
114) The Single European Act was born out of frustration among EC member countries that the
community was not living up to its promise.
Answer: True False
115) 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.
Answer: True False
116) The first year after NAFTA turned out to be a largely negative experience for all three countries.
Answer: True False
20
117) The Andean Pact was formed in 1969 when Bolivia, Chile, Ecuador, Colombia, and Peru signed the
Cartagena Agreement.
Answer: True False
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
118) You run a small company that manufactures plastic injection molded pieces for the construction
industry. Currently, you manufacture your product in Windsor, Ontario and a small plant in Texas.
You sell your products in both Canada and the United States. You are aware that NAFTA presented
your company with increased access to the American market. You want to expand, and are aware of
something called the "European Union", but are unsure of what it means, whether Canada can join (or has
joined) and what your firm can do to get access to this large market. You are also interested to know whether
there are other "groups of countries like NAFTA or the EU" out there.
What are the primary impediments to integration of countries? Are these impediments difficult to
overcome? Explain your answer.
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 author of 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 labour, 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. If these individuals have enough
political clout, they may be able to stop a NAFTA type agreement.
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
The citizens of many countries view their currencies as symbols of national sovereignty and pride. As a
result, the desire to maintain a sovereign currency may prohibit a country from joining an economic
union. Similar examples prevent countries from entering into all of the forms of regional integration.
In many cases, these impediments to integration are very difficult to overcome. For instance, it is very
easy to sympathize with someone who might lose their job as the result of a trade agreement.
Similarly, many people become very intransigent on issues involving national sovereignty,
which make some forms of regional integration almost impossible to achieve.
21
119) You run a small company that manufactures plastic injection molded pieces for the construction
industry. Currently, you manufacture your product in Windsor, Ontario and a small plant in Texas.
You sell your products in both Canada and the United States. You are aware that NAFTA presented
your company with increased access to the American market. You want to expand, and are aware of
something called the "European Union", but are unsure of what it means, whether Canada can join (or has
joined) and what your firm can do to get access to this large market. You are also interested to know whether
there are other "groups of countries like NAFTA or the EU" out there.
According to reports from the Canadian Embassy in Mexico, one of the major reasons for the growth
of plastics and plastic products in Mexico is the increase in per capita consumption of plastic
products and the substitution of parts in products such as household appliances, electronics
products, vehicles, and machinery. If local production grows at a rate of five percent in the next
three years, Mexico will still have to import injection moulded, extruded and blow moulded parts
and packaging, as well as molds, to accommodate the substitution of metal, glass, and other
materials. How does this report by the Canadian embassy in Mexico relate to the arguments in
favour of lowering trade barriers within a regional trade agreement? Explain.
Answer: The opportunity to create an enlarged and more efficient base for the entire region will result
in more investment and employment in Mexico, which in turn will create more demand-the
plastic industry-and create sales for Canadian and U.S. manufacturers of high value added
products such as injection molds and parts such as your company's products.
120) You run a small company that manufactures plastic injection molded pieces for the construction
industry. Currently, you manufacture your product in Windsor, Ontario and a small plant in Texas.
You sell your products in both Canada and the United States. You are aware that NAFTA presented
your company with increased access to the American market. You want to expand, and are aware of
something called the "European Union", but are unsure of what it means, whether Canada can join (or has
joined) and what your firm can do to get access to this large market. You are also interested to know whether
there are other "groups of countries like NAFTA or the EU" out there.
One of the more traditional arguments in favour of regional trade agreements can be summarized in
the following sentences. "If WTO agreements extend more widely, regional trade agreements go
deeper, their proponents argue. As well as cutting border tariffs, countries can agree reforms among
themselves, such as harmonizing product standards, streamlining customs procedures and
cross-border investment, that go further than anything the family of nations as a whole is ready to
handle." Comment on this statement and give some examples.
Answer: It has always been difficult to achieve consensus among the large group of WTO members and
one of the continuing arguments in favour of regional economic integration is that they are
easier to achieve. Regional economic integration agreements are also easier to reach more
far-reaching and extend to areas that would be impossible to agree to in the WTO framework.
As an example a student could point to the Euro or in the framework of NAFTA the dispute
resolution mechanism.
22
121) Describe the concept of regional economic integration. Do you believe that regional economic
integration is a good thing? Explain your answer.
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 (NAFTA), 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.
Ask your students to comment on whether regional economic integration is a good thing. In general, th
observers of international trade believe that regional economic integration is a positive development.
Countries that have participated in regional trade agreements have typically experienced
non-trivial gains in trade from other member countries. In addition, as predicted by the theory
of comparative advantage (explained in Chapter 4), there should be a substantial net gain from
regional trade agreements.
122) Describe the difference between a free trade area and a common market.
Answer: 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, labour and capital are free to move because there are no restrictions on
immigration, emigration, or cross-border flows of capital between member nations.
123) 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?
Answer: 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.
124) From the standpoint of business and international trade, what are the advantages of a single currency
within a trade block (like the EU)?
Answer: The gains to business from a single currency arise from decreased exchange costs and reduced
risk of disruption from unexpected variations in the value of different currencies. A single
currency would also help firms reduce administrative costs, as fewer resources would be
required for accounting, treasury management, and the like. Finally, a single currency would
make it difficult for companies to charge different prices in different countries in the trade
block.
23
125) What is meant by the term "Fortress Europe"? Is this term fair, or is it an exaggeration?
Answer: The European Union has 28 members, with more countries trying to get in. The fear on the
part of non-European nations is that as regional integration in Europe continues to spread and
deepen, the European countries will become more dependent upon one another and more
protectionist in terms of their trade practices with other parts of the world. Thus the term
"Fortress Europe."
It is too early to tell whether this characterization is fair or not. What is particularly worrisome to Asia
and the West, is that the EU, might increase external protection as weaker members attempt to offset
their loss of protection against other EU countries by arguing for limitations on outside competition.
126) 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?
Answer: This question is designed to provide a forum for classroom discussion and/or to ask students'
to think about the pluses and minuses of the NAFTA. 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 labour 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.
24
127) A fairly accurate description of the trade relationship between the U.S. and Canada is that the U.S.
buys about 85 percent of Canada's exports, and Canada buys about 20 percent of U.S. exports. Some
critics of NAFTA have stated that the agreement makes Canada even more economically dependent
on the U.S. Comment on this statement.
Answer: The student may respond in a number of different ways. First they may argue that the
agreement only reflects the natural direction that our businesses choose to take. Business is
simply easier with the Americans, because we share a common language a common border
and many of the same attitudes and culture. Another response is that the agreement increased
our orientation towards the U.S. and we would have been better off if the Canadian
government had focused on increasing trade with another part of the world.
128) The Conference Board of Canada, after the enlargement of the EU from 15 to 25 members, in a
report stated that, "In 2003, two-way merchandise trade between Canada and the EU totaled nearly
$58 billion CAD. Canadian exports of goods to the EU were $18.8 billion, and imports were $38.8
billion. Canada's stock of foreign direct investment in the EU reached $99.8 billion in 2002. That
same year, the EU's stock of FDI in Canada was $94 billion, representing 26.9 per cent of all foreign
direct investment in Canada and 75 per cent of FDI in Canada originating from outside the United
States. Canada's prospects are good for increased trade and investment with the EU's 25 member
states." In addition to the economic benefits, would there be any political benefits to Canadian
increasing its trade with the EU.
Answer: The answer the students should give is a reduction in economic dependence on the U.S.
Canada will always be neighbours with the U.S. and that geographic closeness will mean that
our relationship with the Americans is our most important geo-political fact. However,
increasing our trade with other parts of the world can only help and fits into our traditional
approach to international issues-multilateralism.
25
Answer Key
Testname: UNTITLED33
1) E
2) D
3) E
4) A
5) A
6) B
7) E
8) B
9) D
10) D
11) A
12) E
13) E
14) B
15) D
16) A
17) B
18) B
19) A
20) D
21) C
22) A
23) C
24) B
25) B
26) D
27) C
28) D
29) A
30) A
31) A
32) C
33) A
34) C
35) D
36) D
37) C
38) C
39) D
40) E
41) A
42) C
43) C
44) C
45) B
46) C
47) A
48) C
49) D
50) C
26
Answer Key
Testname: UNTITLED33
51) B
52) E
53) B
54) B
55) A
56) E
57) E
58) D
59) A
60) C
61) C
62) B
63) B
64) B
65) D
66) A
67) A
68) C
69) B
70) A
71) D
72) C
73) B
74) C
75) B
76) E
77) D
78) A
79) D
80) E
81) B
82) A
83) A
84) C
85) B
86) C
87) D
88) A
89) B
90) D
91) C
92) FALSE
93) TRUE
94) FALSE
95) TRUE
96) FALSE
97) TRUE
98) FALSE
99) TRUE
100) TRUE
27
Answer Key
Testname: UNTITLED33
101) TRUE
102) FALSE
103) TRUE
104) FALSE
105) TRUE
106) TRUE
107) TRUE
108) FALSE
109) TRUE
110) FALSE
111) FALSE
112) TRUE
113) FALSE
114) TRUE
115) FALSE
116) FALSE
117) TRUE
118) 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 author of 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 labour, 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. If these individuals have enough political clout, they may
be able to stop a NAFTA type agreement.
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. The citizens of
many countries view their currencies as symbols of national sovereignty and pride. As a result, the desire to maintai
a sovereign currency may prohibit a country from joining an economic union. Similar examples prevent countries
from entering into all of the forms of regional integration.
In many cases, these impediments to integration are very difficult to overcome. For instance, it is very easy to
sympathize with someone who might lose their job as the result of a trade agreement. Similarly, many
people become very intransigent on issues involving national sovereignty, which make some forms of
regional integration almost impossible to achieve.
119) The opportunity to create an enlarged and more efficient base for the entire region will result in more
investment and employment in Mexico, which in turn will create more demand-the plastic industry-and
create sales for Canadian and U.S. manufacturers of high value added products such as injection molds
and parts such as your company's products.
120) It has always been difficult to achieve consensus among the large group of WTO members and one of the
continuing arguments in favour of regional economic integration is that they are easier to achieve.
Regional economic integration agreements are also easier to reach more far-reaching and extend to areas
that would be impossible to agree to in the WTO framework. As an example a student could point to the
Euro or in the framework of NAFTA the dispute resolution mechanism.
28
Answer Key
Testname: UNTITLED33
121) 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 (NAFTA), 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.
Ask your students to comment on whether regional economic integration is a good thing. In general, the observers o
international trade believe that regional economic integration is a positive development. Countries that have
participated in regional trade agreements have typically experienced non-trivial gains in trade from other
member countries. In addition, as predicted by the theory of comparative advantage (explained in Chapter
4), there should be a substantial net gain from regional trade agreements.
122) 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, labour and capital are
free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital
between member nations.
123) 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.
124) The gains to business from a single currency arise from decreased exchange costs and reduced risk of
disruption from unexpected variations in the value of different currencies. A single currency would also
help firms reduce administrative costs, as fewer resources would be required for accounting, treasury
management, and the like. Finally, a single currency would make it difficult for companies to charge
different prices in different countries in the trade block.
125) The European Union has 28 members, with more countries trying to get in. The fear on the part of
non-European nations is that as regional integration in Europe continues to spread and deepen, the
European countries will become more dependent upon one another and more protectionist in terms of their
trade practices with other parts of the world. Thus the term "Fortress Europe."
It is too early to tell whether this characterization is fair or not. What is particularly worrisome to Asia and the Wes
is that the EU, might increase external protection as weaker members attempt to offset their loss of protection
against other EU countries by arguing for limitations on outside competition.
29
Answer Key
Testname: UNTITLED33
126) This question is designed to provide a forum for classroom discussion and/or to ask students' to think
about the pluses and minuses of the NAFTA. 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 labour 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.
127) The student may respond in a number of different ways. First they may argue that the agreement only
reflects the natural direction that our businesses choose to take. Business is simply easier with the
Americans, because we share a common language a common border and many of the same attitudes and
culture. Another response is that the agreement increased our orientation towards the U.S. and we would
have been better off if the Canadian government had focused on increasing trade with another part of the
world.
128) The answer the students should give is a reduction in economic dependence on the U.S. Canada will
always be neighbours with the U.S. and that geographic closeness will mean that our relationship with the
Americans is our most important geo-political fact. However, increasing our trade with other parts of the
world can only help and fits into our traditional approach to international issues-multilateralism.
30
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Rassmann oli päivän kuluessa kertonut hänelle jo niin paljo
näytelmästä, että hän innoissaan ensi kerran avioliittonsa aikana
aivan unhotti pitää huolta lapsistaan, niin että Villy ja Liisu
neljännestunnin ajan huusivat turhaan kahviaan.
Oi, hän oli jo ajatellut Rassmannia, mutta olihan siihen vielä aikaa,
kun hän ensin oli kysynyt mieheltään.
"Ei, rakas herraseni Schorn, me emme sovi yhteen, tiedän sen nyt,
odottakaahan, kun ensin vapaa lemmenvaali on tullut voimaan,
silloin —"
"Ah, kuinka säikytitte minua, mutta hyvä on, että olette täällä. Olen
vihoissani miehelleni. Hän ei ole enää kiintynyt edes pukuunikaan.
Mutta te voitte minua neuvoa, kuinka minun on tänään pukeuduttava
—"
"No, luulen, että uusi, harmaa pukunne pukee teitä hyvin —"
Hanna nauroi.
Oltiin teatterissa.
Se olikin ymmärrettävää.
Rouva Schorn, jonka kauneudesta puhui koko kaupunki eikä
suinkaan vähemmin hänen hyveistään ja rakkaudestaan mieheensä,
rouva Schorn, joka muuten tuskin koskaan esiintyi julkisissa
huveissa, nähtiin tänään teatterissa, lisäksi vielä ilman miestään,
vaikkakin tosin toisen muhkean herran seurassa, herran, jonka
sanottiin olevan Schornin liiketoveri.
"No, pienoiseni, nyt kai mennään pian naimisiin, kun on minut niin
äkkiä sysätty syrjään?"
"Kuka nyt on niin jörö. Älä ole tuollainen! Tiedänhän, että minussa
on syytä, mutta sinunkin olisi pitänyt minusta pitää parempaa huolta.
Tiedätkös, tahtoisin päästä kokonaan Berliiniin. Täällä on hirveän
ikävää seuraa. Etkö voisi hankkia minulle matkarahat, rakas
Gustavini? Tule, tue minua —"
"Kiitos, mainiosti."
"Siitä ei huolta. Vilhelm sallii mitä vaan. Olisipa kaunista, jollei hän
niin tekisi. Se kuuluu kommunismiin. Eikös niin, Hanna?"
"Jos te ja mieheni olette sitä mieltä täytyy kai minun taipua."
"Se vie niin paljon aikaa — menkää vain yksin", sanoi hän
seuraavalla kerralla, tietämättä, mitä hänen ystävänsä helpotuksen
huokaus merkitsi.
Tämä kirottu hymy, joka tuntui aina siltä, kuin voisi se jonakin
päivänä muuttua hirveäksi kostonhuudoksi! Rassmann koetti tätä
kirottua ajatusta sadat kerrat karkottaa, ja kuitenkin palasi se yön
hiljaisuudessa joka kerta takaisin ja aina täytyi hänen ajatella titteliä
"porvari", jonka Pätzoldt oli Schornille keksinyt.