INTERNATIONAL ECONOMICS lecture13.pptVIP

INTERNATIONAL ECONOMICS Lecture 13 MAIN CONTENTS Economic integration------- Introduction Static Effects of Customs Unions Dynamic Effects of Customs Unions Economic integration---------introduction The theory of economic integration refers to the commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joining together. The degree of economic integration ranges from preferential trade arrangements to free trade area, Customs unions, common markets, and economic unions. Preferential trade arrangements provide lower barriers on trade among participating nations than on trade with nonmember nations. The best example of a preferential trade arrangement is the British Commonwealth Preference Scheme, established in 1932 by the United Kingdom with members and some former members of the British Empire. A free trade area is the form of economic integration wherein all barriers are removed on trade among members, but each nation retains its own barriers to trade with nonmembers. The best examples are the European Free Trade Association (EFTA), formed in 1960 by the United kingdom, Austria, Denmark, Norway, Portugal, Sweden, and Switzerland, the North American Free Trade Agreement (NAFTA) ,formed by the United States, Canada, and Mexico in 1993, and the Southern Common Market formed by Argentina, Brazil, Paraguay, and Uruguay in 1991. A customs union allows no tariffs or other barriers on trade among members, and in addition it harmonizes trade policies (such as setting common tariff rates) towards the rest of the world. The most famous example is the Europe Union (EU), or Europe Common Market, formed in 1975. A common market goes beyond a customs unions by also allowing the free movement of labor and capital among member nations. The EU achieved the status of a common market at the beginning of 1993. An economic union goes still further by harmonizing or even unifying the monetary and fiscal policies of member states. Thi