Unit VI-Terms of trade

Unit VIII- Customs Union and regional groupings : 

Unit VIII- Customs Union and regional groupings Day and Date:

Unit Highlights… : 

Unit Highlights… Economic integration Preferential trade arrangements Free Trade Area (FTA) Customs Union Common Market Economic Union Effects of Customs Union Trade creation Trade Diversion

Text book reference chapters… : 

Text book reference chapters… International Economics by Dominick Salvatore – Chapter 10 International Economics by Francis Cherunilam – Chapter 13

Economic Integration : 

Economic Integration A commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joining together.

Economic Integration : 

Economic Integration Preferential trade arrangements Free Trade Area (FTA) Customs Union Common Market Economic Union

Economic Integration… Preferential trade arrangements : 

Economic Integration… Preferential trade arrangements Preferential trade arrangements provide lower barriers on trade among member nations than non-member nations.

Economic Integration…Free Trade Area (FTA) : 

Economic Integration…Free Trade Area (FTA) FTA removes all trade barriers among member nations but individually the nations are allowed to retain barriers while trading with non-members. EFTA –UK,Austria, Portugal, Denmark, Norway, Sweden, & Switzerland NAFTA – USA, Canada, and Mexico Southern Common Market (Mercosur) – Argentina, Brazil, Paraguay, and Uruguay

Economic Integration…Customs Union : 

Economic Integration…Customs Union A Customs Union removes all trade barriers among member nations as well as adopts a common commercial policy with the rest of the world. European Union (now European Common Market) - Germany, France, Italy, Belgium, the Netherlands, and Luxembourg

Economic Integration…Common Market : 

Economic Integration…Common Market A Common Market goes further from a Customs Union by allowing free movement of labor and capital among member nations. European Union became European Common Market in 1993

Economic Integration… Economic Union : 

Economic Integration… Economic Union Economic Union harmonizes the monetary and fiscal policies of its members. Benelux - Belgium, the Netherlands, and Luxembourg United States of America

Effects of formation Customs Union : 

Effects of formation Customs Union Trade Creation Trade Diversion

Effects of formation Customs Union… Trade Creation : 

Effects of formation Customs Union… Trade Creation Trade creation occurs when some domestic production of a member nation is replaced by lower-cost imports.

Effects of formation Customs Union… Trade Diversion : 

Effects of formation Customs Union… Trade Diversion Trade Diversion occurs when lower-cost imports from outside the Customs Union are replaced by higher-cost imports from another member nation.

Other effects of a Customs Union… : 

Other effects of a Customs Union… Administrative savings Greater bargaining power Increased competition Economies of Scale Stimulus to investment Better utilization of economic resources

Effects of a Customs Union…determining factors : 

Effects of a Customs Union…determining factors Level of pre-union trade barriers Pre-union trade and economic relationship of member nations Level of Customs Union’s trade barrier with the rest of the world Size of the union and size of the member nations Competitiveness/complementarities of member nations Geographical closeness of member nations

To conclude… : 

To conclude… In this unit we examined, Economic integration in general and customs union in particular Economic integration leads to most efficient utilization of world resources and maximizes world output and welfare.

You should now know… : 

You should now know… What is economic integration among nations? In what ways it can happen? Why? What are the effects?