Deck 9: Preferential Trade Arrangements

Question 1

The European Union (EU) is an example of a

A) customs union.
B) free trade area.
C) reciprocal trade agreement.
D) None of the above.

Answer 1

A

Question 2

Which of the following countries is not a member of NAFTA?

A) Canada.
B) The United States of America.
C) Mexico.
D) All three countries form part of NAFTA.

Answer 2

D

Question 3

Customs unions and free trade areas are identical in the manner in which member countries treat imports from nonmember countries.

Answer 3

False

Question 4

The political debate over joining NAFTA was especially contentious in the United States because Mexico's standard of living (including wage rates, labor standards, and environmental standards) is low relative to the U.S. standard of living.

Question 5

are a form of regional integration where member countries lower internal trade barriers but maintain existing barriers against nonmembers.

A) Customs unions
B) Free trade areas
C) Reciprocal trade agreements
D) None of the above.

Question 6

A long term goal of the NAFTA member countries is to integrate their economies into a single economic entity with a common currency as well as common trade policies and internal factor mobility.

Question 7

is said to exist when the formation of a regional trading group leads to an expansion of trade above pre-group levels.

A) Trade creation
B) Trade diversion
C) Trade exclusion
D) Trade distortion

Question 8

The is the chief executive body of the European Union (EU).

A) European Parliament
B) European Executive Branch
C) European Trade Body
D) European Commission

Question 9

If a customs union leads to a large amount of trade creation relative to trade diversion, it may be beneficial to world welfare.

Question 10

The U.S. factor of production that is most likely to be made worse off because of NAFTA (because its factor payment will fall) is

A) unskilled labor.
B) skilled labor
C) capital
D) All of the above will be made worse off.

Question 11

A long term goal of the EU member countries is to integrate their economies into a single economic entity with a common currency as well as common trade policies and internal factor mobility.

Question 12

is said to exist when the formation of a regional trading group leads to the reduction of trade with nonmember countries in favor of member countries.

A) Trade creation
B) Trade diversion
C) Trade exclusion
D) Trade distortion

Question 13

If a customs union leads to a large amount of trade diversion relative to trade creation, it may be beneficial to world welfare.

Question 14

Which of the following countries became the newest members of the European Union in 2007?

A) Bulgaria and Romania
B) Greece and Sweden
C) Albania and Cyprus
D) None of the above

Question 15

In leading the opposition to the adoption of NAFTA, H. Ross Perot argued that NAFTA would lead to

A) a loss of U.S. competitiveness with Canada.
B) a loss of U.S. manufacturing jobs to Mexico.
C) a loss of U.S. willingness to negotiate the Uruguay Round.
D) All of the above.

Question 16

Most economists estimate that the U.S. factor of production most likely to be hurt by the formation of the NAFTA is unskilled U.S. labor.

Question 17

One of the more unique aspects of NAFTA compared with other preferential trade arrangements is the fact that the NAFTA countries have

A) similar cultures.
B) fixed exchange rates.
C) common borders.
D) very different standards of living.

Question 18

The goal of the Single European Act (or Europe 1992 initiative) is to

A) develop uniform product standards for all EU countries.
B) remove nontariff barriers to trade between EU countries.
C) deregulate economic activities in transportation and financial services.
D) All of the above.

Question 19

In addition to tariff lowering provisions, the NAFTA agreement includes two side agreements on

A) Mexican exchange rate policy and Mexican foreign policy.
B) U.S. exchange rate policy and U.S. foreign policy.
C) environmental and labor market issues.
D) All of the above.

Question 20

Which of the following countries is not a member of the European Union?

A) Portugal
B) Switzerland
C) Slovakia
D) Malta

Question 21

The EU currently is a preferential trade agreement with no governmental institutions.

Question 22

Membership in a customs union may be either welfare improving or welfare worsening. Illustrate and explain.

Question 23

The push toward creating more regional trade agreements necessarily harms the multilateral liberalization process that is at the heart of the WTO.

Question 24

Why is NAFTA controversial? Briefly describe both sides of this controversy.

Question 25

An argument in favor of multilateral trade liberalization (multilateralism) over preferential trade agreements (regionalism) is that multilateralism results in less trade diversion.

Question 26

Prior to agreeing to join NAFTA, Mexico had followed a free trade policy for more than 30 years.

Question 27

Russia is a member of the European Union.

Question 28

The ultimate purpose of the NAFTA free trade agreement is to balance trade between the member nations.

Question 29

Recent studies have shown that NAFTA has had a tremendous negative impact on the economic welfare of the U.S.

Question 30

Compare and contrast NAFTA and the EU in terms of the types of agreements that they are, the institutions that operate under the agreement, and the long term goals of the arrangements.

Question 31

NAFTA was a controversial issue in the 2008 presidential campaign, particularly in the Democratic primaries.

Question 32

The welfare impact of a preferential trade agreement depends on the difference between the amount of new trade that takes place because of the agreement and the change in international trade patterns that arises because of it.

Question 33

Summarize the type of agreement that NAFTA is, its history, the process by which it has been implemented in the last 15 years.