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Pugel_14_SG_CH12 - CHAPTER 12 TRADE BLOCS AND TRADE BLOCKS...

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CHAPTER 12 TRADE BLOCS AND TRADE BLOCKS Objectives of the Chapter Previous chapters have emphasized import barriers that are imposed mainly to restrict imports from all countries. This chapter, however, examines import barriers meant to discriminate between countries, taxing goods and services (and assets) from some countries more than others. Some export barriers may also be imposed to direct the flow of merchandise and assets to some countries more than to others. Chapter 12 discusses different forms of economic integration (including trade blocs) and their economic ramifications. Trade blocs have become increasingly important in recent years. Specifically, the European Union and the North American Free Trade Area have revived interest in the study of economic integration and trade blocs. After studying Chapter 12 you should be able to identify 1. the different forms of economic integration. 2. the economic implications of trade blocs and full unions. 3. how trade blocs can lead to trade creation or trade diversion. 4. the conditions under which trade blocs and full unions are likely to succeed or fail. 5. why economic integration tends to be more successful among developed countries than developing countries. 6. the impact of trade embargoes on both the target country and the imposing country. Important Concepts Common market: An international union that goes beyond a customs union by also allowing for the free movement of labor and capital (factor flows) among member nations. Customs union: A union in which members remove all barriers to trade among themselves and adopt a common set of external barriers, thereby eliminating the need for customs inspection at internal borders (e.g., MERCOSUR today, and the EEC from 1957-1992). Economic sanctions: Discriminatory restrictions or complete bans on economic exchange, designed to punish the target country or countries. Economic union: A union that extends a common market by harmonizing the monetary and fiscal policies of the member nations as well.
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