Chapter 9 - Chapter 9: Preferential Trade Agreements...

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Chapter 9: Preferential Trade Agreements Falling Trade Barriers and Growing Global Trade. Reasons: - Multilateral talks sponsored by GATT and WTO. - Trade agreement initiated by individual countries. These agreements are known as: Preferential (or discriminatory) Trade agreements or regional trade liberalization. Types of Preferential Trade Agreements: - Free-trade areas (FTAs); - Customs unions (CUs); - Common markets (CMs); and - Monetary Unions (MUs) The last three (CUs, CMs and MUs) can be considered an expansion of customs unions. The basic difference between FTAs and CUs is in the way these agreements trade nonmember countries. A CU is an association of countries that agree to eliminate (most) barriers to trade among the members but form a common trade barrier against nonmembers. An FTA is a trade agreement that eliminates trade barriers among the member countries but allow each individual member to maintain its own trade barriers against nonmembers. The difference between a CU and a CM is that the former allows only a free trade movement in goods and non factor services among its member countries, but a CM allows free movements of all factors of production such as labor and capital, a well as trade, among the member countries. An MU is the highest step in economic integration among nations. It requires, in addition to freed trade and free movement of factors of production among the member countries, a coordination of monetary (and may fiscal) policies among the member countries. An MU usually has a common central bank and a common currency.
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Examples of Customs Unions - The Gulf Cooperation Council ( GCC ) The member countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. They have a CU and they aspire to have an MU but have differences on the timing of issuing a common currencies and the location of the headquarters for the secretariat for the GCC. Saudi Arabia wants it in Riyadh, the Saudi Capital, while the UAE wants it in Abu Dhabi, the principal emirates in the seven states confederation. For more information on possible variants of an MU for the GCC countries, please see: http://blogs.zawya.com/shawkat.hammoudeh/100519033348/ - The European Union ( EU) This advanced version of CUs was founded in 1957 as a CU among six countries: France, W. Germany, Italy, and the Benelux countries (Belgium, Netherlands and Luxemburg). Now the current member of the EU is 27. Most of the 12 member countries recently added to the EU are from Eastern Europe. There are currently four official candidates : Croatia, Iceland, Macedonia and Turkey. Three more countries have already applied but not yet considered official candidates. The appliers are Albania, Montenegro and Serbia. There are also countries who hope to join. The hopefuls are Bosnia and Kosovo. The EU has also a “ neighborhood policy” with nonmembers to forge closer ties with other countries in Eastern Europe (Ukraine, Belarus etc). For a
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This note was uploaded on 04/03/2012 for the course ECON 300 taught by Professor Gang during the Fall '06 term at Rutgers.

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Chapter 9 - Chapter 9: Preferential Trade Agreements...

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