Question

Question Chapter 13 1. What are the prospects of NAFTA becoming a customs union? Identify the policy changes that would be necessary and the likely political and economic obstacles to those changes taking place. What would be the major benefits and the major costs to deeper economic integration in North America? Question Chapter 14 2. Europe struggled with high levels of violence that raged for most of the first half of the twentieth century. In spite of that, Europe has achieved the most advanced level of integration of any regional grouping. Discuss the problems of regional integration agreements that potentially occur even when all sides want to reach agreement.

Answer 1

1. A custom union is a trade bloc characterized by free trade among members and a common tariff with external nations. NAFTA is a free trade agreement between US, Mexico, and Canada. For NAFTA to become a custom union, there would have to be negotiation of each country's trading policies with other nations, in order to reach a unified front. The benefits would come in the form of better job opportunities for those who were lagging behind. This would lead to a huge increase in the labor flow across the three nations. The workers from the poorer country would flock to the nation(s) with better opportunities. The biggest political and economic obstacle would come in the form of immigrants into the wealthy nation. This would cause a burden on that nation's existing employment opportunities The agricultural markets would also be distorted as the prices would be severely hit due to supply side factors. This would compromise the interests of the individual nations The problems that come with regional integration are: 2.

An influx of laborers into countries where better job opportunities are available. This creates a pressure on the existing resources of the economy An increase in corruption and crime as the nations lose control over the people entering its boundaries. This leads to greater possibilities of crime. The possibility of contagion effect due to the close economic relations between the countries. All of them share their fates and the European Union has a common currency too. Fluctuations in the economic fortunes of the neighbors affect them. There are significant chances for other countries to exit the EU owing to their financial and economic conditions. In recent times, the countries in EU have suffered due to the on-going refugee crisis and other financial problems 3. If the EU disintegrates, each country would have its own currency and its own trade barriers. The disintegration would lead to the single currency vanishing and every countries currency would be hit. Countries with stronger exchange rates would be hit by a fall in exports. Countries with weaker currencies would have to face inflation Therefore, there would be effects on world output and employment