Incoterms 2010 and International Business - 101
Incoterms 2010 and International Business - Wild - Chapter 8 - QUIZ
Incoterms 2010 and International Business - 101
International Business: The Challenges of Globalization, 8th Edition, Wild & Wild
Incoterms 2010 and International Business - Wild - Chapter 8 - QUIZ
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International Business, 8e (Wild/Wild)
Chapter 8 Regional Economic Integration
1) The process whereby countries in a geographic area cooperate with one another to reduce or eliminate barriers to the international flow of products, people, or capital is called ________.
- A) regional economic integration
- B) protectionism
- C) mercantilism
- D) economic nationalism
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
2) Regional economic integration is also referred to as ________.
- A) mercantilism
- B) nationalism
- C) protectionism
- D) regionalism
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
3) A group of nations in a geographic area undergoing economic integration is called a ________.
- A) born global firm
- B) maquiladora
- C) regional trading bloc
- D) Eurocurrency market
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
4) Which of the following is an important goal of regional economic integration?
- A) to increase the selling prices of products
- B) to raise the living standards of people
- C) to limit the choice of products available to customers
- D) to establish a socialist government
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
5) Which of the following is the lowest extent of regional economic integration?
- A) free trade area
- B) political union
- C) common market
- D) customs union
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
6) Which of the following is the greatest extent of regional economic integration?
- A) free trade area
- B) political union
- C) common market
- D) customs union
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
7) Economic integration whereby countries remove all barriers to trade among themselves, but each country determines its own barriers against nonmembers, is called a(n) ________.
- A) economic union
- B) customs union
- C) common market
- D) free trade area
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
8) Countries belonging to a ________ maintain whatever policies they see fit against nonmember countries.
- A) economic union
- B) customs union
- C) common market
- D) free trade area
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
9) Economic integration whereby countries remove all barriers to trade among themselves, but set a common trade policy against nonmembers is called a(n) ________.
- A) preferential trade area
- B) customs union
- C) economic nationalism
- D) free trade area
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
10) The main difference between a free trade area and a customs union is that the members of a customs union ________.
- A) agree to the free movement of all factors of production
- B) harmonize their tax, monetary, and fiscal policies and create a common currency
- C) agree to treat trade with all nonmember nations in a similar manner
- D) accept a common stance on economic and political policies regarding nonmember nations
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
11) Economic integration whereby countries remove all barriers to trade and the movement of labor and capital between themselves and set a common trade policy against nonmembers is called a ________.
- A) free trade area
- B) customs union
- C) common market
- D) preferential trade area
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
12) Economic integration whereby countries remove barriers to trade and the movement of labor and capital among members, set a common trade policy against nonmembers, and coordinate their economic policies is called a(n) ________.
- A) customs union
- B) common market
- C) economic union
- D) free trade area
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
13) A(n) ________ requires member nations to harmonize their tax, monetary, and fiscal policies and create a common currency.
- A) customs union
- B) economic union
- C) free trade area
- D) common market
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
14) ________ require that member countries concede a certain amount of their national autonomy to the supranational union of which they are a part.
- A) Free trade areas
- B) Customs unions
- C) Economic unions
- D) Preferential trade areas
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
15) Higher levels of trade between nations result in ________.
- A) higher product prices
- B) lesser specialization
- C) greater purchasing power
- D) trade diversion
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
16) An increase in the level of trade among nations that results from regional economic integration is called ________.
- A) trade diversion
- B) mercantilism
- C) trade creation
- D) economic nationalism
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
17) Which of the following is a result of trade creation?
- A) The demand for goods tends to increase.
- B) Purchasing power of consumers decreases.
- C) Consumers have a limited choice for selection of goods.
- D) Imported goods are seldom available at lower prices.
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
18) Which of the following is a potential drawback of regional economic integration?
- A) ethnocentricity
- B) trade diversion
- C) economic nationalism
- D) protectionism
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
19) Which of the following is true of trade diversion?
- A) It increases the purchasing power of consumers.
- B) It increases the level of trade between nonmember nations.
- C) It generally increases the prices of products in a nation.
- D) It guarantees consumers a wider selection of goods.
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
20) The least amount of sovereignty that must be surrendered to a trading bloc occurs in a ________.
- A) economic union
- B) common market
- C) free trade area
- D) political union
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
Scenario: Moonland Union
Twenty-six nations of Moonland region, have decided to cooperate with one another to eliminate trade barriers among them and create the Moonland Union. They are not sure, however, to what extent they want to cooperate.
21) As a first stage of cooperation, the countries agree to remove all barriers to trade among themselves. Each country also maintains policies it sees fit against nonmembers. At this stage, Moonland Union can be described as a ________.
- A) free trade area
- B) political union
- C) common market
- D) customs union
Answer: A
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
22) If these twenty-six nations continue to eliminate all barriers to trade among themselves and set a common trade policy against nonmembers, they would create a ________.
- A) free trade area
- B) preferential trading area
- C) customs union
- D) political union
Answer: C
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
23) Some countries in Moonland Union are interested not just in free trade among themselves and a common trade policy against nonmembers, but also in removing all barriers to the movement of labor and capital among themselves. This type of integration is best described as a ________.
- A) free trade area
- B) preferential trading area
- C) customs union
- D) common market
Answer: D
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
24) Country M wants member nations to harmonize their tax, monetary, and fiscal policies and wants to create a common currency. Country M is requesting for the creation of a(n) ________ in the Moonland nations.
- A) free trade area
- B) economic union
- C) customs union
- D) common market
Answer: B
AACSB: Analytical thinking
Skill: Application
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
25) Country X advocates the greatest level of integration possible for the member nations of the Moonland Union. Which of the following is Country X most likely to support?
- A) political union
- B) free trade area
- C) customs union
- D) economic union
Answer: A
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
26) The regional trading bloc that Zucoland will be joining is most likely a(n) ________.
- A) economic union
- B) free trade area
- C) customs union
- D) political union
Answer: B
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
27) If all countries in the bloc are asked to give up the greatest amount of sovereignty, they would most likely be joining a(n) ________.
- A) economic union
- B) free trade area
- C) customs union
- D) political union
Answer: D
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
28) Which of the following would the government of Zucoland most likely experience as a benefit of joining the trading bloc?
- A) trade diversion
- B) increased national sovereignty
- C) greater consensus
- D) production shifts to low-wage nations
Answer: C
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
29) Which of the following would the government of Zucoland most likely experience as a benefit of joining the trading bloc?
- A) increased national sovereignty
- B) increased military security
- C) trade diversion
- D) higher-wage employment
Answer: D
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
30) Trade agreements allow competitors from other nations to enter the domestic market.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
31) A group of nations in a geographic region undergoing economic integration is called a regional trading bloc.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
32) A common market area is the greatest extent of national integration.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
33) In a free trade area, each country can maintain whatever policy it sees fit against nonmember countries.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
34) Countries belonging to a free trade area must concede a certain amount of their national autonomy to the supranational union of which they are a part.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
35) A common market requires that member nations create a common currency.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
36) A political union makes it mandatory for nations to accept a common stance on all economic and political policies within their territories.
Answer: FALSE
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
37) The increase in the level of trade between nations that results from regional economic integration is called trade creation.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
38) A result of trade creation is that buyers pay higher prices for imported goods and services after trade barriers are removed.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
39) The greatest benefit of regional integration is trade diversion.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.1: Outline the levels of economic integration and its debate.
40) Economic integration can unintentionally reward a less efficient producer within a trading bloc.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
41) When trade diversion occurs, buyers will likely pay less for products.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
42) In regional economic integration, industries that require mostly unskilled labor tend to shift production to low-wage nations within a trading bloc.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
43) A benefit of regional economic integration is that it always expands employment opportunities in all nations.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
44) The least amount of sovereignty that must be surrendered to a trading block occurs in a political union.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
45) The Single European Act predominantly aimed at establishing common transportation policies among the European Union members.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
46) The primary purpose of the Gulf Cooperation Council (GCC) at its formation was to create a political union between Iraq and Iran.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
47) Differentiate among the five levels of economic and political integration.
Answer: There are five levels of economic and political integration for regional trading blocs.
- Free Trade Area-Economic integration whereby countries seek to remove all barriers to trade among themselves, but each country determines its own barriers against nonmembers, is called a free trade area. A free trade area is the lowest level of economic integration that is possible between two or more countries. Countries belonging to the free trade area strive to remove all tariffs and nontariff barriers, such as quotas and subsidies, on international trade in goods and services. However, each country is able to maintain whatever policy it sees fit against nonmember countries. These policies can differ widely from country to country. Countries belonging to a free trade area also typically establish a process by which trade disputes can be resolved.
- Customs Union-Economic integration whereby countries remove all barriers to trade among themselves, but set a common trade policy against nonmembers, is called a customs union. Thus, the main difference between a free trade area and a customs union is that the members of a customs union agree to treat trade with all nonmember nations in a similar manner. Countries belonging to a customs union might also negotiate as a single entity with other supranational organizations, such as the World Trade Organization.
- Common Market-Economic integration whereby countries remove all barriers to trade and the movement of labor and capital among themselves, but set a common trade policy against nonmembers, is called a common market. Thus, a common market integrates the elements of free trade areas and customs unions and adds the free movement of important factors of production–people and cross-border investment. This level of integration is very difficult to attain because it requires members to cooperate to at least some extent on economic and labor policies.
- Economic Union-Economic integration whereby countries remove barriers to trade and the movement of labor and capital among members, set a common trade policy against nonmembers, and coordinate their economic policies is called an economic union. An economic union goes beyond the demands of a common market by requiring member nations to harmonize their tax, monetary, and fiscal policies and to create a common currency. Economic unions require that member countries concede a certain amount of their national autonomy (or sovereignty) to the supranational union of which they are a part.
- Political Union-Economic and political integration whereby countries coordinate aspects of their economic and political systems is called a political union. A political union requires member nations to accept a common stance on economic and political matters regarding nonmember nations. However, nations are allowed a degree of freedom in setting certain political and economic policies within their territories. Individually, Canada and the United States provide early examples of political unions. In both these nations, smaller states and provinces combined to form larger entities.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
48) Discuss the benefits and drawbacks of regional integration.
Answer: Benefits of Regional Integration-Nations engage in specialization and trade because of the potential for gains in output and consumption. Higher levels of trade between nations should result in greater specialization, increased efficiency, greater consumption, and higher standards of living.
- Trade Creation-Economic integration removes barriers to trade and/or investment for nations belonging to a trading bloc. The increase in the level of trade between nations that results from regional economic integration is called trade creation. One result of trade creation is that consumers and industrial buyers in member nations are faced with a wider selection of goods and services not previously available.
Another result of trade creation is that buyers can acquire goods and services at lower cost after removal of trade barriers such as tariffs. Furthermore, lower-priced products tend to drive higher demand for goods and services because they increase purchasing power.
- Greater Consensus-The World Trade Organization (WTO) works to lower barriers on a global scale. Efforts at regional economic integration differ in that they comprise smaller groups of nations–ranging from several countries to as many as 30 or more. The benefit of trying to eliminate trade barriers in smaller groups of countries is that it can be easier to gain consensus from fewer members as opposed to, say, the 153 countries that comprise the WTO.
- Political Cooperation-There can also be political benefits from efforts toward regional economic integration. A group of nations can have significantly greater political weight than each nation has individually. Thus, the group, as a whole, can have more say when negotiating with other countries in forums such as the WTO. Integration involving political cooperation can also reduce the potential for military conflict between member nations. In fact, peace was at the center of early efforts at integration in Europe in the 1950s. The devastation of two world wars in the first half of the twentieth century caused Europe to see integration as one way of preventing further armed conflicts.
- Employment Opportunities-Regional integration can expand employment opportunities by enabling people to move from one country to another to find work or, simply, to earn a higher wage.
Drawbacks of Regional Integration-Some of the drawbacks of regional integration are as follows.
- Trade Diversion-The flip side of trade creation is trade diversion–the diversion of trade away from nations not belonging to a trading bloc and toward member nations. Trade diversion can occur after the formation of a trading bloc because of the lower tariffs charged among member nations. It can actually result in increased trade with a less-efficient producer within the trading bloc and reduced trade with a more efficient, nonmember producer. In this sense, economic integration can unintentionally reward a less efficient producer within the trading bloc. Unless there is other internal competition for the producer's good or service, buyers will likely pay more after trade diversion because of the inefficient production methods of the producer.
- Shifts in Employment-The formation of a trading bloc promotes efficiency by significantly reducing or eliminating barriers to trade among its members. The surviving producer of a particular good or service, then, is likely to be the bloc's most efficient producer. Industries requiring mostly unskilled labor, for example, tend to respond to the formation of a trading bloc by shifting production to a low-wage nation within the bloc.
- Loss of National Sovereignty-Successive levels of integration require that nations surrender more of their national sovereignty. The least amount of sovereignty that must be surrendered to the trading bloc occurs in a free trade area. By contrast, a political union requires nations to give up a high degree of sovereignty in foreign policy. This is why a political union is so hard to achieve. Long histories of cooperation or animosity between nations do not become irrelevant when a group of countries forms a union. Because one member nation may have very delicate ties with a nonmember nation with which another member may have very strong ties, the setting of a common foreign policy can be extremely tricky.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
49) Discuss free trade areas as a level of regional economic integration. How can regional integration enable employment opportunities?
Answer: Economic integration whereby countries seek to remove all barriers to trade among themselves, but each country determines its own barriers against nonmembers, is called a free trade area. A free trade area is the lowest level of economic integration that is possible between two or more countries. Countries belonging to the free trade area strive to remove all tariffs and nontariff barriers, such as quotas and subsidies, on international trade in goods and services. However, each country is able to maintain whatever policy it sees fit against nonmember countries. These policies can differ widely from country to country. Countries belonging to a free trade area also typically establish a process by which trade disputes can be resolved.
Regional integration can expand employment opportunities by enabling people to move from one country to another to find work or, simply, to earn a higher wage. Regional integration has opened doors for young people in Europe. Forward-looking young people have abandoned extreme nationalism and have taken on what can only be described as a "European" attitude that embraces a shared history. Those with language skills and a willingness to pick up and move to another EU country get to explore a new culture's way of life while earning a living. As companies seek their future leaders in Europe, they will hire people who can think across borders and across cultures.
AACSB: Reflective thinking
Skill: Synthesis
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
50) Discuss "political union" as a level of economic integration and "political cooperation" as a benefit of economic integration.
Answer: Economic and political integration whereby countries coordinate aspects of their economic and political systems is called a political union. A political union requires member nations to accept a common stance on economic and political matters regarding nonmember nations. However, nations are allowed a degree of freedom in setting certain political and economic policies within their territories. Individually, Canada and the United States provide early examples of political unions. In both these nations, smaller states and provinces combined to form larger entities. A group of nations currently taking steps in this direction is the European Union.
There can also be political benefits from efforts toward regional economic integration. A group of nations can have significantly greater political weight than each nation has individually. Thus, the group, as a whole, can have more say when negotiating with other countries in forums such as the WTO. Integration involving political cooperation can also reduce the potential for military conflict between member nations. In fact, peace was at the center of early efforts at integration in Europe in the 1950s. The devastation of two world wars in the first half of the twentieth century caused Europe to see integration as one way of preventing further armed conflicts.
AACSB: Reflective thinking
Skill: Synthesis
Difficulty: Hard
LO: 8.1: Outline the levels of economic integration and its debate.
51) Explain the concepts of trade creation and trade diversion. Who are the winners and losers in each scenario?
Answer: Trade Creation-Economic integration removes barriers to trade and/or investment for nations belonging to a trading bloc. The increase in the level of trade between nations that results from regional economic integration is called trade creation. One result of trade creation is that consumers and industrial buyers in member nations are faced with a wider selection of goods and services not previously available.
Another result of trade creation is that buyers can acquire goods and services at lower cost after removal of trade barriers such as tariffs. Furthermore, lower-priced products tend to drive higher demand for goods and services because they increase purchasing power.
Trade Diversion-The flip side of trade creation is trade diversion–the diversion of trade away from nations not belonging to a trading bloc and toward member nations. Trade diversion can occur after the formation of a trading bloc because of the lower tariffs charged among member nations. It can actually result in increased trade with a less-efficient producer within the trading bloc and reduced trade with a more efficient, nonmember producer. In this sense, economic integration can unintentionally reward a less efficient producer within the trading bloc. Unless there is other internal competition for the producer's good or service, buyers will likely pay more after trade diversion because of the inefficient production methods of the producer.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.1: Outline the levels of economic integration and its debate.
52) Currently the most sophisticated and advanced example of regional integration is occurring in ________.
- A) Asia
- B) Europe
- C) North America
- D) Africa
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
53) In 1951, Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands signed the Treaty of Paris and created the ________.
- A) European Union
- B) European Economic Community
- C) European Coal and Steel Community
- D) European Community
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
54) Which of the following treaties was signed by the members of the European Coal and Steel Community in 1957 for creating the European Economic Community?
- A) the Treaty of Rome
- B) the Maastricht Treaty
- C) the Treaty of Paris
- D) the Treaty of Versailles
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
55) Which of the following materialized the EU's goals of removing trade barriers, increasing harmonization, and enhancing the competitiveness of European companies?
- A) the Maastricht Treaty
- B) the European monetary union
- C) the Single European Act
- D) the Copenhagen Criteria
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
56) The ________ called for banking in a single common currency, setting up of monetary and fiscal targets, and political union of the European Union members.
- A) Maastricht Treaty
- B) European monetary union
- C) Single European Act
- D) Copenhagen Criteria
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
57) The European Union plan that established its own central bank and currency in January 1999 is known as the ________.
- A) Single European Act
- B) European monetary union
- C) Copenhagen Criteria
- D) Southern Common Market
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
58) The common currency of the European Union is known as the ________.
- A) European currency unit
- B) eurodollar
- C) euro
- D) European unit of account
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
59) Which of the following is true of the euro?
- A) It increases exchange-rate risk for business deals between member nations.
- B) It increases transaction costs.
- C) It makes prices between markets more transparent.
- D) It is not accepted among merchants in France, Germany, and Italy.
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.2: Describe integration in Europe and its enlargement.
60) Which of the following countries has been facing difficulties in negotiations regarding its application for European Union membership?
- A) Bulgaria
- B) Czech Republic
- C) Romania
- D) Turkey
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
61) For countries to become members of the European Union, they have to meet certain demands laid down by the EU referred to as the ________.
- A) Copenhagen Criteria
- B) Closer Economic Relations Agreement
- C) Andean Community
- D) Euro-Plus Pact
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
62) Which of the following institutions is least likely to play an important role in monitoring and enforcing economic and political integration in the European Union?
- A) European Parliament
- B) Council of the European Union
- C) European Court of Human Rights
- D) European Commission
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
63) The main purpose of the ________ is to debate and amend legislation proposed by the European Commission of the EU.
- A) European Parliament
- B) Council of the European Union
- C) Court of Auditors
- D) Court of Justice
Answer: A
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
64) The Council of the European Union is the ________ body of the European Union.
- A) legislative
- B) executive
- C) judicial
- D) monitoring
Answer: A
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
65) No proposed legislation becomes EU law unless the ________ votes it into law.
- A) Council of the European Union
- B) European Parliament
- C) Court of Auditors
- D) European Commission
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
66) The European Commission is the ________ body of the European Union.
- A) legislative
- B) executive
- C) financial
- D) monitoring
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
67) The Court of Justice is the ________ of the European Union.
- A) court of honor
- B) court of appeals
- C) small-claims court
- D) arbitral tribunal
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
68) The European Free Trade Association was formed in 1960 to focus on trade in ________.
- A) consumer goods
- B) agricultural goods
- C) industrial goods
- D) services
Answer: C
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
69) Which of the following is currently a member of the European Free Trade Association?
- A) Slovakia
- B) Ireland
- C) Norway
- D) Italy
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
70) Which of the following is best classified as an economic union?
- A) Southern Common Market (MERCOSUR)
- B) European Union (EU)
- C) North American Free Trade Agreement (NAFTA)
- D) Andean Community
Answer: B
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.2: Describe integration in Europe and its enlargement.
71) The Maastricht Treaty called for political union of the member nations.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
72) Ombudsman and Data Protection Supervisor are the EU institutions that fulfill secondary and support roles.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
73) The Council of the European Union is the executive body of the EU.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
74) The Court of Justice is the court of appeals of the European Union.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
75) Like the European Union commissioners, EU justices are required to act in the interest of their native countries.
Answer: FALSE
Skill: Concept
Difficulty: Moderate
LO: 8.2: Describe integration in Europe and its enlargement.
76) The European Free Trade Association focuses on trade in consumer goods.
Answer: FALSE
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
77) The European Union (EU) and European Free Trade Association (EFTA) created the European Economic Area (EEA).
Answer: TRUE
Skill: Concept
Difficulty: Easy
LO: 8.2: Describe integration in Europe and its enlargement.
78) Describe the structure of the European Union.
Answer: Five EU institutions play particularly important roles in monitoring and enforcing economic and political integration.
European Parliament-The European Parliament consists of 736 members elected by popular vote within each member nation every five years. As such, they are expected to voice their particular political views on EU matters. The European Parliament fulfills its role of adopting EU law by debating and amending legislation proposed by the European Commission. It exercises political supervision over all EU institutions–giving it the power to supervise commissioner appointments and to censure the commission. It also has veto power over some laws (including the annual budget of the EU). There is a call for increased democratization within the EU, and some believe this could be achieved by strengthening the powers of the Parliament. The Parliament conducts its activities in Belgium (in the city Brussels), France (in the city Strasbourg), and Luxembourg.
Council of the European Union-The council is the legislative body of the EU. When it meets, it brings together representatives of member states at the ministerial level. The makeup of the council changes depending on the topic under discussion. For example, when the topic is agriculture, the council is composed of the ministers of agriculture from each member nation. No proposed legislation becomes EU law unless the council votes it into law. Although passage into law for sensitive issues such as immigration and taxation still requires a unanimous vote, some legislation today requires only a simple majority to win approval. The council also concludes, on behalf of the EU, international agreements with other nations or international organizations. The council is headquartered in Brussels, Belgium.
European Commission-The commission is the executive body of the EU. It comprises commissioners appointed by each member country–larger nations get two commissioners, smaller countries get one. Member nations appoint the president and commissioners after being approved by the European Parliament. It has the right to draft legislation, is responsible for managing and implementing policy, and monitors member nations' implementation of, and compliance with, EU law. Each commissioner is assigned a specific policy area, such as competitive policy or agricultural policy. Although commissioners are appointed by their national governments, they are expected to behave in the best interest of the EU as a whole, not in the interest of their own country. The European Commission is headquartered in Brussels, Belgium.
Court of Justice-The Court of Justice is the court of appeals of the EU and is composed of 27 judges (one from each member nation) and eight advocates general who hold renewable six-year terms. One type of case that the Court of Justice hears is one in which a member nation is accused of not meeting its treaty obligations. Another type is one in which the commission or council is charged with failing to live up to its responsibilities under the terms of a treaty. Like the commissioners, justices are required to act in the interest of the EU as a whole, not in the interest of their own countries. The Court of Justice is located in Luxembourg.
Court of Auditors-The Court of Auditors comprises 27 members (one from each member nation) appointed for renewable six-year terms. The court is assigned the duty of auditing the EU accounts and implementing its budget. It also aims to improve financial management in the EU and report to member nations' citizens on the use of public funds. As such, it issues annual reports and statements on implementation of the EU budget. The court employs roughly 800 auditors and staff to assist it in carrying out its functions. The Court of Auditors is based in Luxembourg.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.2: Describe integration in Europe and its enlargement.
79) While ________ encourages free trade among Canada, Mexico and the United States, manufacturers and distributors must abide by local content requirements and rules of origin.
- A) NAFTA
- B) LAFTA
- C) CAN
- D) CAFTA-DR
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
80) Which of the following countries is a member of the North American Free Trade Agreement (NAFTA)?
- A) Costa Rica
- B) Honduras
- C) Venezuela
- D) Canada
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
81) Which of the following statements is true of NAFTA?
- A) It introduced a common currency for trade between the U.S., Mexico and Canada.
- B) It overrode the local content requirements and rules of origin for products manufactured in the member nations.
- C) It eliminated all tariffs and nontariff trade barriers on goods originating from within North America.
- D) It called for stringent rules regarding government procurement practices and the imposition of countervailing duties.
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.3: Describe integration in the Americas and its prospects.
82) The ________ was established in 2006 between the United States and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and later the Dominican Republic.
- A) NAFTA
- B) LAFTA
- C) CAFTA-DR
- D) CAN
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
83) The main objectives of the Andean Community include ________.
- A) introduction of tariffs for trade among member countries
- B) separate policies in both transportation and certain industries
- C) a common external tariff
- D) a common currency
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.3: Describe integration in the Americas and its prospects.
84) In today's world, the Andean Community is best described as an incomplete ________.
- A) free-trade area
- B) customs union
- C) economic union
- D) political union
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
85) ALADI refers to the ________.
- A) Latin American Integration Association
- B) Association of Southeast Asian Nations
- C) Asia Pacific Economic Cooperation
- D) Latin American Free Trade Association
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
86) Today, the Southern Common Market (MERCOSUR) acts as a(n) ________.
- A) economic union
- B) political union
- C) customs union
- D) preferential trading area
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
87) The main challenge facing the Caribbean Community and Common Market (CARICOM) is that ________.
- A) the bloc has not yet signed an agreement calling for a single market
- B) military conflicts continue to hamper efforts to move toward political union
- C) most members trade more with nonmembers than they do with each other
- D) the bloc has had no success in persuading Chile to become a member
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.3: Describe integration in the Americas and its prospects.
88) The common market between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua is referred to as the ________.
- A) Latin American Integration Association
- B) Central American Common Market
- C) Andean Community
- D) Southern Common Market
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
89) Which of the following countries of the Central American Common Market has adopted the U.S. dollar as its official currency?
- A) El Salvador
- B) Honduras
- C) Nicaragua
- D) Costa Rica
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
90) The Free Trade Area of the Americas (FTAA) is a trade agreement ________.
- A) between Mexico, Canada, and the U.S.
- B) among the South American nations
- C) that has been proposed to create the largest free trade area on the planet
- D) that includes the United States and the European Union
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.3: Describe integration in the Americas and its prospects.
91) The only Western Hemisphere nation that has been excluded from participating in the Free Trade Area of the Americas (FTAA) is ________.
- A) Argentina
- B) Mexico
- C) Brazil
- D) Cuba
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
Scenario: Learning the Americas' Way
The newly-formed countries that emerged after the break up of the United Frontier States (UFS) are interested in learning more about integration in the Americas. Because the former UFS nations have many similarities with the countries of North and South America, they believe they can learn from the integration experience in the Americas. To that end, they pose the following questions.
92) The regional trade agreement between Canada, Mexico, and the United States to eliminate tariffs and non-tariff barriers between themselves is known as the ________.
- A) Central American Free Trade Agreement
- B) Andean Community
- C) Caribbean Community and Common Market
- D) North American Free Trade Agreement
Answer: D
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
93) The NAFTA is best considered a(n) ________.
- A) free trade area
- B) customs union
- C) economic union
- D) political union
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
94) Bolivia, Colombia, Ecuador, and Peru belong to the ________.
- A) Latin American Free Trade Association (LAFTA)
- B) Central American Common Market
- C) Andean Community
- D) Latin American Integration Association (ALADI)
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
95) The Andean Community most closely resembles a(n) ________.
- A) economic union
- B) customs union
- C) common market
- D) political union
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
96) Canada and the United States are early examples of political unions.
Answer: TRUE
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
97) The North American Free Trade Agreement membership includes Canada, Mexico, and the United States.
Answer: TRUE
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
98) The Southern Common Market is also referred to as MERCOSUR.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
99) Today, the Southern Common Market acts as a political union.
Answer: FALSE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.3: Describe integration in the Americas and its prospects.
100) The main difficulty CARICOM will continue to face is that most members trade more with nonmembers than they do with each other.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.3: Describe integration in the Americas and its prospects.
101) Explain the Single European Act and how it helped to integrate Europe. How did the Single European Act help prompt the creation of NAFTA?
Answer: By the mid-1980s, EU member nations were frustrated by remaining trade barriers and a lack of harmony on several important matters, including taxation, law, and regulations. The important objective of harmonizing laws and policies was beginning to appear unachievable. A commission that was formed to analyze the potential for a common market by the end of 1992 put forth several proposals. The goal was to remove remaining barriers, increase harmonization, and thereby enhance the competitiveness of European companies. The proposals became the Single European Act (SEA) and went into effect in 1987.
As companies positioned themselves to take advantage of the opportunities that the SEA offered, a wave of mergers and acquisitions swept across Europe. Large firms combined their special understanding of European needs, capabilities, and cultures with their advantage of economies of scale. Small and medium-sized companies were encouraged through EU institutions to network with one another to offset any negative consequences resulting from, for example, changing product standards.
Accelerating integration in Europe caused new urgency in the task of creating a North American trading bloc that included Mexico. Mexico joined what is now the World Trade Organization in 1987 and began privatizing state-owned enterprises in 1988. Talks among Canada, Mexico, and the United States in 1991 eventually resulted in the formation of the North American Free Trade Agreement (NAFTA). NAFTA became effective in January 1994 and superseded the U.S.——Canada Free Trade Agreement. Today NAFTA comprises a market with 445 million consumers and a GDP of around $16 trillion.
AACSB: Application of knowledge
Skill: Synthesis
Difficulty: Moderate
LO: 8.3: Describe integration in the Americas and its prospects.
102) Briefly describe regional integration efforts in Central America and the Caribbean.
Answer: Attempts at economic integration in Central American countries and throughout the Caribbean basin have been much more modest than efforts elsewhere in the Americas.
Caribbean Community and Common Market (CARICOM)-The Caribbean Community and Common Market (CARICOM) trading bloc was formed in 1973. There are 15 full members, 5 associate members, and 7 observers active in CARICOM. Although the Bahamas is a member of the community, it does not belong to the common market. As a whole, CARICOM has a combined GDP of nearly $30 billion and a market of almost 6 million people.
A key CARICOM agreement calls for establishment of a CARICOM Single Market, which would establish the free movement of factors of production including goods, services, capital, and labor. The main difficulty CARICOM will continue to face is that most members trade more with nonmembers than they do with one another simply because members do not have the imports each other needs.
Central American Common Market (CACM)-The Central American Common Market (CACM) was formed in 1961 to create a common market among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Together, the members of CACM comprise a market of 33 million consumers and have a combined GDP of about $120 billion. The common market was never realized, however, because of a long war between El Salvador and Honduras and guerrilla conflicts in several countries. Yet renewed peace is creating more business confidence and optimism, which is driving double-digit growth in trade between members.
Furthermore, the group has not yet created a customs union. External tariffs among members range between 4 and 12 percent. The tentative nature of cooperation was obvious when Honduras and Nicaragua slapped punitive tariffs on each other's goods during a recent dispute. But officials remain positive, saying that their ultimate goal is European-style integration, closer political ties, and adoption of a single currency–probably the dollar. In fact, El Salvador has adopted the U.S. dollar as its official currency, and Guatemala already uses the dollar alongside its own currency, the quetzal.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.3: Describe integration in the Americas and its prospects.
103) Compare and contrast the slow progress of the Andean Community and the Economic Community of West African States (ECOWAS). Why have these trade blocs not been more successful?
Answer: Formed in 1969, the Andean Community includes four South American countries located in the Andes mountain range–Bolivia, Colombia, Ecuador, and Peru. Today the Andean Community comprises a market of around 97 million consumers and a combined GDP of about $220 billion. The main objectives of the group include tariff reduction for trade among member nations, a common external tariff, and common policies in both transportation and certain industries. The Andean Community had the ambitious goal of establishing a common market by 1995, but delays mean that it remains a somewhat incomplete customs union.
Several factors hamper progress. Political ideology among member nations is somewhat hostile to the concept of free markets and favors a good deal of government involvement in business affairs. Also, inherent distrust among members makes lower tariffs and more open trade hard to achieve. The common market will be difficult to implement within the framework of the Andean Community. One reason is that each country has been given significant exceptions in the tariff structure that they have in place for trade with nonmember nations. Another reason is that countries continue to sign agreements with just one or two countries outside the Andean Community framework. Independent actions impair progress internally and hurt the credibility of the Andean Community with the rest of the world.
The Economic Community of West African States (ECOWAS) was formed in 1975 but restarted efforts at economic integration in 1992 because of a lack of early progress. One of the most important goals of ECOWAS is the formation of a customs union, an eventual common market, and a monetary union. Together, the ECOWAS nations comprise a large portion of the economic activity in sub-Saharan Africa.
Progress on market integration is almost nonexistent. In fact, the value of trade occurring among ECOWAS nations is just 11 percent of the value that the trade members undertake with third parties. But ECOWAS has made progress in the free movement of people, construction of international roads, and development of international telecommunication links. Some of its main problems are due to political instability, poor governance, weak national economies, poor infrastructures, and poor economic policies.
AACSB: Reflective thinking
Skill: Synthesis
Difficulty: Hard
LO: 8.3: Describe integration in the Americas and its prospects.
104) The major objective of the Association of Southeast Asian Nations (ASEAN) is to ________.
- A) approach the European Union to resolve disputes between member countries
- B) safeguard the region's economic and political stability
- C) introduce barriers to trade and investment
- D) increase members' tariff rates from an average of 7.5 percent to 15 percent
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.4: Summarize integration in Asia and elsewhere.
105) The stated aim of the organization for Asia Pacific Economic Cooperation (APEC) is to ________.
- A) build another trading bloc
- B) introduce stringent trade and investment procedures among member countries
- C) strengthen the multilateral trading system
- D) increase members' tariff rates from an average of 7.5 percent to 15 percent
Answer: C
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.4: Summarize integration in Asia and elsewhere.
106) The primary purpose of the Gulf Cooperation Council at its formation was to ________.
- A) cooperate with the increasingly powerful trading blocs in Europe at the time
- B) create the largest free trade area on the planet
- C) increase members' tariff rates from an average of 7.5 percent to 15 percent
- D) introduce barriers to trade and investment
Answer: A
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.4: Summarize integration in Asia and elsewhere.
107) A group of fifty-three nations on the African continent joined forces in 2002 to create the ________.
- A) Economic Community of West African States
- B) African Union
- C) African Unification Front
- D) Organisation of the African Unity
Answer: B
AACSB: Application of knowledge
Skill: Concept
Difficulty: Easy
LO: 8.4: Summarize integration in Asia and elsewhere.
Scenario: Moonland Union
Twenty-six nations of Moonland region, have decided to cooperate with one another to eliminate trade barriers among them and create the Moonland Union. They are not sure, however, to what extent they want to cooperate.
108) The process undertaken by these twenty-six countries is an example of ________.
- A) foreign direct investment
- B) protectionism
- C) economic nationalism
- D) regional economic integration
Answer: D
AACSB: Analytical thinking
Skill: Application
Difficulty: Hard
LO: 8.4: Summarize integration in Asia and elsewhere.
109) The stated aim of Asia Pacific Economic Cooperation (APEC) is to strengthen the multilateral trading system.
Answer: TRUE
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.4: Summarize integration in Asia and elsewhere.
110) Describe the Association of Southeast Asian Nations (ASEAN).
Answer: Indonesia, Malaysia, the Philippines, Singapore, and Thailand formed the Association of Southeast Asian Nations (ASEAN) in 1967. Brunei joined in 1984, Vietnam in 1995, Laos and Myanmar in 1997, and Cambodia in 1998. Together, the 10 ASEAN countries comprise a market of about 560 million consumers and a GDP of nearly $1.1 trillion. The three main objectives of the alliance are to (1) promote economic, cultural, and social development in the region; (2) safeguard the region's economic and political stability; and (3) serve as a forum in which differences can be resolved fairly and peacefully.
Companies involved in Asia's developing economies are likely to be doing business with an ASEAN member. This is a more likely prospect as China, Japan, and South Korea accelerate their efforts to join ASEAN. China's admission would allow the club to bridge the gap between less advanced and more advanced economies.
AACSB: Application of knowledge
Skill: Concept
Difficulty: Moderate
LO: 8.4: Summarize integration in Asia and elsewhere.
111) Describe some of the cultural challenges of doing business with countries of Central and Eastern Europe. How do these challenges compare with the challenges of doing business with ASEAN countries?
Answer: The countries of Central and Eastern Europe that belong to the EU represent a land of opportunity. But like doing business anywhere, understanding of local culture can be a big advantage. Entrepreneurs who have succeeded in the Czech Republic offer this advice.
Formalities-Czech society is rather formal, hence it is necessary to use titles like "doctor" and "mister." It's rarely appropriate to use first names unless they are close friends.
Business Relationships-Making money is obviously important and the ultimate goal for any business. Still, building personal relationships, establishing good references, and doing favors for others can smooth the way for newcomers.
Czech Partners-Being communist for 40 years before it became a capitalist democracy has left its mark on the Czech people and their culture. Finding a local partner who can handle the inevitable cultural difficulties that arise is crucial.
Local Professionals-It is a good idea to hire a Czech accountant or someone familiar with Czech laws, taxes (including a VAT tax of 19 percent), and red tape. An attorney who is bilingual can also interpret differences between Czech and U.S. laws.
Who's in Charge-Companies need a "responsible person" (or jednatel in Czech) who is in charge of all aspects of the business. Some Czechs still feel more comfortable working with this jednatel rather than unfamiliar company reps.
Businesses unfamiliar with operating in ASEAN countries should exercise caution in their dealings. Some inescapable facts about ASEAN that warrant consideration are the following:
Diverse Cultures and Politics-The Philippines is a representative democracy, Brunei is an oil-rich sultanate, and Vietnam is a state-controlled communist country. Business policies and protocol must be adapted to each country.
Economic Competition-Many ASEAN nations are feeling the effects of China's power to attract investment from multinationals worldwide. Whereas ASEAN members used to attract around 30 percent of foreign direct investment into Asia's developing economies, it now attracts about half that amount.
Corruption and Shadow Markets-Bribery and shadow (unofficial) markets are common in many ASEAN countries, including Indonesia, Myanmar, the Philippines, and Vietnam. Corruption studies typically place these countries at or very near the bottom of nations surveyed.
Political Change and Turmoil-Several nations in the region recently elected new leaders. Indonesia in particular has gone through presidents at a fast clip recently. Companies must remain alert to shifting political winds and laws regarding trade and investment.
Border Disputes-Parts of Thailand's borders with Cambodia and Laos are tested frequently. Hostilities break out sporadically between Thailand and Myanmar over border alignment and ethnic Shan rebels operating along the border.
Lack of Common Tariffs and Standards-Doing business in ASEAN nations can be costly. Harmonized tariffs, quality and safety standards, customs regulations, and investment rules would cut transaction costs significantly.
AACSB: Reflective thinking
Skill: Synthesis
Difficulty: Hard
LO: 8.4: Summarize integration in Asia and elsewhere.
112) Explain how political cooperation is a benefit of regional integration. How has the Gulf Cooperation Council (GCC) evolved towards political cooperation?
Answer: There can also be political benefits from efforts toward regional economic integration. A group of nations can have significantly greater political weight than each nation has individually. Thus, the group, as a whole, can have more say when negotiating with other countries in forums such as the WTO. Integration involving political cooperation can also reduce the potential for military conflict between member nations. In fact, peace was at the center of early efforts at integration in Europe in the 1950s. The devastation of two world wars in the first half of the twentieth century caused Europe to see integration as one way of preventing further armed conflicts.
Several Middle Eastern nations formed the Gulf Cooperation Council (GCC) in 1980. Members of the GCC are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The primary purpose of the GCC at its formation was to cooperate with the increasingly powerful trading blocs in Europe at the time–the EU and EFTA. The GCC has evolved, however, to become as much a political entity as an economic one. Its cooperative thrust allows citizens of member countries to travel freely in the GCC without visas. It also permits citizens of one member nation to own land, property, and businesses in any other member nation without the need for local sponsors or partners.
AACSB: Application of knowledge
Skill: Synthesis
Difficulty: Moderate
LO: 8.4: Summarize integration in Asia and elsewhere.
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