International economic communities and trade agreements help countries manage the economic relationships they already have. By reducing trade barriers or coordinating economic rules, governments can make cross-border trade easier while also deciding how to treat countries outside the agreement.
Countries that trade frequently may formalize their relationship through agreements. Governments negotiate shared rules or policies that influence trade between them. An agreement between two countries is called a bilateral trade agreement. Broader arrangements may establish an international economic community or a free-trade area among multiple members.
All flashcards
What is an international economic community?
An arrangement through which countries coordinate economic policies or trade rules to manage economic relationships and facilitate exchange.
What is a tariff?
A tax imposed on imported goods. It can raise the cost of imports and affect the competitiveness of foreign products.
What distinguishes a free-trade zone?
Members reduce or remove many trade barriers among themselves, but generally retain their own tariffs and policies toward countries outside the zone.
What did NAFTA do?
NAFTA established a North American free-trade arrangement among Canada, Mexico, and the United States, reducing barriers to trade and investment.
What is the current successor to NAFTA?
The United States-Mexico-Canada Agreement (USMCA) replaced NAFTA and took effect on July 1, 2020.
Quiz questions
What is a bilateral trade agreement?Answer: An agreement between two countries governing their trade relationship.
What does a preferential tariff do?Answer: It gives selected trading partners a more favorable tariff rate.
How do members of a free-trade zone generally treat tariffs on imports from nonmembers?Answer: They may set their own tariffs and trade policies toward nonmembers.
Why was access to Mexico an important opportunity for U.S. businesses under NAFTA?Answer: It expanded access to a market where trade barriers had been reduced.
Why is the European Union not simply a single country?Answer: Member states remain separate countries and delegate authority only in selected areas.
Based on Introduction to Business 2e by Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. Hyatt (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.