Question

1. Explain the static effects and dynamic effects of economic integration. What is the difference between trade creation and trade diversion resulting from economic integration?

2.What was the rationale for NAFTA?

3.What are the rules of origin and regional content provisions of NAFTA?

Answer 1

1). Static effects are termed as the effects which are stated by the reallocation of manufacturing and utilization of products. That is the effect caused due to the implementation of custom union the sectors of health, wealth and fortunes. These custom union results in the technical or structural modifications in member and non member nations.

Dynamic effects are concerned with the total market development. It also states the after effect of large growth of production on the industries. These effects are caused due to breakage of trade barriers amd expansion of market.

The trade creation states that the trade will grow when the consumption get moved from a high cost manufacturer to low cost manufacturer. That is the economic welfare growth as a result of joining in any free trade regions. Custom union is an example of free trade region.

The trade diversion means that the trade will move from a low cost manufacturer who lies away from the union to a high cost manufacturer who lies within the union. It results in a low cost of the products.

2). NAFTA is North American Free Trade Agreement. NAFTA aims to break the trade and investment barriers among the US, Mexico amd Canada. It was implemented on 1st january in 1994. Due to this, tariffs were implemented on more than 1/4 of the exports of Mexico to the united states. Also tariffs were implemented on more than 1/3 of the expoets of united states to the Mexico.

3). The NAFTA rules of origin states that at what place these products are manufactured amd what raw materials are used to manufacture them. Dutu free and tariff reduction are applied only on those products which are termed as originating goods by the NAFTA.

The rules of origin shoul includes the following :

• Variation in the categorization of tariffs or taxes.
• It should have the regional value content.
• Both of the above statements.

Thanks!..