IGCSE Development Studies: Specimen Questions with Answers 21 - 22 of 98

Explanation

The Pros of NAFTA Are as Follows

• Free trade increases sales and profit for Mexico, Canada, and the U. S. A, thus strengthening their economies.
• Lack of tariffs has allowed Mexico to sell its goods in the USA and Canada at lower prices.
• This makes Mexican products more competitive in these markets and increases Mexico profits as it tries to develop its economy.
• Free trade is an opportunity for the US to provide financial help to Mexico by making jobs available in factories located there.

Explanation

Regional economic integration is a process in which trade barriers (tariffs and non- tariffs) among member countries of a region are reduced or removed, common external barriers are established and products and services and factors of production can move freely among member countries to earn trade and development benefits.

• The early stages of economic integration tend to focus on the elimination of trade barriers and the creation of custom union in goods. At the lowest level there is the preferential free trade area, this means that the members charge each other lower tariffs that those applicable to nonmembers, however there is no free movement of goods within the area.
• A free trade area means that the barriers and quotas to mutual trade are removed. Example- The members of North American Free trade Area (NAFTA) , Canada, Mexico and US, pledge to do away with barriers to mutual trade. Unlike a custom union, each member countries continue to determine its own commercial relations with the non-members.