Preferential trade agreements (PTAs) are trade pacts that reduce tariffs for member countries. PTAs are the first stage of economic integration, reducing trade barriers between participating nations. While they lower tariffs among members, external tariffs remain. PTAs can have benefits like trade creation, but also costs like trade diversion if members shift imports away from more efficient non-member producers. The proliferation of Asia-Pacific PTAs increases potential for both regional trade growth and trade diversion given some countries' high dispersed external tariffs.

16. EUROPEAN UNION formerly European Common Market, European Community (EC) • fifteen members, 370 million people • eleven official languages • 10 new members in May 2004 • 3 more applicants negotiating for membership History • origins - Europe's devastation after 1939-45 • economic integration as political move • 1951, 6 countries in “Coal and Steel Community” • Treaty of Rome, 1957 - European Economic Community - customs union - UK rejects • 1950's – 1980's - success - new European political institutions - 6 new members (UK in 1973) - increased trade, capital, labor flows

20. PREFERNTIAL TRADE AGREEMENTS IN ASIA AND PACIFIC REGION