Chapter 9: Regional economic integration INT BUSINESS

Regional Economic Integration

Agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other

Regional economic integration is an attempt to achieve….

Additional gains from the free flow of trade and investment btw countries beyond those attainable under international agreements such as the WTO

Why is there a push toward regional economic integration?

Easier to form an agreement with a few countries than across all nations

Politically, integration is attractive because the likelihood of

Violent conflict and war will decrease.

Linking countries together they have a greater clout and politically much stronger to deal with other nations.

TRUE

Two main impediments to integration

• Costly

• Result in loss of national sovereignty

Regional economic integration only makes sense when

The amount of trade it creates exceeds the amount it diverts

The benefits of the EURO

• Handling one currency

• Easier to compare prices across Europe

• Increased competition = production and efficiency

• Pan European capital market

• Investment options for individuals and institutions

The costs of the euro

• loss of control over monetary policy

• The European Central Bank

• EU is not an optimal currency area

Benefits of NAFTA in Mexico

Increased jobs

Benefits of NAFTA in the US and Canada

• Market access to Mexico and lower prices

• US and Canadian firms with production sites in Mexico are more competitive on world markets

Drawbacks of NAFTA

• job losses and wage declines

• Mass emigrations north

• Pollution increase

• Loss of sovereignty

Free trade area

all barriers to the trade of goods and services among member countries are removed.

European Free Trade Association (EFTA)

Established in January 1960, joined 4 countries, Norway, Iceland, Liechtenstein and Switzerland also used to AUstria Finland, and Sweden (1996)

Who was the EFTA founded by

Those who decided not to be part of the European COmmunity

Customs Union

Eliminates trade barriers between member countries and adopts a common external trade policy

Common market

Has no barriers to trade among member countries, includes a common external trade policy and allows factors of production to move freely among members

Economic Union

The free flow of products and factors of production among member countries and the adoption of a common external trade policy, but requires a common currency, harmonization of members tax rates and a common monetary and fiscal policy.

AN example of an economic union

The EU

Economic union raises issues of how to make a coordinating bureaucracy accountable to the citizens of member nations. The answer is ?

Political union

Political union

A central political apparatus coordinates the economic, social, and foreign policy of the member states

ex of political Union

The U.S. - Independent states are effectively combined into a single nation

The economic case for regional integration

An absence of barriers to the free flow of goods, services, and factors of production

The political case for integration

Linking economies and making them dependent creating incentives for political cooperation and weight

Why was the NAFTA not good for Mexico and the US when they thought it was?

argued, would be good for the United States, since it would reduce the flow of illegal immigration from Mexico. But illegal immigration from Mexico rose from 2.9 million in 1995 to almost 7 million in 2007. However, Mexican economy has indeed led to a reduction in illegal immigration by 2015 to 5.8 million

Impediments to Integration

• Certain groups will loose while some benefit

• Concerns over national sovereignty

Trade Creation

High-cost domestic producers are replaced by lowcost producers within the free trade area or higher cost external producers are replaced with lower cost external producers

Trade diversion

Lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area

Regional free trade agreement will benefit the world only if

The amount of trade it creates exceeds the amount it diverts.

Europe has two trade blocs

the European Union and the European Free Trade Association.

European Union (EU) 2 political facors

(1) the devastation ofwestern Europe during two world wars and the desire for a lasting peace and (2) the European nations’ desire to hold their own on the world’s political and economic stage.

Treaty of Rome provided

For the creation of a common market.

Article 3 of the treaty called for the

Elimination of internal trade barriers and the creation of common external tariff and requiring member states to abolish obstacles to free movement of factors of production among members.

The four main institutions in the EU

European Commission, the council of the European Union, the European Parliament and the court of justice

European Commission is responsible for

proposing EU legislation, implementing and monitoring compliance w EU laws by member states

European Council represents the

Interests of member states. The ultimate controlling authority within the EU

The European Parliament has the right to

Vote on the appointment of commissioners as well as veto some laws

Treaty of Lisbon

Increase the power of the European parliament

The court of justice

One judge from each country, the supreme appeals court for EU law

The objectives of the act

• Remove all frontier controls

• Mutual recognition to product standards

• Public procurement to non national suppliers

• Lift barriers

• Remove restrictions on Foreign exchange transactions

• Abolish restrictions on cabotage

1992 Maastricht Treaty

made the EU adopt a common currency by 1999.

Benefits of the EUro

• Savings from one currency

• Easy to compare prices across europe

• Lower prices

• Low cost of capital and increase in investments

• Increase investment options to individuals and institutions

Mercosur

Originated in 1988 as a free trade pact btw Brazil and Argentina

Central American Common Market

1960s Costa RIca, El Salvador, Guatemala, Honduras and Nicaragua but collapsed when wore broke out

Central American Free Trade Agreement

2004 agreement btw the six counties and the US to lower trade barriers btw the U.S. and the six countries

1967 THe association of Southeast ASian Nations (Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.