Topic 8: Regional Economic Integration

What are the different approaches to economic integration

bilateral, regional, global

What are the five levels of economic integration from highest to lowest

free trade area, customs union, common market, economic union, political union

Free trade area

no internal tariffs

Customs union

no internal tariffs plus common external tariffs

common market

customs union plus factor of productivity mobility

economic union

characteristics of a common market, harmoed monetary, fiscal policy and a common currency

Political union

common foreign and security policies and judicial cooperation

Benefits of regional economic integration

trade creation, new employment opportunities, new investment opportunities, closer politicial cooperation, greater consensus

Example of a free trade area

USMCA

example of a customs union

Andean community

example of a common market

Mercusor

What are the drawbacks of regional economic integration

trade diversion, shifts in employment, loss of national sovereignity, costly to implement

What are the benefits of the euro

lower transaction costs, easier to compare prices across europe, producers forced to reduce production costs, boosts development of the capital market, new investment options

Costs of the euro

loss over national monetary policy, not an optimal currency area, countries may react differently to changes in the euro

What has gone wrong in the EU

lack of fiscal discipline which contributed to a debt crisis since 2009, differences in policy solutions, poor economic prospects has increased anti-EU sentiment, refugee crisis, brexit

Integration in north amercia

NAFTA reduced trade barriers between US, canada and mexico, Trump changed NAFTA which led to USMCA

What is the regional comprehensive economic partnership (RCEP)

largest regional trade agreement, reduce tariffs, red tape and create unified rules

Aus’s approach to free trade

trans-pacific partnership (not yet in force), Australia-EU FTA (under negotiation)

why do commodity agreements exust

discuss issues, disseminate info, improve product safety, price and quality controls

Opportunities of regional integration for managers

new markets, centralise production in locations where factor costs and skills is optimal to get cost economies, harmonised product standards and tax regimes simplifies business and may reduce costs

What are the threats of regional integration for managers

more price competitive, risk of being shut out of a single market by the creation of a trade fortress, limit the ability of mergers and acqusition, growing opposition to FTA