International Business
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Gaspar2eChapter03.pptxChapter 3 Regional Economic Integration
Introduction to Global Business
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Explain regional economic integration, its evolution, and its benefits and costs.
Identify how economic geography helps explain, promote, and segment regional integration blocs.
Identify the primary reasons why countries are now seeking to pursue regional integration at the expense of multilateral trade liberalization.
Explain why the European Union is seen as the most advanced regional integration bloc.
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After studying this chapter, you should be able to:
Describe how NAFTA has affected U.S.–Mexico bilateral trade in goods and services.
Explain the importance of ASEAN and indicate why Asia may become the most important free trade region for this century.
Explain why regional integration in Latin America is challenging and why there is potential for a grouping like MERCOSUR to become more predominant.
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After studying this chapter, you should be able to:
EXHIBIT 3.1 TRANS-PACIFIC PARTERNSHIP AGREEMENT
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What Is Regional Economic Integration?
Regional integration
Implementation of a multitude of economic and/or political steps by member states to increase their global competitiveness, including preferential trade access
Spatial transformations
The process of allowing efficient geographic distribution of business activities within and among countries
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Stages of Regional Integration
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Free- trade area
Customs union
Common (or single) market
Economic and monetary union
Political union
EXHIBIT 3.2 FORM AND STAGES OF REGIONAL INTEGRATION
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| Stage of Integration | Abolition of Tariffs and Quotas Among Members | Common External Tariff and Quota System | Abolition of Restrictions on Factor Movements | Harmonization and Unification of Economic Policies and Institutions |
| Free-trade area | Yes | No | No | No |
| Customs union | Yes | Yes | No | No |
| Common market | Yes | Yes | Yes | No |
| Economic union | Yes | Yes | Yes | Yes |
Pros and Cons of Regional Integration
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Benefits
Costs
Regional Integration
Benefits of Regional Integration
Creating a larger pool of consumers with growing incomes and similar culture, tastes, and social values
Encouraging economies of scale in production, increasing the region’s level of global competitiveness, and enhancing economic growth through investment flows
Freeing the flow of capital, labor, and technology to the most productive areas in the region
Increasing cooperation, peace, and security among countries in the region
Encouraging member states to enhance their social welfare to match that of the most progressive states
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Costs of Regional Integration
Undermining the most-favored-nation status rule, an essential principle of the WTO
Imposing uniform laws and regulations that at times do not take into account national economic, cultural, and social differences
Eliminating jobs and increasing unemployment in protected industries
Losing sovereignty, national independence, and identity
Reducing the powers of the national government
Increasing the problems of illegal drugs and terrorism due to the ease of cross-border labor movement
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The Economic Geography of Regional Integration
Economic geography
The study of principles that govern the efficient spatial allocation of economic resources and the resulting consequences
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Think global
Start small
Compensate the least fortunate
Steps to Regional Integration
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EXHIBIT 3.3 REGIONS CLOSE TO WORLD MARKETS
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EXHIBIT 3.4 REGIONS WITH LARGE LOCAL MARKETS BUT LOCATED FAR FROM WORLD MARKETS
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EXHIBIT 3.5 REGIONS WITH SMALL LOCAL MARKETS LOCATED FAR FROM WORLD MARKETS
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Does Regional Integration Confound Global Trade?
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European Union (EU)
North American Free Trade Agreement (NAFTA)
Association of South East Asian Nations (ASEAN)
Regional Integration in Latin America
The European Union (EU)
EU is most highly evolved regional integration:
EU grew out of European Coal and Steel Community (ECSC).
The Treaty of Rome in 1957 established the European Economic Community (EEC).
The Maastricht Treaty in 1992 created the EU as a full economic union with free movement of labor among its member countries.
The euro was adopted as a common currency in 1992.
Economic coordination and fiscal stability is challenged by the sovereign debt crisis of some members.
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EXHIBIT 3.6 THE EUROPEAN UNION
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EXHIBIT 3.7 THE EUROPEAN UNION AND THE UNITED STATES: A COMPARISON
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The North American Free-Trade Agreement (NAFTA)
Canada, United States, and Mexico reached a comprehensive trade agreement in 1994.
Major NAFTA objectives:
Trade expansion through the phased elimination of all trade barriers
Protection of intellectual property rights
Creation of institutions to address unfair trade practices, trade disputes, environmental protection, worker’s rights, competition policies, and implementation of NAFTA rules and regulations
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EXHIBIT 3.8 NORTH AMERICAN FREE-TRADE AGREEMENT
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EXHIBIT 3.9 UNITED STATES: EXPORTS OF GOODS TO AND FROM TOP TEN TRADE PARTNERS (BILLIONS OF U.S. DOLLARS)
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EXHIBIT 3.9 UNITED STATES: IMPORTS OF GOODS TO AND FROM TOP TEN TRADE PARTNERS (BILLIONS OF U.S. DOLLARS)
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Association of South East Asian Nations (ASEAN)
ASEAN’s objectives:
To accelerate economic growth, social progress, and cultural development in the region
To promote peace and stability through the rule of law in relationships among countries in the region
Bases for ASEAN:
ASEAN Security Community (ASC)
ASEAN Economic Community
ASEAN Sociocultural Community
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EXHIBIT 3.10 ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN)
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EXHIBIT 3.11 ASEAN SELECTED KEY ECONOMIC INDICATORS, 2013
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Regional Integration in Latin America
The Treaty of Montevideo in 1960 created the Latin American Free Trade Association (LAFTA).
Bolivia, Chile, Colombia, Ecuador, and Peru created the Andean Group in 1969.
Treaty of Asunción in 1991 among Argentina, Brazil, Paraguay, and Uruguay, created the Southern Cone Common Market, or MERCOSUR (Mercado Común del Sur).
DR-CAFTA (Dominican Republic and Central American Free Trade Agreement) became effective in 2005.
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EXHIBIT 3.12 REGIONAL INTEGRATION IN LATIN AMERICA
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Key Terms
regional integration
spatial transformations
free-trade area
customs union
common market or single market
economic and monetary union
political union
economic geography
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