Chapter 8Regional

Economic Integration
 Chapter Preview

Define each level of regional integration

Identify the potential effects of integration
Discuss European integration and
enlargement
Characterize integration efforts in the
Americas
Identify why integration in Asia is unique
Discuss integration in the Middle East and
Africa
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2008
Regional Economic Integration

Process whereby
countries in a
geographic region
cooperate to
either reduce or
eliminate barriers
to the free flow of
products, people,
or capital

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Levels of Regional Integration
Coordinate aspects of members’ economic and
Political Union political systems

Remove barriers to trade, labor, and capital;

Economic Union set a common trade policy against nonmembers; and
coordinate members’ economic policies

Remove all barriers to trade, labor, and capital

Common Market among members; and set a common trade policy
against nonmembers

Customs Union
Remove all barriers to trade among members, and set
a common trade policy against nonmembers

Free-Trade Area
Remove all barriers to trade among members, but
each country has own policies for nonmembers

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 Effects of Integration

Potential Potential
benefits drawbacks

Trade diversion
Trade creation Shifts in
Greater consensus employment
Political cooperation Loss of sovereignty
Creates jobs

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 European Union (EU)

Pop: 485
million
GDP: $9.5
trillion
Members:
27
Economic
Union
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European Union: Early Years

European Coal and Steel Community (1951):

Removed trade barriers in coal, iron, and steel

European Economic Community (1957):

Outlined and took initial steps toward common
market

European Community (1967): Expanded to

other industries including atomic energy

European Union (1994): Final name change and

reduced barriers further

Additional milestones:
-
Single European Act (1987): Harmonized
regulations, strived for lower barriers
-
Maastricht Treaty (1991): Single currency targets,
outlined eventual political union
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 Five Key EU Institutions

European
Parliament

Court of Court of
Justice Auditors

Council of European
the Commissio
European n
Union

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 Business in Central Europe

Don’t rush familiarity

Build relationships
Find a Czech partner
Expect limited resources
Hire local professionals
Establish who’s in charge

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European Union Enlargement
• Stable institutions of
Future members must meet
human
Copenhagen Criteria ➔
rights, democracy, and law

• Functioning and capable

market economy

• Assume economic,
monetary,
and political obligations

• Adopt rules of Community,

Court of Justice, and
Treaties

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 European Free Trade
Association
Iceland,
Liechtenstein,
Norway,
Switzerland
-

- Feared lost sovereignty

- Feared destructive rivalry
- Desired free-trade gains
Pop: 12
- Cooperates with EU
million
GDP: $620
billion
Members: 4
Free-Trade
Area
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Began:
2008 1960
 North AmericanFree Trade
Agreement

Pop: 420
million
GDP: $12
trillion
Members: 3
Free-Trade
Area
Began:
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2008
 NAFTA Effects

Three- Jobs
nation and wages
trade flows

“Fast track” Future Single

authority expansion? currency?

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2008
 Central American FreeTrade
Agreement
• CAFTA established in 2006
between U.S. and 6 others

• U.S., Costa Rica,

Guatemala,
Honduras, El Salvador,
Nicaragua, & Dominican
Rep.
• CAFTA should create
regional
integration, peace, and
stability
• Combined value of goods
traded is around $32 billion

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 Andean Community

Internal tariff reduction

Common external tariff
Common transport policies
Impaired by ideological
conflict

Pop: 97
million
GDP: $216
billion
Members: 4
Customs
Union
Began: 1969
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2008
 Southern Common Market

MERCOSUR
Very successful early
Future “SAFTA”?
Impaired by ideology
and economic hardships

Pop: 220
million
GDP: $1
trillion
Members: 5
Customs
Union
Began:
1988
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 Central America / Caribbean

Peace is driving
Members have little
tentative optimism
to offer each other
Pop: 33 million Pop: 6
GDP: $120 million
billion GDP: $30
Members: 5 billion
+/- Common Members:
Market 15
Began: 1961 Common
Market
Began:
1973

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2008
 Free Trade Area of the
Americas

. Would create the largest

free-trade area on the planet

. From northern tip of Alaska

Pop: 800 to southern tip of Tierra del
million Fuego in South America
GDP: $12
trillion
Members:
. Could mean enormous cost
34 savings for business
Free-Trade
Area . Protests by many groups is
slowing progress

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Association of SoutheastAsian
Nations
ASEAN

1. Economic, social, and cultural development

2. Safeguard economic and political stability
3. Serve as a forum to resolve disputes

Pop: 500
million
GDP: $740
billion
Members: 10
General
Cooperation
© Prentice Hall, International Business 4e Began: 1967
2008
 Asia Pacific Economic
Cooperation
APEC: Group of 21 nations ringing the Pacific
Ocean that accounts for over half of world trade

1. Not designed as a free-trade bloc

2. Strengthen multilateral trade system

3. Liberalize trade and investment rules

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2008
 Middle East and Africa
Gulf Cooperation Economic Community of
Council West African States
(GCC) (ECOWAS)

Common market hopes

Six Arab nations (1980) (1975)
Economic and political aims Little progress to date
Free travel; property rights

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2008
 Chapter Review

Define each level of regional integration

Identify the potential effects of integration
Discuss European integration and
enlargement
Characterize integration efforts in the
Americas
Identify why integration in Asia is unique
Discuss integration in the Middle East and
Africa
© Prentice Hall, International Business 4e
2008