Regional economic integration

Andean Pact

Bolivia, Columbia, Ecuador, Peru- Venezuela exited from that

MERCOSUR

Brazil, Argentina, Paraguay, Uruguay, and Venezuela

What is the status of regional economic integration in Europe?

Europe has two trade blocs -European Union (EU) with 28 members (including UK) -European Free Trade Act (EFTA) with 4 members

European Free Trade Association (EFTA)

Norway, Iceland, Liechtenstein, and Switzerland

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

European Parliament

debates legislation proposed by the commission and forwarded to it by the council

Free trade area

eliminates all barriers to the trade of goods and services among member countires

Political union

involves a central political apparatus that coordinates the economic, social, and foreign policy of member states -the EU is headed toward at least partial political union, and the United States is an example of even closer political union

Trade diversion

occurs when higher cost suppliers within the free trade area replace lower cost external suppliers

Trade creation

occurs when low cost producers within the free trade area replace high cost domestic producers

Regional economic integration cons

-loss of national sovereignty -trade barriers with others outside the region -not everyone benefits- low income loss

What is the the political structure of the European Union?

-European council -European commission -council of the European Union -European parliment -court of justice

New trade pacts under consideration

-Transatlantic Trade and Investment Partnership (EU and USA) -Trans-Pacific Partnership -Free Trade of Americas (all of North, Central and South America)

Future of EU?

-challenges -continuing benefits to member states

Single European Act (1987)

-committed the EC countries to work toward establishment of a single market by December 31, 1992 -was born out of frustration among EC members that the community was not living up to its promise -provided the impetus for the restructuring of substantial sections of European industry allowing for faster economic growth than would otherwise have been the cas

Is the North American Free Trade Area beneficial? critics

-critics of NAFTA claimed that: -jobs would be lost and wage levels would decline in the US and Canada -Mexican workers would emigrate north -pollution would increase due to Mexico's more lax standards -Mexico would lose its covereignty

What is the Association of Southeast Asian Nations (1967)?

-currently includes Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Myanmar, Laos, and Cambodia -wants to foster freer trade between member countries and to achieve some cooperation in their industrial policies -an ASEAN Free Trade Area (AFTA) between six original members of ASEAN came into effect in 2003 ASEAN and AFTA are moving towards establishing a free trade zone

Customs Union

-eliminates trade barriers between member countries -adopts a common external trade policy

What is the Asia-Pacific Economic Cooperation (APEC)?

-has 21 members including the US, Japan, and China -wants to increase multilateral cooperation -member states account for 55% of world's GNP, and 49% of world trade

Common market

-has no barriers to trade between member countries -a common external trade policy -the free movement of the factors of production

Economic union

-has the free flow of products and factors of production between members -a common external trade policy -a common currency -a harmonized tax rate -a common monetary and fiscal policy European Union (EU)

What is the North American Free Trade Agreement (NAFTA)?

-includes the US, Canada, and Mexico -abolished tariffs on 99% of the goods traded between members -removed most barriers on the cross-border flow of services -protects intellectual property rights -removes most restrictions on FDI between the three member countries -allows each country to apply its own environmental standards -establishes two commissions to impose fines and remove trade privileges when environmental standards or legislation involving health and safety, minimum wages, or child labor are ignored

What is the status of economic integration in Africa?

-many countries are members of more than one of the nine blocs in the region -but, since many countries support the use of trade barriers to protect their economies from foreign competition, meaningful progress is slow -the East African Community (EAC) was relaunched in 2001, however so far, the effort appears futile

What is MERCOSUR?

-originated in 1988 as a free trade pact between Brazil and Argentina -was expanded in 1990 to include Paraguay and Uruguay -may be diverting trade rather than creating trade, and local firms are investing in industries that are not competitive on a worldwide basis -initially made progress on reducing trade barriers between member states, but more recently efforts have stalled

Regional economic integration pros

-regional economic growth -regional political peace -greater political and economic clout (power)

What does economic integration mean for managers?

-regional economic integration opens new markets allows firms to realize cost economies by centralizing production in those locations where the mix of factor costs and skills are optimal BUT -within each grouping, the business environment becomes competitive -there is a risk of being shut out of the single market by the creation of a "trade fortress"

End result of NAFTA

-research indicates that NAFTA's early impact was subtle, and both advocates and detractors may have been guilty of exaggeration -NAFTA is credited with helping create increased political stability in Mexico -other Latin American countries would like to join NAFTA

Is the North American Free Trade Area beneficial? supporters

-supporters of NAFTA claimed that: -Mexico would benefit: from increased jobs as low-cost production moves south and will see more rapid economic growth as a result -the US and Canada would benefit: from access to a larger and increasingly prosperous market the lower prices for consumers from goods produced in Mexico Low-cost labor and the ability to be more competitive on world markets

What is the Free Trade of The Americas?

-talks began in April 1998 to establish a Free Trade of The Americas (FTAA) by 2005 -the FTAA was not established and now support from the US and Brazil is mixed the US wants stricter enforcement if intellectual property rights Brazil and Argentina want the US to eliminate agricultural subsidies and tariffs -if the FTAA is established, it will have major implications for cross-border trade and investment flows within the hemisphere would create a free trade area of 850 million people who accounted for nearly $18 trillion in GDP in 2008

What is the European Union?

-the devastation of two world wars on Western Europe prompted the formation of the EU members wanted lasting peace and to hold their own on the world's political and economic stage -forerunner was the European Coal and Steel Community (1951) -the European Economic Community (1957) was formed at the Treaty of Rome with the goal of becoming a common market -the Single European Act (1987)

What is the status of economic integration in the Americas?

-there is a move toward greater regional economic integration in the Americas -the biggest effort is the North American Free Trade Area (NAFTA) -other efforts include the Andean Community and MERCOSUR -a hemisphere-wide Free Trade of the Americas is under discussion

What is the status of economic integration in Asia?

-various efforts at integration have been attempted in Asia, but most exist in name only -Association of Southeast Asian Nations (ASEAN) -Asia-Pacific Economic Cooperation (APEC)

Levels of regional economic intregration

1. free trade area 2. customs union 3. common market 4. economic union 5. poltical union

North American Free Trade Association (NAFTA)

US, Canada, and Mexico

What limits efforts at integration?

regional economic integration is only beneficial if the amount of trade it creates exceeds the amount it diverts -trade creation -trade diversion

European council

resolves major policy issues and sets policy directions

European Commission

responsible for implementing aspects of EU laws and monitoring member states to ensure they are complying with EU laws

court of Justice

the supreme appeals court of EU law

Council of the European Union

the ultimate controlling authority within the EU