Globalization Chapter 7 B:
The EU has taken the following steps toward becoming a full-fledged economic union:
(1) Market access. Tariffs and most nontariff barriers have been eliminated for trade in products and services, and rules of origin favor manufacturing that uses parts and other inputs produced in the EU. (2) Common market. The EU removed barriers to the cross-national movement of production factors—labor, capital, and technology. (3) Trade rules. The member countries have largely eliminated customs procedures and regulations, which streamlines transportation and logistics within Europe. (4) Standards harmonization. The EU is harmonizing technical standards, regulations, and enforcement procedures that relate to products, services, and commercial activities. (5) Common fiscal, monetary, taxation, and social welfare policies in the long run. The euro (common currency since 2002):
Caribbean Community and Common Market (CARICOM)
Caribbean Community and Common Market (CARICOM)
Why join/form Economic Bloc
Economic integration contributes to corporate and industrial growth, to economic progress, better living standards, and higher tax revenues for the member countries.
free trade agreement.
For countries that become members of an economic bloc, there are various stages of regional integration. First is the free trade area, in which tariffs and other trade barriers are eliminated, and that emerge when nations sign a free trade agreement. Example- NAFTA
NAFTA results
Trade among the members has more than tripled and now exceeds one trillion dollars per year. ● Access to Canada and the U.S. helped launch numerous Mexican firms in industries such as electronics, automobiles, textiles, medical products, and services. ■ NAFTA resulted in North American labor market restructuring: ◘ Falling trade barriers triggered job losses in the North as factories were "exported" to Mexico to profit from its low-cost labor. ◘ Increased purchasing power of Mexican consumers meant that they could afford to buy U.S. and Canadian imports.
Mergers and Acquisitions
are related to rationalization- the merger of two or more firms creates a new company that produces a product on a much larger scale.
Economic union
is a stage of regional integration in which member countries enjoy all the advantages of early stages, but also strive to have common fiscal and monetary policies- identical tax rates, fixed exchange rates, free convertibility of currencies among the member states and the free movement of capital. ◘ Example- the EU has made great strides toward this. Thirteen EU countries have established a monetary union with a single currency, the euro.
Free trade area
is the simplest and most common arrangement, in which member countries agree to gradually eliminate formal barriers to trade in products and services within the bloc, while each member country maintains an independent international trade policy with countries outside the bloc. - ◘ Example- NAFTA
Regional economic integration bloc (economic bloc)
member countries agree to eliminate tariffs and other restrictions on the cross-national flow of products, services, capital, and, in more advanced stages, labor, within the bloc. At minimum, the countries in an economic bloc become parties to a free trade agreement, which eliminates tariffs, quotas, and other trade barriers.
Standardization
of products and services- firms prefer standardized merchandise in their various markets- easier and much less costly.
Two opposing forces of EU
regional integration vs. national identity retention
Customs union
the next level of regional integration- similar to a free trade area except that the member states harmonize their trade policies toward nonmember countries- common tariff and nontariff barriers on imports from nonmember countries. ◘ Example- MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay)
Common market
the next stage of regional integration- trade barriers are reduced or removed, common external barriers are established and products, services, and factors of production such as capital, labor, and technology are allowed to move freely among the member countries- common trade policy with nonmember countries.
Rationalization
the process of restructuring and consolidating company operations that managers often undertake following regional integration- reducing redundancy. ■ Goal - reduce redundancy & costs and increase the efficiencies through
European Free Trade Association (EFTA)
■ 1960- established by Austria, Britain, Denmark, Norway, Portugal, Sweden, and Switzerland. ■ Most of these countries left the EFTA to join the EU. ■ Current EFTA members are Iceland, Liechtenstein, Norway, and Switzerland.
Association of Southeast Asian Nations (ASEAN)
■ 1967- One of the few examples of economic integration in Asia, ASEAN was created with the goal of maintaining political stability and promoting regional economic and social development ■ ASEAN created a free trade area in which many tariffs were reduced to less than 5 percent.
Comunidad Andina de Naciones (CAN)
■ 1969- Long called the Andean Pact, the CAN includes Bolivia, Colombia, Ecuador, Peru, and Venezuela ■ CAN is expected to merge with MERCOSUR to form a new economic bloc that encompasses all of South America.
El Mercado Comun del Sur (MERCOSUR)
■ 1991- MERCOSUR or (the Southern Common Market) has become the strongest economic bloc in South America ■ MERCOSUR established the free movement of products and services, a common external tariff and trade policy, and coordinated monetary and fiscal policies. ■ MERCOSUR may be integrated with NAFTA and the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) as part of the proposed Free Trade Area of the Americas (FTAA). If implemented, this integration would bring free trade to the entire western hemisphere.
North American Free Trade Agreement (NAFTA)
■ 1994- NAFTA - Canada, the U.S. and Mexico ■ NAFTA passage was facilitated by the maquiladora program - U.S. firms locate manufacturing facilities just south of the U.S. border and access low-cost labor without having to pay significant tariffs since the 1960s.
Asia Pacific Economic Cooperation (APEC)
■ APEC aims for greater free trade and economic integration of the Pacific Rim countries. ■ It incorporates 21 nations on both sides of the Pacific, including Australia, Canada, Chile, China, Japan, Mexico, Russia, and the U.S. ■ Its members account for 85 percent of total regional trade, as well as one-third of the world's population and over half its GDP.
Common Agricultural Policy (CAP)
◘ CAP- system of agricultural subsidies and programs that guarantees a minimum price to EU farmers and ranchers ◘ CAP imposes high import tariffs that unfairly affect exporters in developing economies, such as Africa, that rely heavily on agricultural production.
Nations seek at least four objectives in pursuing regional integration
◘ Expand market size ◘ Achieve scale economies and enhanced productivity ◘ Attract direct investment from outside the bloc ◘ Acquire stronger defensive and political posture
North American Free Trade Agreement (NAFTA)
◘ Increased market access between Canada, Mexico and the U.S. ◘ Eliminated tariffs and most nontariff barriers for products/services traded in the bloc. ◘ Initiated bidding for government contracts by member country firms ◘Established trade rules and uniform customs procedures and regulations ◘ Prohibited standards/technical regulations to be used as trade barriers. ◘ Instituted rules for investment and intellectual property rights. ◘ Provided a forum for dispute settlement regarding investment, unfair pricing, labor issues, and the environment.
Six strategic Implications of regional economic integration
◘ Internationalization by firms inside the economic bloc ◘ Rationalization of operations ◘ Mergers and acquisitions ◘ Regional products and marketing strategy (standard ization) ◘ Internationalization by firms from outside the bloc ◘ Collaborative ventures
Political union
◘ Perfect unification of all policies by a common organization- submersion of all separate national institutions ◘ Example- Remains an ideal, yet to be achieved.