Chapter 8: Regional Economic Integration
What are the 9 leading economic blocs?
1) The European Union (EU) 2) European free trade association 3)The North American Free Trade Agreement (NAFTA) 4) El mercado comun del sol (MERCOSUR) 5) The Caribbean Community 6) Association of Southeast Asian Nations 7) Asia Pacific Economic Cooperation (APEC) 8) Australia and New Zealand closer economic relations agreement (CER) 9) Economic integration in the Middle East and Africa
What is the last major economic bloc?
Economic integration in the Middle East and Africa
What are the four success factors for regional integration?
1) Economic similarity 2) Political similarity 3) Similarity of culture and language 4) Geographic proximity
What are the FOUR objectives nations seek in pursuing regional integration?
1) Expand market size 2) Achieve scale economies and enhanced productivity 3) Attract direct investement from outside the bloc 4) Acquire stronger defensive and political posture
What are the 3 main functions of The European Parliament?
1) Forming European Union legislation 2) Supervises European Union institutions 3) Makes decisions about the European Union budget
What are the five types of regional integration?
1) Free trade area 2) Customs union 3) Common market 4) Economic and monetary union 5) Political union
What are the 4 steps the European Union has taken to become an Economic Union?
1) Market access 2) Common market 3) Trade rules 4) Standards harmonization
What are the three drawbacks and ethical dilemas of regional integration?
1) Trade diversion 2) Free global trade 3) Transfer of power to global firms
How many extremes are there to understanding regional integration?
2
Define regional integration bloc?
A regional integration bloc also known as economic bloc, refers to a geographic area that consists of two or more countries that agree to pursue economic integration by reducing tariffs and other restrictions to cross border flow of products, services, capital, and labor
What does APEC stand for?
APEC means the Asia Pacific Economic Cooperation
Define what the Association of Southeast Asian Nations is (ASEAN)?
ASEAN was created in 1967 with the goal of maintaining political stability and promoting regional economic and social development. Tension between countries constitute too this economic bloc not having a strong chance to become a common market or economic union
Define what El Mercado Comun del Sol (MERCOSUR) is?
Also known as the southern common market established in 1991, MERCOSUR has become the strongest economic bloc in South America. The four largest members alone (Argentina, Brazil, Paraguay, and Uruguay) account for 80% of South America's GDP
Describe the basic function to The European Parliament?
By common agreement, the European Parliament meets in three different cities (Brussels, Luxembourg, Strasbourg, and France) and can have up too 732 total representatives
What does CER stand for?
CER stands for Australia and New Zealand closer economic relations agreement
Define the common market for regional integration?
Common market integration is the third stage of regional integration from which countries can establish
Elaborate the common market stage for regional integration?
Common market is a stage of regional integration in which trade barriers are reduced or removed. Common external barriers are established, and products/services and factors of production are allowed to move freely among the member countries (example is the European Union)
Elaborate why common markets are hard to create?
Common markets are hard to create because they require substantial cooperation from the member countries on labor and economic policies. Moreover, because labor and capitol can flow freely inside the bloc, benefits to individual members vary, because skilled labor may move to countries where wages are higher and investement capital may flow to countries where returns are greater
Define the benefits of attracting direct investement from outside the bloc for regional integration?
Compared to investing in stand-alone countries, foreign firms prefer to invest in countries that are apart of an economic bloc because factories that they build within the bloc receive preferential treatment for exports to other member countries
Define the Caribbean Community (CARICOM)?
Composed of 25 members and associate states around the Caribbean Sea, CARICOM was established in 1973 to lower trade barriers and institute a common external tariff
Why do countries pursue economic integration?
Countries pursue economic integration because economic integration contributes to corporate and industrial growth, and hence to economic progress, better living standards, and higher tax revenues for the member
Elaborate why political similarity is important for countries?
Countries that seek to integrate regionally should share similar aspirations and a willingness to surrender national autonomy for the larger goals of the proposed region
Define what the similarity of culture and language is?
Culture and linguistic similarity among the countries in an economic bloc provides the basis for mutual understanding and cooperation. This partially explains the success of MERCOSUR bloc in Latin America, whose members share many cultural and linguistic similarities
Define customs union region integration?
Custom union integration, is the stage of regional integration in which the member countries agree to adopt common tariff and non-tariff barriers on imports from nonmember countries
Describe the differences between customs union integration and free trade regional integration?
Customs union integration is similar to a (free trade area) except that member states harmonize their policies towards nonmember countries. Unlike a free trade area, in which individual countries have their own external trade policies, the members of a customs union adopt common tariff and non tariff barriers on imports from non-member countries (Example is MERCOSUR)
What does total economic integration allow?
Economic integration allows member states to use resources more productivity. The total output of the integrated area becomes greater than that achievable by individual states
Elaborate on economic similarity?
Economic similarity characteristics is so important that the EU requires it's current and prospective members to meet strict membership conditions, ideally low inflation, low unemployment, reasonable wages, and stable economic conditions
Define what economic similarity is?
Economic similarity establishes/states that the more similar the economies of the member countries, the more likely the economic bloc will succeed
Why is economic similarity significant?
Economic similarity is important because significant wage rate differences means that workers in lower-wage countries will migrate to higher wage countries. Significant economic instability in one member country can quickly spread and harm the economies of the other members
Define the economic unions for regional integration?
Economic unions refer to 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. At the extreme, each member country adopts identical tax rates
Define the benefits of achieving scale economies and enhanced productivity for regional integration?
Expansion of market size within and economic bloc gives member country firms the opportunity to increase the scale of operations in both production and marketing. This leads too greater concentration and increased efficiency in these activities
Elaborate the success factors for regional integration?
Experience with regional, economic integration suggests that the most successful economic blocs tend to possess the following characteristics
Elaborate on the free trade area?
Free-trade area is the simplest and most common arrangement, and thus it emphasizes the pursuit of comparative advantage for a group of countries rather than individual states (Example is NAFTA)
Elaborate the recent problems for the Caribbean Community (CARICOM)?
However, problems have resulted due to economic difficulties of individual members and their inability too agree on basic issues . With a new common market established, the economic bloc has made significant progress
What is the first extreme to understanding regional integration?
Hypothetically speaking, the world operates as one-large free-trade area in which there are no tariffs, or quotas, all countries use the same currency, products, services, capital, and workers can move freely among nations with no restrictions
Define what geographic proximity is?
Most economic blocs are formed by countries within the same geographic region (hence the name "regional integration"). Close geographic proximity markets trade a **** ton easier
Define The North America Free Trade Agreement (NAFTA)?
NAFTA consists of the United States of America, Canada, and Mexico and is the most significant economic bloc in the America's . Comparable to the size of the EU, NAFTA was launched in 1964 and was smoothed by the existence of the Maquiladora program
What does NAFTA offer?
NAFTA helps provide for dispute settlements in area's such as investement, unfair pricing, labor issues, and the environment. NAFTA also includes provisions that promotes sustainable development and environmental protection
Define the benefits of acquiring stronger defense and political posture for regional integration?
One goal for regional integration is to give the member countries a stronger defensive posture relative to other nations and world regions
What is the second extreme to understanding regional integration?
Opposite of the first extreme, at the other end of the continuum, is a world of prohibitive barriers to trade and investement where countries have separate currencies and have very little commercial interaction with each other
Define what political similarity is?
Political similarity states tat similarity in political systems enhances prospects for a successful bloc
Define regional economic integration?
Regional economic integration refers too the growing economic interdependence that results when two or more countries within a geographic region form an alliance aimed at reducing barriers to trade and investement
Define the benefits of expanding market size for regional integration?
Regional integration greatly increases the scale of the market place for firms inside the economic bloc. in this way, consumers also gain access to greater selection of products and services
Define the basics to the types of regional integration?
Regional integration involves processes by which national economies become economically linked and interdependent through greater cross-national movement of products, services, and factors of production
Give a broad view of regional integration?
Regional integration is best viewed as a continuum, with economic interconnectedness progressing from a low level of integration-the free trade area-through higher levels to the most advanced form of integration (the political view)
Describe the process of market access?
Tariffs and most non-tariff barriers have been eliminated for trade in products and services, and rules of origins favor manufacturing that uses parts and other inputs produced in the European Union
Elaborate on the Comunidad Andina de Naciones (CAN)?
The CAN countries have a population of 120 million and a GDP of 260 billion. However, because of the Andes Mountains makes cross-border land transportation costly and cumbersome
Define what The Common Agricultural Policy is?
The Common Agricultural Policy (CAP) is a system of agricultural subsidies and programs that guarantees a minimum price to European Union Framers and Ranchers
Describe the internal makeup of The Council of the European Union?
The Council of the European Union is composed of representatives from each member country, it makes decisions regarding economic policies, budgets, and foreign policy, as well as admission of new member countries
Define 1) The Council of the European Union
The Council of the European Union, based in Brussels Belgium is the European Unions main-decision making body
Elaborate on the main role of The European Commission?
The European Commission's primary function is that it proposes legislation and policies and is responsible for implementing the decisions of the European Parliament and the Council of the European Union
Define 2) The European Commission?
The European Commission, also bared in Brussels, is similarly composed of delegates from each member state and repersently the interests of the European Union as a whole
Define 4) The European Court of Justice
The European Court of Justice, interprets and enforces European Union Laws and settles legal disputes between member states
Describe the process of Standards Harmonization?
The European Union is harmonizing technical standards, regulatory, and enforcement procedures that relate to products, services, and commercial activities Ex) England switching from imperial measurements to the metric system
What is the European Union?
The European Union is the worlds most integrated bloc. The roots of the European Union, extends back to post World War 2 when six countries (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands) sought to promote peace through economic/political cooperation
Describe the process of common market?
The European Union removed barriers to the cross-national movement of production factors (labor, capitol, and technology) ex) an Italian worker has the right to get a job in Ireland and a French company can now invest freely in Spain
Define 3) The European Parliament?
The European parliament, consists of elected representatives that hold joint sessions each month
How has NAFTA'S agreement increased market access for its members?
The agreement eliminated tariffs and most non-tariff barriers for products and services traded in the bloc, ad made it possible for member country firms to bid for government contracts. Ultimately, member countries agreed to rules for investment and property rights
Elaborate the main roles of the bloc?
The bloc promotes free trade and strengthens economic relations with other European countries and the world. This allows free movement of people, products, services, and capital throughout the combined area of the EFTA and the EU
Define what the Comunidad Andina de Naciones (CAN) is?
The comunidad Andina de Naciones was established in 1969. It includes Bolivia, Columbia, Peru, Ecuador, and Venezuela
Define the free trade area regional integration?
The free trade area, refers to a stage of regional integration in which member countries agree to eliminate tariffs and other barriers to trade in products and services within the bloc
True or false?
The free trade that results from economic integration helps nations attain higher living standards by encouraging specialization, lower prices, greater choices, increased productivity, and more efficient use of resources
Describe the process of trade rules?
The member countries have largely eliminated custom procedures and regulations, which streamlines transportation and logistics within europe
Define the political union
The political union represents the most advanced form of integration/ the ultimate degree of integration among countries, which has not yet been achieved
Define the European Free Trade Association?
The second largest free trade area in Europe is EFTA, which was established in 1960 by Britain, Denmark, Norway, Portugal, Sweden, and Switzerland
Elaborate the benefits of acquiring stronger defense and political posture for regional integration?
This was one of the motives for creating the European community (the precursor to the EU), whose members sought to strengthen their mutual defense against the expanding influence of the Soviet Union
What is trade creation?
Trade creation defines/means that trade is generated among the countries within the economic bloc
True or False? As with customs union, common market integration also establishes a common trade policy with non-member countries
True
True or False? The European Union faces other challenges as well as there is a tension between the forces or regional integration and the forces for retaining national identity
True
True or false? As a result of this, a worker from a European Union country has the right to work in other EU countries, and EU firms can freely transfer funds among their subsidies within the bloc
True
True or false? By establishing operations in a single EU country, these firms gain free trade access to the entire EU market
True
True or false? Forming an economic bloc also allows countries too obtain greater bargaining power in world affairs thereby political power
True
True or false? In the short run, regional integration gives rise to both trade creation and trade diversion
True
True or false? Internalization inside the bloc helps firms compete more effectively outside the bloc as well, the firms enjoy additional benefits through increased access to factors of production that flow freely across national borders within the bloc
True
True or false? It is estimated that 40% of the world today is under some form of preferential trade agreements signed by groups of countries. The trade is based on the premise that, by cooperating, nations with a common geographic region can gain mutual advantages
True
True or false? MERCOSUR has five additional associate countries who have access to the trade but not to the tariff members
True
True or false? MERCOSUR strives to become an economic union
True
True or false? More advanced countries/economic blocs, such as the EU, permits the flow of capital, labor, and technology, among the member countries
True
True or false? Nations seek FOUR objectives in pursuing regional integration?
True
True or false? One of the most remarkable features of contemporary international business is the worldwide trend to regional economic integration
True
True or false? Regional Integration is an attempt to achieve freer economic relations (examples: The European Union (EU) and the North Atlantic Free Trade Agreement (NAFTA)
True
True or false? Regional integration is not normally a positive trend. The changes that result form regional integration can threaten firms and other constituents and give rise to ethical and regional concern
True
True or false? The Common Agricultural Policy (CAP) has long been a fixture of the European Union bloc
True
True or false? The European Union has four additional institutions that perform it's executive, legislative, and judicial functions
True
True or false? The bloc ultimately aims for standardized monetary policy, which required establishing fixed exchange rates and free convertibility of currencies among the member states, in addition to the free movement/flow of capital
True
True or false? Thus with problems, the European Union has been working to reform the CAP, but progress has been slow
True
Describe the USA's success in NAFTA?
Under this program, U.S firms have been able to locate manufacturing facilities just south of the US border and access low-cost labor and other advantages in Mexico without having to pay high tariffs
Elaborate El Mercado Comun del Sol (MERCOSUR)?
Within it's borders MERCOSUR established the free movement of products and services, a common external tariff and trade policy, and coordinated monetary and fiscal policies. Additionally, the construction of reliable infrastructure- roads, electricity, grids, and gas pipelines across a landmass larger than the United States combined