REGIONAL ECONOMIC INTEGRATION

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REGIONAL ECONOMIC INTEGRATION
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Case Ford in Europe

• One of the most notable trends in the global
  economy in recent years has been the accelerated
  movement toward regional economic integration
• Regional Economic Integration agreements between
  groups of countries in a geographic region to
  reduce, and ultimately remove, tariff and
  nontariff barriers to the free flow of goods,
  services, and factors of production between each
  other.
• By entering into regional agreements groups of
  countries aim to reduce trade barriers more
  rapidly than can be achieved under the auspices
  of the WTO
• The specter of the EU and NAFTA turning into
  ëconomic fortressthat shut out foreign producers
  with high tariff barriers is particularly
  worrisome to those who believe in the value of
  unrestricted free trade

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• I - LEVELS OF ECONOMIC INTEGRATION

Free Trade Area In a free trade area all
barriers to the trade of goods and services among
member countries are removed. In the
theoretically ideal free trade area, no
discriminatory tariffs, quotas, subsidies, or
administrative impediments are allowed to
determine its own trade policies with regard to
nonmembers. Ex EFTA and NAFTA Customs
Union eliminates trade barriers between
member-countries and adopts a common external
trade policy. Ex Andean Pact
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• Common Market The theoretically ideal common
  market has no barriers to trade between
  member-countries and a common external trade
  policy. Unlike in a customs union, in a common
  market factors of production also are allowed to
  move freely between member-countries. Thus,
  labour and capital are free to move, as there are
  no restrictions on immigration, emigration, or
  cross-border flows of capital between
  member-countries.
• Economic Union An Economic Union involves the
  free flow of products and factors of production
  between member-countries and the adoption of a
  common external trade policy. A full economic
  union also requires a common currency,
  harmonization of the member-countries tax rates
  and a common monetary and fiscal policy.

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• II - THE CASE FOR REGIONAL INTEGRATION

A - THE ECONOMIC CASE FOR
Unrestricted free trade will allow countries to
specialize in the production of goods and
services that they can produce most
efficiently Asian, Russian, and Latin American
Crisis Questioning liberalization of financial
markets!!! Opening a country to free trade
stimulates economic growth in the country, which
in turn creates dynamic gains from trade. Flows
of FDI can transfer technological, marketing and
managerial know-how to host nations. Stimulates
Economic Growth
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B POLITICAL CASE FOR INTEGRATION
Incentives are created or political cooperation
between neighboring states By grouping
their economies together, the countries can
enhance their political weight in the world.
C IMPEDIMENTS TO INTEGRATION
Costs, painful adjustments Concerns over
national sovereignty
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III - THE CASE FOR/AGAINST REGIONAL INTEGRATION
A - TRADE CREATION
Occurs when high-cost domestic producers are
replaced by low-cost external suppliers within
the free trade area.
B - TRADE DIVERSION
Occurs when lower-cost external suppliers are
replaced by higher-cost suppliers within the free
trade area. A regional free trade agreement will
benefit the wold only if the amount of trade
exceeds the amount it diverts. In theory, GATT
and WTO rules should ensure that a free trade
agreement does not result in trade diversion.
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IV - REGIONAL ECONOMIC INTEGRATION IN EUROPE

• The EU is the product of two political factors
• a) Devastation of two wars
• b) Desire to hold their own on the worlds
  political and economic stage
• TREATY OF ROME 1957
• In 1973, first enlargement of the EC
• Other additions, Greece in 1981, Spain and
  Portugal in 1986, and in 1996 by Finland, Austria
  and Sweden
• With a population of 350 million and a GDP
  greater than that of the United States, these
  enlargements made the EU a potential global
  superpower.

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In 1994, following the ratification of the
Maastricht treaty Single European Act The main
problem with the EC was the disharmony of the
member-countries technical, legal, regulatory and
tax standards. The rules of the game differed
substantially from country to country, which
stalled the creation of a true single internal
market. The White Paper was published in
1985, proposing that all impediments to the
formation of a single market be eliminated by
1992. Objectives of the Act frontier controls,
mutual recognition of standards, public
procurement, financial markets, lifting barriers,
exchange controls, freight transport. The
United States of Europe
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The Treaty of Maastricht Common currency, lower
cost of doing business in Europe, reduce risks
that arise from currency fluctuations. National
authorities would lose control over monetary
policy Enlargement of the European Union
Eastern European Countries? Fortress Europe?
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V - REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS
A - The Nafta Agreement

• Nafta became law January 1, 1994.
• Guidelines
• - Abolition within 10 years of tarifs on 99 of
  the goods traded among Mexico, Canada, and the
  U.S.
• - Remove most of the barriers on the cross-border
  flow of services
• - Protect intellectual property rights
• - Removes most restrictions on FDI among the
  three members
• - Members are allowed to apply its own
  environmental standards

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• Arguments against NAFTA
• - mass exodus of jobs from the US and Canda
  (Perots Sucking Sound)
• - Expose Mexican firms to highly efficient
  Canadian and American firms.
• - Painful Economic Restructuring and Unemployment
  in Mexico
• - Loss of National Sovereignty

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B - FTAA
Enlargement of NAFTA or the creation of two major
trading blocks in the Americas SAFTA and NAFTA?
C - CACM, CARICOM
D - MERCOSUR
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VI - ASIAN AND AFRICAN TRADING BLOCKS

• ASEAN, APEC
• AFRICAN COOPERATION

VII - COMMODITY AGREEMENTS
BUFFER-STOCK SYSTEM MULTIFIBER
ARRANGEMENT (MFA)
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VIII - THE UNITED NATIONS
UNCTAD
IX - THE ENVIRONMENT
THE RIO EARTH SUMMIT