REGIONAL ECONOMIC INTEGRATION

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 conomic fortressthat shut out foreign producers with high tariff barriers is particularly worrisome to those who believe in the value of unrestricted free trade

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

 Common Market: The theoretically ideal common market has no barriers to trade between membercountries 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.

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

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

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.

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.

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

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?

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

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 Unemployment in Mexico - Loss of National Sovereignty Restructuring and

B - FTAA
Enlargement of NAFTA or the creation of two major trading blocks in the Americas SAFTA and NAFTA?

C - CACM, CARICOM

D - MERCOSUR

VI - ASIAN AND AFRICAN TRADING BLOCKS

ASEAN, APEC AFRICAN COOPERATION

VII - COMMODITY AGREEMENTS

BUFFER-STOCK SYSTEM
MULTIFIBER ARRANGEMENT (MFA)

VIII - THE UNITED NATIONS

UNCTAD

IX - THE ENVIRONMENT
THE RIO EARTH SUMMIT