INTERNATIONAL

BUSINESS
MANAGEMENT

Regional integration
Module 5
 INTRODUCTION

 DEFINITION
 LEVELS OF ECONOMIC INTEGRATION
 ARGUMENTS FOR & AGAINST REGIONAL
INTEGRATION
 TRADING BLOCKS
 DEFINITION

 Regional Economic Integration means

agreements between groups of
countries in a geographic region to
reduce and ultimately remove tariff
and non-tariff barriers tot eh free flow
of goods, services and factors of
production between each other.

 THE BIGGEST
ASSOCIATIONS

 WTO
 GATT

 WTO IN A NUTSHELL
UMBRELLA AGREEMENT ESTABLISHING WTO
GOODS SERVICES INTELLECTU
AL
Basic GATT GATS PROPERTY
TRIPS
principals
Additional Other goods Service annexesTrade-Related
agreements and Aspects of
details annexes Intellectual
Property Rights
Market access Countries’ Countries’
schedules of
commitments commitments
schedules of
commitments
Dispute DISPUTE SETTLEMENT/NEGOTIATIONS
settlement
Transparency TRADE POLICY REVIEWS
Levels of regional
integration
TYPE(LEVEL) EXAMPLE MEMBERSHIP PRINCIPLE
FEATURES
FREE TRADE North American North American No internal tariffs.
AREA Free Trade Free Trade Each country
Agreement Agreement determines its
(NAFTA) (NAFTA) own trade policies
Closer Economic Closer Economic toward non-
Relations (CER) Relations (CER) members.
CUSTOMS Andean Pact Bolivia As for FTA
UNION Colombia above.
Ecuador Common external
Peru tariff on goods
imported from
COMMON European 12 European As for customs
outside.
MARKET Community (EC) countries. union above.
before January Labour and
1994. There has capital free to
not been another. move.
No restrictions on
ECONOMIC European 25 European As for
UNION Union (EU) countries. common
as from market
January above.
1999. Common
currency -
European
Monetary
Unit (called
the 'Euro')
Harmonizati
on of tax
rates.
POLITICAL EU has some 25 European European
UNION elements; see countries, but parliament,
previous level. may include 28 directly elected
The ultimate countries by by citizens of
aim is a United 2007. EU countries.
States of Council of
Europe. Ministers:
government
ministers for
each EU
country.
An
administrative
bureaucracy.
Court of Justice:
 ARGUMENTS FOR
REGIONAL INTEGRATION
 Free trade
 Movement of goods,
services, capital, and factors of
production allow for the most
efficient use of resources. That
is positive sum game, as all
countries can benefit.

 The political case for integration has
two main points:
(1) By linking countries together, making


them more dependent on each other,

and forming a structure where they
regularly have to interact, the likelihood
of violent conflict and war will
decrease.
(2) By linking countries together, they


have greater influence and are

politically much stronger in dealing with
other nations.

 There are two main impediments
(obstacles) to integration:  
 (1) There are always painful
adjustments, and groups that are
likely to be directly hurt by
integration will lobby hard to
prevent losses,
 (2) Concerns about loss of sovereignty
and control over domestic interests.

 Examples to
remember

 For example, Canada has always been

concerned about being dominated by
its southern neighbor, and Britain is
very hesitant to give much control to
European bureaucrats (it still has not
adopted the euro)
  
 The case on NAFTA and the US Textile
Industry shows that although the
effects of NAFTA have hurt employment
in the US textile industry, the overall
effect has actually been positive. The
reason: clothing prices have fallen,
exports have increased, and sales to
apparel factories have surged. Those
factors more than compensate for the
loss of jobs.
 ARGUMENTS AGAINST
REGIONAL INTEGRATION
 Whether regional integration is in the economic
interests of the participants depends upon
the extent of trade creation as opposed to
trade diversion.
 


 Trade creation occurs when low cost

producers within the free trade area
replace high cost domestic producers.
 


 Trade diversion occurs when higher cost

suppliers within the free trade area
replace lower cost external suppliers.
 


 A regional free trade agreement will only make

the world better off if the amount of trade it
 TRADE BLOCKS

 Regional economic integration in

divided into three areas:
q EUROPE

q AMERICA

q OTHERS
 REGIONAL ECONOMIC
INTEGRATION IN EUROPE

Free Trade Association

 Formation

 The devastation wrought by two World Wars

and the perceived need to counter the
economic strength of both the US and the
former USSR were the two major political
factors behind its formation.
 Forerunner of EU was European Coal and
Steel Community-1951(removing barriers
to trade in coal, iron, steel, and scrap
metal)
 EFTA member countries denial
 The problems with lack of progress on the
objectives of the EU resulted in a number
of problems for firms and governments,
and led to adoption of the Single
 The Single European Act called for the removal
of border controls, mutual recognition of
standards, open public procurement, a
barrier free financial services industry, no
currency exchange controls, free and open
freight transport, and freer and more open
competition.
 Regulating mergers of international
companies.
 The Treaty of Maastricht took the EU one
step further, by specially spelling out the
steps to economic union and partial
political union. the future outlines of a
common foreign policy, economic policy,
 The Euro was officially launched on
January 1, 1999. It became into
full use On January 1, 2002.
 Many firms and countries (including the
EFTA countries) are concerned that
the EU will result in a “fortress
Europe,” where insiders will be
given preferential treatment over
outsiders.
The Euro currency
 Regional economic
integration of
Americans
 The North American Free Trade
Agreement (NAFTA)
 The Andean Pact
 MERCOSUR
 Other Latin American trade pacts
like Central American common
market, CARICOM etc.

 NAFTA-NORTH AMERICAN
FREE TRADE ASSOCIATION
 The agreement became law in January 1, 1994. it contains the
flowing actions.

 Abolishes within 10 years tariffs on 99 percent goods

traded between Mexico, Canada and United States.

 Removes barriers on cross border flow of services, e.g.,

allowing financial institutions unrestricted access to
Mexican markets by 2000.

 Protects intellectual property rights.

 Removes restrictions on FDI between three member

countries

 Allow each country to apply its own environmental

standards, lowering of standards to lure investments
is described as inappropriate and establish two
commissions with the power to impose fines to
protect these standards.
Nafta corridor
Andean pact
 formation

 The Andean Pact, originally formed in 1969,

when Bolivia, Chile, Ecuador, Colombia
and Peru signed the Cartagena
agreement. The Andean pact was largely
based on EC model, and reformed and
renegotiated several times, has made little
progress due political and economic turmoil
in most of the countries.
 However, by the mid 1980’s the Andean pact
had collapsed. It has failed to achieve any
of its stated objectives. In 1990, the heads
of five current members of the Andean
group-Bolivia, Ecuador, Peru, Colombia
and Venezuela met in Galapagos Islands.
The resulting Galapagos declaration
effectively relaunched the Andean group.
 MERCOSUR originated in 1988 as a free
trade pact between Brazil and
Argentina. In 1990, it was
expanded to include Paraguay and
Uruguay. MERCOSUR has been
making progress on reducing trade
barriers between member states.
Today, most goods go tariff free
within MERCOSUR, except sugar and
cars. Trade among MERCOSUR’s four
core members grew from $4 billion
in 1990 to $14.5 billion in 1995.

Mercosur map
 Regional integration in
other parts of world

 ASEAN
 SAARC
 APEC
 Association of
Southeast Asian
Nations (ASEAN)
 Formed in 1967, ASEAN currently
include Brunei, Indonesia, Malaysia,
Philippines, Singapore, Thailand and
Vietnam. These countries are
characterized by an abundance of
natural resources, large
international trade sectors most
successful economic policies.
 The basic objectives of ASEAN are to
foster free trade between member
countries and to achieve some
cooperation in their industrial
policies.
ASEAN LOGO & MAP
 Asia Pacific Economic
Cooperation (APEC)

 APEC is a broader Pacific organization

that meets yearly and includes the
US, Japan, China, and 15 other
countries. These 18 countries
account for half of the world’s GDP,
46 percent of world trade and most
of the growth in the world economy.
The stated aim of APEC is to
increase multilateral cooperation in
view of the economic rise of the
pacific nations and the growing
interdependence within the region.
 South Asian
Association for
Regional Cooperation
(SAARC)
 The South Asian Association for
Regional Cooperation (SAARC)
 It is an economic and political
organization of eight countries in
Southern Asia. In terms of population, its
sphere of influence is the largest of any
regional organization: almost 1.5 billion
people, the combined population of its
member states. It was established on
December 8, 1985 by Bangladesh, Bhutan,
Maldives, Nepal, Pakistan, India and
Sri Lanka. In April 2007, at the Association's
14th summit, Afghanistan became its
eighth member.
Saarc logo & member
countries