Chapter 8 Regional Economic Integration Prentice Hall 2003

Chapter 8 Regional Economic Integration Prentice Hall 2003 1

Chapter Preview Define each level of regional integration Identify the potential effects of integration Discuss European integration and enlargement Characterize integration efforts in the Americas Identify why integration in Asia is unique Discuss integration in the Middle East and Africa © Prentice Hall, 2008 International Business 4 e 2

Regional Economic Integration Process whereby countries in a geographic region cooperate to either reduce or eliminate barriers to the free flow of products, people, or capital © Prentice Hall, 2008 International Business 4 e 3

Levels of Regional Integration Political Union Economic Union Common Market Customs Union Free-Trade Area © Prentice Hall, 2008 Coordinate aspects of members’ economic and political systems Remove barriers to trade, labor, and capital; set a common trade policy against nonmembers; and coordinate members’ Remove all barriers to trade, labor, and economic policies capital among members; and set a common trade policy against nonmembers Remove all barriers to trade among members, but each country has own policies for nonmembers International Business 4 e 4

Effects of Integration Potential benefits Potential drawbacks é Trade creation é Greater consensus é Political cooperation é Creates jobs © Prentice Hall, 2008 ê Trade diversion ê Shifts in employment ê Loss of sovereignty International Business 4 e 5

European Union (EU) Pop: 485 million GDP: $9. 5 trillion Members: 27 Economic Union Began: 1951 © Prentice Hall, 2008 International Business 4 e 6

European Union: Early Years European Coal and Steel Community (1951): Removed trade barriers in coal, iron, and steel European Economic Community (1957): Outlined and took initial steps toward common market European Community (1967): Expanded to other industries including atomic energy European Union (1994): Final name change and reduced barriers further Additional milestones: - © Prentice Hall, 2008 Single European Act (1987): Harmonized regulations, strived for lower barriers Maastricht Treaty (1991): Single currency targets, outlined eventual political union International Business 4 e 7

Five Key EU Institutions European Parliament Court of Justice Council of the European Union © Prentice Hall, 2008 Court of Auditors European Commission International Business 4 e 8

Business in Central Europe ü Don’t rush familiarity ü Build relationships ü Find a Czech partner ü Expect limited resources ü Hire local professionals ü Establish who’s in charge © Prentice Hall, 2008 International Business 4 e 9

European Union Enlargement Future members must meet Copenhagen Criteria • Stable institutions of human rights, democracy, and law • Functioning and capable market economy • Assume economic, monetary, and political obligations • Adopt rules of Community, Court of Justice, and Treaties © Prentice Hall, 2008 International Business 4 e 10

European Free Trade Association Iceland, Liechtenstein, Norway, Switzerland § § Feared lost sovereignty Feared destructive rivalry Desired free-trade gains Cooperates with EU Pop: 12 million GDP: $620 billion Members: 4 Free-Trade Area Began: 1960 © Prentice Hall, 2008 International Business 4 e 11

North American Free Trade Agreement Pop: 420 million GDP: $12 trillion Members: 3 Free-Trade Area Began: 1994 © Prentice Hall, 2008 International Business 4 e 12

NAFTA Effects Three-nation trade flows “Fast track” authority © Prentice Hall, 2008 Jobs and wages Future expansion? International Business 4 e Single currency? 13

Central American Free Trade Agreement • CAFTA established in 2006 between U. S. and 6 others • U. S. , Costa Rica, Guatemala, Honduras, El Salvador, Nicaragua, & Dominican Rep. • CAFTA should create regional integration, peace, and stability • Combined value of goods traded is around $32 billion © Prentice Hall, 2008 International Business 4 e 14

Andean Community Ø Internal tariff reduction Ø Common external tariff Ø Common transport policies Ø Impaired by ideological conflict Pop: 97 million GDP: $216 billion Members: 4 Customs Union Began: 1969 © Prentice Hall, 2008 International Business 4 e 15

Southern Common Market Ø Ø MERCOSUR Very successful early Future “SAFTA”? Impaired by ideology and economic hardships Pop: 220 million GDP: $1 trillion Members: 5 Customs Union Began: 1988 © Prentice Hall, 2008 International Business 4 e 16

Central America / Caribbean Peace is driving tentative optimism Members have little to offer each other Pop: 33 million GDP: $120 billion Members: 5 +/- Common Market Began: 1961 © Prentice Hall, 2008 Pop: 6 million GDP: $30 billion Members: 15 Common Market Began: 1973 International Business 4 e 17

Free Trade Area of the Americas Would create the largest free -trade area on the planet Pop: 800 million GDP: $12 trillion Members: 34 Free-Trade Area From northern tip of Alaska to southern tip of Tierra del Fuego in South America Could mean enormous cost savings for business Protests by many groups is slowing progress © Prentice Hall, 2008 International Business 4 e 18

Association of Southeast Asian Nations ASEAN 1. Economic, social, and cultural development 2. Safeguard economic and political stability 3. Serve as a forum to resolve disputes Pop: 500 million GDP: $740 billion Members: 10 General Cooperation Began: 1967 © Prentice Hall, 2008 International Business 4 e 19

Asia Pacific Economic Cooperation APEC: Group of 21 nations ringing the Pacific Ocean that accounts for over half of world trade 1. Not designed as a free-trade bloc 2. Strengthen multilateral trade system 3. Liberalize trade and investment rules © Prentice Hall, 2008 International Business 4 e 20

Middle East and Africa Gulf Cooperation Council (GCC) § Six Arab nations (1980) § Economic and political aims § Free travel; property rights © Prentice Hall, 2008 Economic Community of West African States (ECOWAS) § Common market hopes (1975) § Little progress to date International Business 4 e 21

Chapter Review Define each level of regional integration Identify the potential effects of integration Discuss European integration and enlargement Characterize integration efforts in the Americas Identify why integration in Asia is unique Discuss integration in the Middle East and Africa © Prentice Hall, 2008 International Business 4 e 22