Regional Economic Integration Raj Mehta Levels of Economic

Regional Economic Integration Raj Mehta

Levels of Economic Integration § Free Trade Area ¨ All barriers of trade among members are removed but each member can determine its own trade policies with non-members § Custom Union ¨ All barriers of trade among members are removed and a common external trade policy is adopted. § Common Market ¨ All barriers of trade among members are removed, a common external trade policy is adopted, and factors of production are allowed mobility between countries. § Economic Union ¨ Common market + common currency + tax rates are harmonized, + common monetary and fiscal policy.

Levels of Economic Integration Political union Economic union EC 1992 Common market Customs union Free trade Le NAFTA area int vel o egr f ati on Figure 8. 1

European Union § EC members ¨ Austria, Belgium, UK, Ireland, Portugal, Spain, France, Luxembourg, Netherlands, Denmark, Sweden, Finland, Italy, Germany, Greece. § Wish List ¨ abolish frontier controls ¨ mutual recognition of standards (e. g. , power outlets) ¨ public procurement ¨ financial services (e. g. , banks and insurance) ¨ abolish exchange controls (single currency) ¨ abolish restrictions on freight transport ¨ standards for products (e. g. , toys) ¨ free movement of labor and professionals.

EC Potential Problems § Product standards are difficult ¨ e. g. , Jam and Marmalade ¨ e. g. , Beer in Germany, § Service Standards ¨ e. g. , 29 types of outlets, 12 kinds of cords § Monetary Union ¨ UK give up the pound

The European Union Past and present members in the European Union (with joining date) Potential members of the European Union towards the next century Other potential members of the European union * Eu drawing up proposals for integration into its single market in preparation for full membership ** EU planning negotiations for association agreements Have formally applied to join †

NAFTA § NAFTA: North American Free Trade Agreement § Countries: USA, Canada, and Mexico § Benefits: ¨ elimination of tariffs ¨ Growing market in Mexico ¨ Mexico needs US/Canadian investment ¨ Canada needs our market ¨ Compete with EC

NAFTA Potential Problems § § § § Loss of sovereignty Cultural domination Mexican resources Mexican immigrants Orange growers (35% tariff) Canned tuna and sugar Unions Environment

Other Regional Groups § Andean Pact ¨ Bolivia, Ecuador, Peru, Colombia, and Venezuela. ¨ Attempt to form an EC like union but not as successful. § MERCOSUR ¨ Brazil, Argentina, Paraguay, and Uruguay. ¨ Attempt to form a common market soon. . realtively good progress. § ASEAN ¨ Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. ¨ Towards free trade. § APEC (includes US, China, New Zealand, Australia, and China.

Economic Integration in the Americas

Asia Pacific Economic Cooperation Canada United States Mexico APEC members APEC and ASEAN members Chile China Japan S. Korea Taiwan Hong Kong Philippines Brunei Thailand Singapore Papau Malaysia Indonesia Australia New Guinea New Zealand

GATT § GATT: General Agreement on Tariffs and Trade § Various rounds of GATT § Current round is called the Uruguay Round signed in 1994. § Protection from piracy and intellectual property. ¨ easier for high tech companies to do business in developing nations were intellectual property rules were not enforced. § Setting up of WTO (World Trade Organization) ¨ WTO will be an arbitrator on trade disputes and monitor trade policies. WTO will have teeth to impose sanctions and set compensation.

GATT (cont) § Industrial Tariff ¨ Rich nations will reduce tariffs on industrial goods by 1/3 rd. § Agriculture ¨ Reduce subsidies in six years. (by 20%) ¨ Change all administrative barriers to tariffs which need to be reduced. § Services ¨ no agreement yet. Talks continue especially in telecommunication and financial services. § Textiles ¨ Normal GATT rules to apply in 10 years. No more import quota