Transcript Chapter 8 - The Citadel

Chapter 8
Regional Economic
Integration
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
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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
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Levels of Regional Integration
Political Union
Coordinate aspects of members’ economic and
political systems
Remove barriers to trade, labor, and capital;
Economic Union set a common trade policy against nonmembers;
and coordinate members’ economic policies
Remove all barriers to trade, labor, and capital
Common Market among members; and set a common trade policy
against nonmembers
Customs Union
Remove all barriers to trade among members, and
set a common trade policy against nonmembers
Free-Trade Area Remove all barriers to trade among members, but
each country has own policies for nonmembers
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Effects of Integration
Potential
benefits
Potential
drawbacks
 Trade creation
 Greater consensus
 Political cooperation
 Creates jobs
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 Trade diversion
 Shifts in employment
 Loss of sovereignty
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European Union (EU)
Pop: 485 million
GDP: $9.5 trillion
Members: 27
Economic Union
Began: 1951
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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:
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Single European Act (1987): Harmonized
regulations, strived for lower barriers
Maastricht Treaty (1991): Single currency targets,
outlined eventual political union
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Five Key EU Institutions
European
Parliament
Court of Justice
Council of the
European Union
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Court of
Auditors
European
Commission
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Business in Central Europe
 Don’t rush familiarity
 Build relationships
 Find a Czech partner
 Expect limited resources
 Hire local professionals
 Establish who’s in charge
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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
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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
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North American
Free Trade Agreement
Pop: 420 million
GDP: $12 trillion
Members: 3
Free-Trade Area
Began: 1994
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NAFTA Effects
Three-nation
trade flows
“Fast track”
authority
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Jobs
and wages
Future
expansion?
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Single
currency?
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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
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Andean Community
 Internal tariff reduction
 Common external tariff
 Common transport policies
 Impaired by ideological conflict
Pop: 97 million
GDP: $216 billion
Members: 4
Customs Union
Began: 1969
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Southern Common Market




MERCOSUR
Very successful early
Future “SAFTA”?
Impaired by ideology and
economic hardships
Pop: 220 million
GDP: $1 trillion
Members: 5
Customs Union
Began: 1988
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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
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Pop: 6 million
GDP: $30 billion
Members: 15
Common Market
Began: 1973
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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
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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
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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
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Middle East and Africa
Gulf Cooperation Council
(GCC)
 Six Arab nations (1980)
 Economic and political aims
 Free travel; property rights
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Economic Community of
West African States
(ECOWAS)
 Common market hopes (1975)
 Little progress to date
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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 4e
Chapter 8 - 22