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1、Global Business Today 7e,by Charles W.L. Hill,Chapter 8,Regional Economic Integration,Introduction,Regional economic integration - agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each
2、other in theory, regional economic integration benefits all members Over the last two decades, the number of regional trade agreements has been on the rise,Introduction,Question: Is regional economic integration a good thing?Answer: While regional trade agreements are designed to promote free trade,
3、 there is some concern that the world is moving toward a situation in which a number of regional trade blocks compete against each other if this scenario materializes, the gains from free trade within blocs could be offset by a decline in trade between blocs,Levels of Economic Integration,There are
4、five levels of economic integration 1. Free trade area - all barriers to the trade of goods and services among member countries are removed, but members determine their own trade policies with regard to nonmembers the most popular form of integration Examples include the European Free Trade Associat
5、ion (between Norway, Iceland, Liechtenstein, and Switzerland) the North American Free Trade Agreement (between the U.S., Canada, and Mexico),Levels of Economic Integration,Figure 8.1: Levels of Economic Integration,Levels of Economic Integration,2. Customs union - eliminates trade barriers between m
6、ember countries and adopts a common external trade policy most countries that enter a customs union desire further integration in the future Examples include the Andean Pact (between Bolivia, Columbia, Ecuador, Venezuela, and Peru),Levels of Economic Integration,3. Common market - no barriers to tra
7、de between member countries, a common external trade policy, and the free movement of the factors of production can be difficult to achieve and requires significant harmony among members in fiscal, monetary, and employment policies Examples include MERCOSUR (between Brazil, Argentina, Paraguay, and
8、Uruguay) hope to achieve this status,Levels of Economic Integration,4. Economic union - involves the free flow of products and factors of production between members, the adoption of a common external trade policy, and in addition, a common currency, harmonization of the member countries tax rates, a
9、nd a common monetary and fiscal policy involves sacrificing a significant amount of national sovereignty Examples include the European Union (EU),Levels of Economic Integration,5. Political union - independent states are combined into a single union requires that a central political apparatus coordi
10、nate economic, social, and foreign policy for member states The EU is headed toward at least partial political union, and the United States is an example of even closer political union,The Case for Regional Integration,There are both economic and political arguments supporting regional economic inte
11、gration Generally, many groups within a country oppose the notion of economic integration,The Economic Case for Integration,Regional economic integration is an attempt to achieve additional gains from the free flow of trade and investment between countries beyond those attainable under international
12、 agreements such as the WTO Since it is easier to form an agreement with a few countries than across all nations, there has been a push toward regional economic integration,The Political Case for Integration,Politically, integration is attractive because by linking countries together, making them mo
13、re dependent on each other, and forming a structure where they regularly have to interact, the likelihood of violent conflict and war will decrease by linking countries together, they have greater clout and are politically much stronger in dealing with other nations,Impediments to Integration,Integr
14、ation is not easy to achieve or maintain There are two main impediments to integration it can be costly - while a nation as a whole may benefit from a regional free trade agreement, certain groups may lose it can result in a loss of national sovereignty,Case Against Regional Integration,Regional eco
15、nomic integration only makes sense when the amount of trade it creates exceeds the amount it diverts 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 lowe
16、r cost external suppliers,Regional Economic Integration in Europe,Europe has two trade blocs the European Union with 27 members the European Free Trade Association with 4 members The European Union is expected to become a superpower of the same order as the United States,Evolution of the European Un
17、ion,The European Union (EU) is the result of the devastation of two world wars on Western Europe and the desire for a lasting peace the desire by the European nations to hold their own on the worlds political and economic stage The forerunner of the EU was the European Coal and Steel Community (formed in 1951) The Treaty of Rome established the European Economic Community in 1957 the name was changed to the EU in 1994,
