3 ObjectivesDefine different forms of economic integration and how it affects international businessDescribe the static and dynamic effects and the trade creation and diversion dimensions of economic integrationPresent regional trade groups (NAFTA, EU)Describe Cooperative Agreements and the rationale for their creation and successExamine the Development of World Trading Approaches
4 Regional Economic and Political Integration Major Forms Free Trade AreaCustoms UnionCommon MarketComplete Economic Integration (Economic Union)Political Union
5 Regional Economic and Political Integration Major Forms Free Trade AreaTariffs are abolished among members-countriesEach country can determine their own trade policies toward nonmembers.Each member-country maintains its own external tariffs on imports from nonmember countriesCustoms UnionA Free Trade Area - PLUS member-countries add a common external tariff
6 Regional Economic and Political Integration Major Forms Common MarketA Customs Union PLUS the abolition of restrictions on the mobility of capital and labor among member-countriesComplete Economic Integration (Economic Union)Involves a high degree of political integration as member-countries surrender important elements of their sovereigntyNo barriers among members, common external policy, common monetary and fiscal policy, harmonized tax rates and common currency.
7 Political Union Economic Integration Has a coordinating bureaucracy accountable to all citizens.
8 ECONOMIC INTEGRATION The Effects of Integration trade creation, resources shift from the least - to the more-efficient producers / companies as trade barriers fall between the membersA dynamic effect is that as markets grow, companies achieve economies of scale. Production shifts to more efficient producers for reasons of comparative advantageEfficiency increases because of competition thus the less efficient will failConsumers access wider variety of goods at lower prices, higher quality products
9 ECONOMIC INTEGRATION The Effects of Integration trade diversion As a result of COMMON external barriers trade shifts from more efficient external sources to less efficient suppliers within the bloc.discrimination against outside producers. Diverts trade to less-efficient producers within the country or group
10 Regional Economic Integration EI on a regional geographic basisRegional integration has political, social, and economic effectsFACTORS supporting the creation of REIDistance goods need to travel between countries is shortConsumers’ tastes are likely to be similarDistribution channels can be easily established in adjacent countriesNeighboring countries may have common history and interests7-3
11 Regional Integration Economic Allow countries to specialize in products they produce efficiently.Easier to gain agreement than GATT/WTO.Role of FDI is enhanced.Exploit gains from free flow of goods and services and investment.PoliticalCreates incentive for political cooperation.Reduces potential for violent confrontation.Enhanced clout to deal with ‘superpowers’.
13 EU Membership Conditions (a) Legal requirementsEuropean integration has always been a political and economic process that is open to all European countries prepared to sign up to the founding treaties and take on board the full body of EU law. According to Article 237 of the Treaty of Rome ‘any European state may apply to become a member of the Community’.Article F of the Maastricht Treaty adds that the member states shall have ‘systems of government […] founded on the principles of democracy’.
14 EU Membership Conditions (b) The ‘Copenhagen criteria’In 1993, following requests from the former communist countries to join the Union, the European Council laid down three criteria they should fulfil so as to become members. By the time they join, new members must have:stable institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities;a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union;the ability to take on the obligations of membership, including support for the aims of the Union. They must have a public administration capable of applying and managing EU laws in practice.
15 EU Membership Conditions (c) The accession processThe entry negotiations are carried out between each candidate country and the European Commission which represents the EU. Once these are concluded, the decision to allow a new country to join the EU must be taken unanimously by the existing member states meeting in the Council. The European Parliament must give its assent through a positive vote by an absolute majority of its members. All accession treaties must then be ratified by the member states and the candidate countries in accordance with each country’s own constitutional procedures.During the years of negotiation, candidate countries receive EU aid so as to make it easier for them to catch up economically. For the enlargement of the 10 countries in 2004, this involved a package of €41 billion aimed mainly at funding structural projects to allow the newcomers to fulfil the obligations of membership.
16 The European Union: 493 million people – 27 countries Member states of the European UnionCandidate countries
18 EU population in the world Population in millions, 20071322497301128142EUChinaJapanRussiaUnited States
19 The area of the EU compared to the rest of the world Surface area, km²16 889932791594234365EUChinaJapanRussiaUnited States
20 How rich is the EU compared to the rest of the world? 37 30010 79327 80010 03524 700367610 0006 4001 326468EUChinaJapanRussiaUnited StatesEUChinaJapanRussiaUnited StatesSize of economy: Gross Domestic Product inbillion of euros, 2006Wealth per person: Gross Domestic Productper person in Purchasing Power Standard, 2007
21 Types of fuel used for making energy in the 27 EU countries, 2005 Energy sources in a changing worldTypes of fuel used for making energy in the 27 EU countries, 2005Import dependency: share of fuel imported from outside the EU-countries, 2005100%82%Gas35%Oil37%57%50%39%Nuclear14%Coal18%Renewables7%0%CoalOilGasNuclear(uranium)RenewablesAll types of fuel
22 The EU – a major trading power Share of world trade in goods (2006)Share of world trade in services (2005)EU17.1%EU26%Others44.9%Others50.5%United States16%Japan6.6%United States18.4%China9.6%China3.8%Japan6.9%
23 The euro – a single currency for Europeans Can be used everywhere in the euro area4Coins: one side with national symbols, one side common4Notes: no national sideEU countries using the euro EU countries not using the euro
24 The European Union Other Issues Problems of Expansion Relatively lower income countriesHigher dependence on agricultureNew democraciesFinancial pressure on structural assistance fund and Common Agricultural PolicyGovernanceOther IssuesChallenge to companies: Establish a regional strategy before different national strategies
27 US Free Trade Agreements The United States has free trade agreements in force with 17 countries. These are:AustraliaBahrainCanadaChileCosta RicaDominican RepublicEl SalvadorGuatemalaHondurasIsraelJordanMexicoMoroccoNicaraguaOmanPeruSingaporeThe United States has signed free trade agreements with Colombia, Korea, and Panama, but Congress must enact legislation to approve and implement each individual agreement in order for them to go into effect.The United States is also in nenegotiations of a regional, Asia-Pacific trade agreement, known as the Trans-Pacific Partnership (TPP) Agreement with the objective of shaping a high-standard, broad-based regional pact.
29 NAFTA (JULY 2009 Est.) $38,400 $13,200 $46,400 $1.319 trillion CIA FACT Book https://www.cia.gov/library/publications/the-world-factbook/region/region_noa.htmlPopulationGDPGDP/CapitaCANADA33,487,208$1.319 trillion$38,400MEXICO111,211,789$866.3 billion$13,200UNITED STATES307,212,123$14.27 trillion$46,400
30 Trade US- Canada-Mexico Canada’s exports to its NAFTA partners increased by 173 percent in value from pre-NAFTA levels. Exports to the United States grew from USD116.8 billion to USD316.8 billion, while exports to Mexico reached USD3.9 billion.U.S. exports to Mexico and Canada grew by 157 percent, from USD billion (USD 41.6 billion to Mexico and USD billion to Canada) to USD billion (USD and USD billion, respectively).Mexican exports to the U.S. grew by 392 percent, reaching USD212.3 billion. Exports to Canada also grew substantially from USD1.5 to USD5.2 billion, an increase of almost 237 percent.
31 January 1, 2008 represents an important milestone in the trade and economic relationship between our three countries. On that day, the last scheduled NAFTA tariffs and quotas will be eliminated and North America will be joined in free trade.