التكتلات السياسية والإقتصادية العالمية والإقليمية د. نايف أبو خلف

Regional Economic Integration Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 International Business 5e Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

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 International Business 5e Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Regional Economic Integration Agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services and factors of production among each other. © The McGraw Hill Companies, Inc., 2000

Introduction Three levels of economic integration Global: trade liberalization by GATT or WTO Regional: preferential treatment of member countries in the group Bilateral: preferential treatment between two countries Regional and bilateral agreements are against the MFN clause (normal trading relations), but allowed under WTO. Visit www.wto.org for regional trade agreements.

Four stages (types) of economic integration FTA (free trade area): no internal tariffs among members, but each country imposes its own external tariffs to the third country. NAFTA (North America Free Trade Agreement AFTA (ASEAN Free Trade Area) EFTA (European Free Trade Area) Customs union: no internal tariffs and common external tariffs Mercosur (Southern Common Market), CACM (Central American Common Market) CARICOM (Caribbean Community and Common Market)

Four stages (types) of economic integration Common market: free movement of products and factors (resources), which is customs union plus factor mobility EU (European Union – previously EEC) Economic union: common market plus common currency coordination of fiscal and monetary policy EMU (Economic and Monetary Union)

Levels of Economic Integration Level of Integration Political Union Economic Union NAFTA Common Market Customs Union Free Trade Area EU 1992

Levels of Regional Integration Coordinate aspects of members’ economic and political systems Political Union Remove barriers to trade, labor, and capital, set a common trade policy against nonmembers, and coordinate members’ economic policies Economic Union Remove all barriers to trade, labor, and capital among members, and set a common trade policy against nonmembers Common Market Remove all barriers to trade among members, and set a common trade policy against nonmembers Customs Union Remove all barriers to trade among members, but each country has own policies for nonmembers Free-Trade Area International Business 5e Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

+ Coordinated Economic Fig. 2-1: A Hierarchy of Regional Economic Integration Initiatives Free Trade Area Elimination of Trade Barriers Customs Union + Common External Trade Positions Common Market + Labor/Capital Mobility Economic Union + Coordinated Economic and Fiscal Policy Political Union + Coordinated Political and Social Policy

Reasons Why Trade Blocs Get Formed Geographical proximity and often the sharing of common borders as in the European Union and NAFTA Common economic and political interests as in the European Union and the ASEAN Similar ethnic and cultural backgrounds as in the Free Trade of the Americas Similar levels of economic development as in the European Union Similar views on the mutual benefits of free trade as in NAFTA Regional political needs and considerations as in the ASEAN

Effects of Integration Potential benefits Potential drawbacks Trade diversion Shifts in employment Loss of sovereignty Trade creation Greater consensus Political cooperation Creates jobs International Business 5e Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

Economic effects of economic integration Static effects: Short-term effects (shift of production) Trade creation: production shifts to more efficient member countries from inefficient domestic or outside countries. Trade diversion: production shift to inefficient member countries from more efficient outsiders. Dynamic effects: Long-term effects Cost reduction due to economies of scale Cost reduction due to increased competition.

Economic Case for Regional Integration Stimulates economic growth in countries Countries specialize in those goods and services efficiently produced. Additional gains from free trade beyond international agreements such as GATT and WTO.

Political Case for Economic Integration Economic interdependence creates incentives for political cooperation and reduces potential for violent confrontation. Together, the countries have the economic clout to enhance trade with other countries or trading blocs. © The McGraw Hill Companies, Inc., 2000

Fig. 2-2: Regional Economic Integration Benefits Removal of Trade And Investment Barriers Competition Increases/ More Investors New Product Development Industry Innovation Increases New Process Development Initial Costs Drop Prices Drop Reallocation/Consolidation of Resources (Comparative Advantage) Demand Increases Production Levels Rise Lower Costs And Supply-Side Led Growth Economies of Scale Benefits

Major Developments Favoring Free Trade The emergence of the World Trade Organization (WTO) The emergence of regional trade blocs, such as the North American Free Trade Agreement (NAFTA), the expanded EU, and other regional trade agreements like MERCUSUR in South America