Chapter 8 - 1International Business 4e© Prentice Hall, 2008

Chapter 8Chapter 8Regional Economic Regional Economic

IntegrationIntegration

© Prentice Hall, 2008 International Business 4e Chapter 8 - 2

Chapter PreviewChapter 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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Process whereby countries in a geographic region cooperate to either reduce or eliminate barriers to the free flow of products, people, or capital

Regional Economic IntegrationRegional Economic Integration

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Levels of Regional IntegrationLevels of Regional Integration

Coordinate aspects of members’ economic and political systemsPolitical UnionPolitical Union

Remove barriers to trade, labor, and capital;set a common trade policy against nonmembers; and coordinate members’ economic policies

Economic Economic UnionUnion

Remove all barriers to trade, labor, and capitalamong members; and set a common trade policy against nonmembers

Common MarketCommon Market

Remove all barriers to trade among members, and set a common trade policy against nonmembers

Customs Customs UnionUnion

Remove all barriers to trade among members, but each country has own policies for nonmembers

Free-Trade Free-Trade AreaArea

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Effects of IntegrationEffects of Integration

Potentialbenefits

Potentialdrawbacks

Trade diversion

Shifts in employment

Loss of sovereignty

Trade diversion

Shifts in employment

Loss of sovereignty

Trade creation

Greater consensus

Political cooperation

Creates jobs

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European Union (EU)European Union (EU)

Pop: 485 million

GDP: $9.5 trillion

Members: 27

Economic Union

Began: 1951

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European Union: Early YearsEuropean 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:- 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 InstitutionsFive Key EU Institutions

EuropeanCommission

Council of theEuropean Union

EuropeanParliament

Court ofAuditors

Court of Justice

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Business in Central EuropeBusiness 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 EnlargementEuropean Union Enlargement

• 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

Future members must meet Copenhagen Criteria

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European Free Trade European Free Trade AssociationAssociation

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 AmericanNorth AmericanFree Trade AgreementFree Trade Agreement

Pop: 420 million

GDP: $12 trillion

Members: 3

Free-Trade Area

Began: 1994

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NAFTA Effects NAFTA Effects

JobsJobsand wagesand wages

Three-nationThree-nationtrade flowstrade flows

FutureFutureexpansion?expansion?

““Fast track”Fast track”authorityauthority

SingleSinglecurrency?currency?

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Central American FreeCentral American FreeTrade AgreementTrade 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 CommunityAndean 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 MarketSouthern 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 / CaribbeanCentral America / Caribbean

Members have little to offer each other

Peace is driving tentative optimism

Pop: 33 million

GDP: $120 billion

Members: 5

+/- Common Market

Began: 1961

Pop: 6 million

GDP: $30 billion

Members: 15

Common Market

Began: 1973

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Free Trade Area of the Free Trade Area of the AmericasAmericas

Would create the largest free-trade area on the planet

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

Pop: 800 million

GDP: $12 trillion

Members: 34

Free-Trade Area

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Association of SoutheastAssociation of SoutheastAsian NationsAsian Nations

ASEAN

1. Economic, social, and cultural development2. Safeguard economic and political stability3. Serve as a forum to resolve disputes

Pop: 500 million

GDP: $740 billion

Members: 10

General Cooperation

Began: 1967

Pop: 500 million

GDP: $740 billion

Members: 10

General Cooperation

Began: 1967

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Asia Pacific Economic Asia Pacific Economic CooperationCooperation

Asia Pacific Economic Asia Pacific Economic CooperationCooperation

APEC: Group of 21 nations ringing the Pacific APEC: Group of 21 nations ringing the Pacific Ocean that accounts for over half of world tradeOcean that accounts for over half of world tradeAPEC: Group of 21 nations ringing the Pacific APEC: Group of 21 nations ringing the Pacific

Ocean that accounts for over half of world tradeOcean that accounts for over half of world trade

1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc

2. Strengthen multilateral trade system2. Strengthen multilateral trade system2. Strengthen multilateral trade system2. Strengthen multilateral trade system

3. Liberalize trade and investment rules3. Liberalize trade and investment rules3. Liberalize trade and investment rules3. Liberalize trade and investment rules

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Middle East and AfricaMiddle East and Africa

Gulf Cooperation Council(GCC)

Six Arab nations (1980) Economic and political aims Free travel; property rights

Economic Community ofWest African States

(ECOWAS) Common market hopes (1975) Little progress to date

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Chapter ReviewChapter 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