International Business in English

BUS 460

CHAPTER 3ECONOMIC INTEGRATION

Introduction:Economic integration around the world has been one

of the most significant trends since world war two. The creation of regional groups is intended to provide

both economic stability and growth, as well asIncreasing the level of political cooperation amongst

the member nations.The creation of common markets and the promotion of

free trade and investment flows. RequiresA willingness on the part of member nations to

subordinate national interests to those of the group.

The Pros and Cons of Integration:First: The Pros (Advantages):(I).The pros (Advantages):1- Offers the opportunity for increased

wealth. There is evidence to suggest that the GNP of countries that are members of major economic groups will rise faster than that of non members.

2- A greater level of political cooperation between member countries and a sense that it is easier to reach a consensus view with a small group.

The Pros and Cons of Integration:Second: The cons (Disadvantages):(II).The cons (disadvantages):1- Can lead to a diversion of trade which favors

member countries at the expense of non-members.2- Possible employment consequences of greater

levels of integration. Within the EU, there are no restrictions on the movement of labor between countries.

Might lead to ‘brain drain’ ( االدمغة (هجرة3- Possible impact upon national sovereignty –

subordination of national interests to those of the group.

Levels of Economic Integration:Levels of integration (in ascending order): ( األقوى الى األضعف (منI. Free trade area.II. Customs union.III. Common market.IV. Economic union.

EXPLAINED IN DETAIL ON THE NEXT SLIDES

Levels of Economic Integration1- Free trade area:A region within which all trade restrictions

between member states are removed. 2- Customs union:Members agree a common policy for the

regulation of trade with non-member countries.

Levels of Economic Integration3- Common market:The elimination of regulatory barriers extends

beyond the trade in gods and services into the establishment of free movement of capital and labor across member states.

4- Economic union:Takes economic integration to its final

conclusion via the harmonization of national economic policies, Co-determined via a joint legislators.

The Economic Significance of The Major Trading BlocsEurope:EU is the most integrated of all the economic

blocs.Estimates have been made of the benefits

likely to have accrued from the single market.The single market creates more competitive

economic environment within Europe.Resulting is more efficient working practices

and a superior identification and satisfaction of consumer wants.

The Economic Significance of The Major Trading BlocsNorth America:NAFTA, mentioned earlier, is clearly

dominated by the huge US economy, with the USA being the most important trading partner for both Mexico and Canada.

Mexico is by far the poorest economy in the trading bloc and, as already indicated ..

The NAFTA agreement has given rise to complaints by US labor unions of job losses.

Caused by companies investing in Mexico.

The Economic Significance of The Major Trading BlocsNorth America:The aims of NAFTA are much ambitious than

those of the EU.The objective is the gradual elimination of

restrictions on trade and investment flows by 2010.

The expansion of free trade area is now up for discussion.

The Economic Significance of The Major Trading BlocsAsia-Pacific:The Asia Pacific region is less structured economic

blocs than those of Europe and North America.The group’s declared objectives are to

counterbalance the power of NAFTA and the EU.And, encourage the liberalization of trade amongst

group members. The target of NAFTA is 2020.The major problem of APEC is the diversity of its

membership. The geographic spread of membership is also very wide.

How Economic Integration Affects World tradeThe importance of Intra-Regional Trade Flows (1999) Table

302 (p.60):

Bloc % total imports % total exports which are intra-regional which are intra-regional North America 27.1 39.6 W. Europe 67.6 69.1 Asia 56.7 46.6

The statistics show that despite their size and diversity, the large trading blocs still engage in trade with the rest of the world.

Both Asia and the EU find that over half of local requirements can be met from regional imports, but for NAFTA , the level of regional self-sufficiency is much lower.

How Economic Integration Affects World tradeIntra-Regional Exports as % of Total Exports

(excluding services) Table 3.3 (p.61)

Bloc 1990 1999 Average growth Rate (%) of intra-regional exports

NAFTA 42.6 54.1 10EU 65.1 63.4 4Mercosur 8.9 20.3 4ASEAN 20.1 22.1 12

The Future: Regional Versus Global Free TradeOne problem of regional integration is that it raises

the prospect of conflict between the national sovereignty of the member states and the needs of the group.

At the same time, the individual states benefit from the added bargaining power that goes with being part of a large and influential trading bloc.

It would seem that there are strong links between international trade and regionalization, and as suggested earlier,

These links help influence corporate planning at a global level.

Regional Integration And Its Effects on Multinational CompaniesThe potential roles for foreign subsidies:1- The supply of goods / services purely to local

markets in the host country.2- Using the law of comparative advantage,

companies will site subsidiaries in locations which can then export output at relatively low cost.

3- Well-established subsidiaries, with high levels of expertise that can develop,

Produce and market new products that will significantly affect the multinational business.

الله بحمد تم

THE END