Ch. 8 Economic Integration

1
Ch. 8 Economic Integration

• A group of counties come together and agree to
  cooperate in international trade by various
  means.
  
• Mainly economic advantages.
• Trade creation and trade diversion, reduced
  Import Prices, Increased competition and
  economies of scale, Higher factor Productivity.
  
• Political Factors and power in international
  markets.

2
Levels of Economic Integration.

• Regional Cooperation Groups.
• Free trade areas.
• Full customs union.
• Common market.
• Economic union.

3
Regional Cooperation Groups.

• Cooperate to develop basic industries like steel,
  hydro-electricity etc.
  
• Joint ventures, pooling of technologies/resources.
  
  
• Mainly less developed countries.
• No effect on trade or tariff barriers.
• For Example - A.S.E.A.N.
• Brunei, Burma, Cambodia, Indonesia, Laos,
  
  
• Malaysia, the Philippines, Singapore,
• Thailand and Vietnam
• The South Asian Association
• for Regional Cooperation (SAARC)
• Bangladesh, Bhutan, India,
• Maldives, Nepal, Pakistan
• and SriLanka.

4
Free Trade Areas.

• No Internal Tariffs.
• External Tariffs could be different.
• Cooperation on economic issues.
• No free labor or capital movements.
• N.A.F.T.A. --
  
  
• U.S.-Israel, European Free Trade Area

5
Full Customs Union.

• No Internal Tariffs.
• Common External Tariffs.
• No Free labor or
• capital movements.
• Usually a small country
• close to a large one.
  
  
• France-Monaco
• Italy-San Marino.

6
Common Market.

• No Internal Tariffs.
• Common External Tariffs.
• Free flow of labor and capital.
• Southern Cone Common Market
• (Mercosur) - Argentina, Brazil,
• Paraguay, Uraguay, Bolivia,
• and Chile.
• Caribbean Community
• and Common Market.

7
Economic Union.

• No Internal Tariffs.
• Common External Tariffs.
• Free flow of labor and capital.
• Integration of economic policies.
• Harmonize monetary policies, taxation, and
  government spending.
  
• Common currency or fixed exchange rates.
• E.U. - Full monetary union by 1999 and single
  European currency by 2002.
  

8
European Community/ European Union.

• Economic, monetary, fiscal and political union.
• Single Euporean Act (A true common market for
  goods, people and money by 1992)
  
• Maastricht Treaty 1994 (Economic and monetary
  union with a commitment to political union).
  
• EC institutions - The European Commission,
  Council of Ministers, European Parliament,
  European Court of Justice.
  
• http//europa.eu.int/inst-en.htm

9

10
EU Institutions.

• The European Commission - Executive branch,
  commissioners oversee 23 directorates such as
  agriculture, transportation, etc.
  
• Council of Ministers- votes based on country
  size, final power to decide EU actions.
  
• European Parliament - 626 members elected by
  popular votes in member countries, advisory body
  with very little power.
  
• European Court of Justice - Judicial branch,
  mainly matters related to trade and business
  disputes.

11
Strategic Implications of E.U.

• One Large market - standardization.
• Global Strategies - production, distribution,
  financing etc.
  
• Transaction costs eliminated.
• Economies of scale in - Production,
  transportation, promotions, pricing etc.
  
• Highly competitive environment - efficiencies
  needed to compete.
  
• Mergers and other shakeouts in industry.
• Centralization and consolidation.

12
NAFTA.

• Benefits similar to the E.U. in terms of one
  Large market
  
• Additionally Mexico is a different economy with
  different comparative advantages.
  
• Stop firms from looking for cheap labor in
  outside markets.
  
• Encourage foreign investment in this market.
• Increase competitiveness in outside markets
• Labor and environmental issues.
• North American Agreement on Labor Cooperation and
  Commission on Environmental Compliance.
  

13
NAFTA.

• Market Access - eliminate all tariffs on products
  traded between the three countries within 10
  years Dec 2005.
  
• Nontariff Barriers - Mexico will eliminate all
  non-tariff barriers like quotas, Import
  licenses.local content requirements, etc.
  
• Rules of Origin - Tariff-Shift rule and
  Value-Content (62.5) Rule.
  
• Customs Administration - uniform customs
  procedures and regulations.
  

14
NAFTA.

• Investment No requirements like exports, local
  content, transfer of technology, limits on
  imports.
  
• Services - allowed to open wholly owned
  subsidiaries and operate without any
  restrictions.
  
• Intellectual Property - protection of
  intellectual property.
  
• Government Procurement - fair and open
  competition, and transparent and predictable
  procurement procedures.
  
• Standards - prohibits the use of standards and
  technical regulations as obstacles to trade.
  

15
Latin America.

• Economic and trade liberalization.
• Deregulation, Privatization and control of
  inflation.
  
• Economic cooperation between each other and with
  the U.S.
  
• Free Trade Area of the Americas (FTAA).

16
Southern Cone common market (MERCOSUR).

• Uniform external tariffs and
• free movement of goods,
• capital, labor and services.
• No central institutions like EC.
• http//www.mercosurinvestment.com/intro.htm
  l
  
• Strongest agreement, working well
• and seeking to expand
• - Other Latin american countries,
• U.S., Canada, and EC (1999).
• South American Free Trade Area (SAFTA).

17
ASEAN Free Trade Area

• Indonesia
• Malaysia
• The Philippines
• Singapore
• Thailand
• Myanmar
• Laos
• Brunei
• Cambodia
• Thailand
• Vietnam

03/09/98
18
AFTA.

• Primary Multinational group in Asia.
• Fastest growing economies in the region.
• Economic integration and cooperation.
• Reduced Tariff and non-tariff barriers,
  guaranteed member access to markets, and
  harmonized investment incentives.
  
• All non-tariff barriers removed immediately,
  import tariffs reduced to 0-5 in 2003, 0 by
  2010.
  

19
APEC - Asia Pacific Economic Cooperation

• The Asia-Pacific Economic Cooperation
• forum is a loose grouping of countries
• bordering the Pacific Ocean who have
• pledged to facilitate free trade and
  economic
  
• cooperation
• Its 21 members range from China and
• Russia to the United States, Japan and
  Australia,
  
• and account for 45 of world trade.
• Progress on free trade initiatives was seriously
• dented by the 1997-98 Asian crisis,
• which hurt the economies of the
• fast-growing newly industrialized
  countries
  
• like South Korea and Indonesia,
• and the SARS epidemic of 2003.
• But recently China suggested it would be
  interested in establishing a free-trade zone with
  the growing economies of South-east Asia.
  
• http//www.apecsec.org.sg/

03/09/98