ECONOMIC INTEGRATION

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ECONOMIC INTEGRATION

• IB Economics
• Section 4.3

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Economic Integration

• One of the most notable trends in the global
  economy in recent years has been the movement
  towards regional economic integration.
• Regional Economic Integration agreements between
  groups of 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 between each
  other.
• By entering into regional agreements groups of
  countries aim to reduce trade barriers more
  rapidly than can be achieved under the auspices
  of the WTO
• The specter of the EU and NAFTA turning into
  ëconomic fortressthat shut out foreign producers
  with high tariff barriers is particularly
  worrisome to those who believe in the value of
  unrestricted free trade

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• I - LEVELS OF ECONOMIC INTEGRATION

Free Trade Area (FTA) When a group of countries
remove tariffs and quotas between themselves,
while retaining the right to set tariffs/quotas
towards nonmembers. Ex EFTA (Iceland,
Liechtenstein, Norway and Switzerland ) NAFTA
(United States, Mexico, and Canada) Customs
Union A regional economic association where
tariffs and quotas have been eliminated and
common external tariffs and quotas are applied to
member countries. Ex Andean Pact (Bolivia,
Columbia, Equador, and Peru)
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• Common Market Is a customs union with complete
  freedom of movement for all goods and services.
  This includes the freedom of factors of
  production and neccessitates increased economic,
  social and legislative cooperation in taxes,
  labor laws and invidible barriers to trade.
• EX The EU http//europa.eu/index_en.htm

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• THE CASE FOR REGIONAL INTEGRATION

A - THE ECONOMIC CASE FOR
Unrestricted free trade will allow countries to
specialize in the production of goods and
services that they can produce most
efficiently Opening a country to free trade
stimulates economic growth in the country, which
in turn creates dynamic gains from trade. Flows
of FDI can transfer technological, marketing and
managerial know-how to host nations. Stimulates
Economic Growth
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B POLITICAL CASE FOR INTEGRATION
Incentives are created or political cooperation
between neighboring states By grouping
their economies together, the countries can
enhance their political weight in the world.
C IMPEDIMENTS TO INTEGRATION
Costs, painful adjustments Concerns over
national sovereignty
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III - THE CASE FOR/AGAINST REGIONAL INTEGRATION
A - TRADE CREATION
Occurs when high-cost domestic producers are
replaced by low-cost external suppliers within
the free trade area.
B - TRADE DIVERSION
Occurs when lower-cost external suppliers are
replaced by higher-cost suppliers within the free
trade area. A regional free trade agreement will
benefit the world only if the amount of trade
exceeds the amount it diverts. In theory, GATT
and WTO rules should ensure that a free trade
agreement does not result in trade diversion.
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IV - REGIONAL ECONOMIC INTEGRATION IN EUROPE

• The EU is the product of two political factors
• a) Devastation of two wars
• b) Desire to hold their own on the worlds
  political and economic stage
• TREATY OF ROME 1957
• In 1973, first enlargement of the EC
• Other additions, Greece in 1981, Spain and
  Portugal in 1986, and in 1996 by Finland, Austria
  and Sweden
• With a population of 350 million and a GDP
  greater than that of the United States, these
  enlargements made the EU a potential global
  superpower.

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In 1994, following the ratification of the
Maastricht treaty Single European Act The main
problem with the EC was the disharmony of the
member-countries technical, legal, regulatory and
tax standards. The rules of the game differed
substantially from country to country, which
stalled the creation of a true single internal
market. The White Paper was published in
1985, proposing that all impediments to the
formation of a single market be eliminated by
1992. Objectives of the Act frontier controls,
mutual recognition of standards, public
procurement, financial markets, lifting barriers,
exchange controls, freight transport. The
United States of Europe
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The Treaty of Maastricht 1992 Common currency,
lower cost of doing business in Europe, reduce
risks that arise from currency fluctuations. Nati
onal authorities would lose control over monetary
policy Enlargement of the European Union
Eastern European Countries? Fortress Europe?
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V - REGIONAL ECONOMIC INTEGRATION IN THE AMERICAS
A - The Nafta Agreement
Nafta became law January 1, 1994. Guidelines
- Abolition within 10 years of tarifs on 99 of
the goods traded among Mexico, Canada, and the
U.S. - Remove most of the barriers on the
cross-border flow of services - Protect
intellectual property rights - Removes most
restrictions on FDI among the three members -
Members are allowed to apply its own
environmental standards
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Arguments against NAFTA - mass exodus of jobs
from the US and Canda (H. Ross Perots Sucking
Sound) - Expose Mexican firms to highly
efficient Canadian and American firms. -
Painful Economic Restructuring and Unemployment
in Mexico - Loss of National Sovereignty
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VI - ASIAN AND AFRICAN TRADING BLOCKS

• ASEAN, APEC
• AFRICAN COOPERATION

VII - COMMODITY AGREEMENTS
BUFFER-STOCK SYSTEM MULTIFIBER
ARRANGEMENT (MFA)
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VIII - THE UNITED NATIONS
UNCTAD
IX - THE ENVIRONMENT
THE RIO EARTH SUMMIT
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Reference

• University of New Mexico, Anderson School of
  Management. (2009). Economic Integration.
  Retrieved on April 12, 2009, from
  mgtclass.mgt.unm.edu/DeGouvea/528/Regional20Econo
  mic20Integration.ppt -