Chapter 9 Regional Economic Intergration.ppt

International Business 9e By Charles W.L. HillMcGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 9Regional Economic Integration9-3What Is Regional Economic Integration?Regional economic integration - agreements between countries in a geographic region to reduce tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each otherQuestion: Do regional trade agreements promote free trade?In theory, yes, but the world may be moving toward a situation in which a number of regional trade blocks compete against each other 9-4What Are The Levels Of Regional Economic Integration?vA free trade area eliminates all barriers to the trade of goods and services among member countriesEuropean Free Trade Association (EFTA) - Norway, Iceland, Liechtenstein, and SwitzerlandNorth American Free Trade Agreement (NAFTA) - U.S., Canada, and Mexico 9-5What Are The Levels Of Regional Economic Integration?vA customs union eliminates trade barriers between member countries and adopts a common external trade policyAndean Community (Bolivia, Columbia, Ecuador, and Peru) vA common market has no barriers to trade between member countries, a common external trade policy, and the free movement of the factors of production MERCOSUR (Brazil, Argentina, Paraguay, and Uruguay)9-6What Are The Levels Of Regional Economic Integration?vAn economic union has the free flow of products and factors of production between members, a common external trade policy, a common currency, a harmonized tax rate, and a common monetary and fiscal policyEuropean Union (EU)vA political union involves a central political apparatus that coordinates the economic, social, and foreign policy of member states the EU is headed toward at least partial political union, and the U.S. is an example of even closer political union9-7What Are The Levels Of Regional Economic Integration?Levels of Economic Integration9-8Why Should Countries Integrate Their Economies?All countries gain from free trade and investment regional economic integration is an attempt to exploit the gains from free trade and investmentLinking countries together, making them more dependent on each othercreates incentives for political cooperation and reduces the likelihood of violent conflictgives countries greater political clout when dealing with other nations9-9What Limits Efforts At Integration?Economic integration can be difficult because while a nation as a whole may benefit from a regional free trade agreement, certain groups may loseit implies a loss of national sovereigntyRegional economic integration is only beneficial if the amount of trade it creates exceeds the amount it divertstrade creation occurs when low cost producers within the free trade area replace high cost domestic producerstrade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers9-10What Is The Status Of Regional Economic Integration In Europe?Europe has two trade blocs vThe European Union (EU) with 27 membersvThe European Free Trade Area (EFTA) with 4 membersThe EU is seen as the worlds next economic and political superpower9-11What Is The Status Of Regional Economic Integration In Europe?Member States of The European Union in 20119-12What Is The European Union?The devastation of two world wars on Western Europe prompted the formation of the EUMembers wanted lasting peace and to hold their own on the worlds political and economic stage Forerunner was the European Coal and Steel Community (1951)The European Economic Community (1957) was formed at the Treaty of Rome with the goal of becoming a common market 9-13What Is The European Union?The Single European Act (1987)committed the EC countries to work toward establishment of a single market by December 31, 1992was born out of frustration among EC members that the community was not living up to its promise provided the impetus for the restructuring of substantial sections of European industry allowing for faster economic growth than would otherwise have been the case9-14What Is The Political Structure Of The European Union?The main institutions in the EU include: v The European Council - the ultimate controlling authority within the EUv The European Commission - responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states v The European Parliament - debates legislation proposed by the commission and forwarded to it by the councilv The Court of Justice - the supreme appeals court for EU law9-15What Is The Euro?The Maastricht Treaty committed the EU to adopt a single currencycreated the second largest currency zone in the world after that of the U.S. dollar used by 17 of the 27 member statesBritain, Denmark and Sweden opted outsince its establishment January 1, 1999, the euro has had a volatile trading history with the U.S. dollar9-16Is The Euro A Good Thing?Benefits of the eurosavings from hav。