IntroductionLevels of Economic Integration Levels of Economic IntegrationLevels of Economic IntegrationThe Economic Case for IntegrationThe Political Case for IntegrationImpediments to IntegrationThe Case Against Regional IntegrationRegional Economic Integration in EuropeEvolution of the European UnionEuropean Union Members 2005Political Structure of the European UnionPolitical Structure of the European UnionThe Single European ActThe Single European ActThe Single European ActThe EuroEnlargement of the European UnionEnlargement of the European UnionThe North American Free Trade AgreementThe North American Free Trade AgreementThe Case For and Against NAFTANAFTA ResultsNAFTA ResultsThe Andean CommunityMercosurOther Hemisphere AssociationsAssociation of Southeast Asian NationsASEAN CountriesAsia Pacific Economic CooperationAPEC CountriesRegional Trade Blocs in AfricaImplications for ManagersLooking Ahead to Chapter 10Chapter NineRegional Economic Integration9 - 3McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Introduction• One notable trend in the global economy in recent years has been the accelerated movement toward regional economic integration- Regional economic integration refers to agreements among countries in a geographic region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other9 - 4McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Levels of Economic Integration • In a Free Trade Area all barriers to the trade of goods and services among member countries are removed• A Customs Union eliminates trade barriers between member countries and adopts a common external trade policy• A Common Market has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members9 - 5McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Levels of Economic Integration• An Economic Union involves the free flow of products and factors of production between member countries and the adoption of a common external trade policy, but it also requires a common currency, harmonization of members’ tax rates, and a common monetary and fiscal policy• A Political Union occurs when a central political apparatus coordinates the economic, social, and foreign policy of the member states9 - 6McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Levels of Economic Integration9 - 7McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The Economic Case for Integration• Stimulates economic growth in countries• Increases FDI and world production• Countries specialize in those goods and services efficiently produced• Additional gains from free trade beyond the international agreements such as GATT and WTO9 - 8McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The Political Case for Integration• Economic interdependence creates incentives for political cooperation- This reduces potential for violent confrontation• Together, the countries have more economic clout to enhance trade with other countries or trading blocs9 - 9McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Impediments to Integration• Integration is hard to achieve and sustain- Nation may benefit but groups within countries may be hurt- Potential loss of sovereignty and control over domestic issues9 - 10McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The Case Against Regional Integration• Economists point out that the benefits of regional integration are determined by the extent of trade creation, as opposed to trade diversion- Trade creation occurs when high cost domestic producers are replaced by low cost producers within the free trade area - Trade diversion occurs when lower cost external suppliers are replaced by higher cost suppliers within the free trade area9 - 11McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Regional Economic Integration in Europe• Europe has two trade blocks- European Union• Seen as the emerging power with almost 25 members- European Free Trade Association• Has only four members9 - 12McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Evolution of the European Union• Product of two political factors:- Devastation of WWI and WWII and desire for peace- Desire for European nations to hold their own, politically and economically, on the world stage• 1951 - European Coal and Steel Community.• 1957- Treaty of Rome establishes the European Community• 1994 - Treaty of Maastricht changes name to the European Union9 - 13McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.European Union Members 20059 - 14McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Political Structure of the European Union• European council- Heads of state and commission - President resolves policy issues and sets policy direction• European Commission- 20 Commissioners appointed by members for 4 year terms- Proposing, implementing, and monitoring legislation9 - 15McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.Political Structure of the European Union• European parliament- 630 directly elected members- Propose amendments to legislation, veto power over budget and single-market legislation, appoint commissioners• Court of justice• Council of ministers9 - 16McGraw-Hill/IrwinInternational Business, 6/e© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.The Single European Act• This act committed member countries to work toward the establishment of a single market by December 31, 1992• The act was born out of:- Frustration among members of the European Community regarding the barriers to the free flow of trade and investment between member countries- A need to harmonize the wide range of technical and legal standards for