Chapter 8 Regional Economic Integration

International Business 4e Chapter Preview Define each level of regional integration Identify the potential effects of integration Discuss European integration and enlargement Characterize integration efforts in the Americas Identify why integration in Asia is unique Discuss integration in the Middle East and Africa © Prentice Hall, 2008 International Business 4e

Regional Economic Integration Process whereby countries in a geographic region cooperate to either reduce or eliminate barriers to the free flow of products, people, or capital © Prentice Hall, 2008 International Business 4e

Levels of Regional Integration Coordinate aspects of members’ economic and political systems Political Union Remove barriers to trade, labor, and capital; set a common trade policy against nonmembers; and coordinate members’ economic policies Economic Union Remove all barriers to trade, labor, and capital among members; and set a common trade policy against nonmembers Common Market Remove all barriers to trade among members, and set a common trade policy against nonmembers Customs Union Remove all barriers to trade among members, but each country has own policies for nonmembers Free-Trade Area © Prentice Hall, 2008 International Business 4e

Effects of Integration Potential benefits Potential drawbacks Trade diversion Shifts in employment Loss of sovereignty Trade creation Greater consensus Political cooperation Creates jobs © Prentice Hall, 2008 International Business 4e

International Business 4e European Union (EU) Pop: 485 million GDP: $9.5 trillion Members: 27 Economic Union Began: 1951 © Prentice Hall, 2008 International Business 4e

European Union: Early Years European Coal and Steel Community (1951): Removed trade barriers in coal, iron, and steel European Economic Community (1957): Outlined and took initial steps toward common market European Community (1967): Expanded to other industries including atomic energy European Union (1994): Final name change and reduced barriers further Additional milestones: Single European Act (1987): Harmonized regulations, strived for lower barriers Maastricht Treaty (1991): Single currency targets, outlined eventual political union © Prentice Hall, 2008 International Business 4e

Five Key EU Institutions European Parliament Court of Justice Court of Auditors Council of the European Union European Commission © Prentice Hall, 2008 International Business 4e

Business in Central Europe Don’t rush familiarity Build relationships Find a Czech partner Expect limited resources Hire local professionals Establish who’s in charge © Prentice Hall, 2008 International Business 4e

European Union Enlargement • Stable institutions of human rights, democracy, and law • Functioning and capable market economy • Assume economic, monetary, and political obligations • Adopt rules of Community, Court of Justice, and Treaties Future members must meet Copenhagen Criteria  © Prentice Hall, 2008 International Business 4e

European Free Trade Association Iceland, Liechtenstein, Norway, Switzerland Feared lost sovereignty Feared destructive rivalry Desired free-trade gains Cooperates with EU Pop: 12 million GDP: $620 billion Members: 4 Free-Trade Area Began: 1960 © Prentice Hall, 2008 International Business 4e

North American Free Trade Agreement Pop: 420 million GDP: $12 trillion Members: 3 Free-Trade Area Began: 1994 © Prentice Hall, 2008 International Business 4e

International Business 4e NAFTA Effects Three-nation trade flows Jobs and wages “Fast track” authority Future expansion? Single currency? © Prentice Hall, 2008 International Business 4e

Central American Free Trade Agreement • CAFTA established in 2006 between U.S. and 6 others • U.S., Costa Rica, Guatemala, Honduras, El Salvador, Nicaragua, & Dominican Rep. • CAFTA should create regional integration, peace, and stability • Combined value of goods traded is around $32 billion © Prentice Hall, 2008 International Business 4e

International Business 4e Andean Community Internal tariff reduction Common external tariff Common transport policies Impaired by ideological conflict Pop: 97 million GDP: $216 billion Members: 4 Customs Union Began: 1969 © Prentice Hall, 2008 International Business 4e

Southern Common Market MERCOSUR Very successful early Future “SAFTA”? Impaired by ideology and economic hardships Pop: 220 million GDP: $1 trillion Members: 5 Customs Union Began: 1988 © Prentice Hall, 2008 International Business 4e

Central America / Caribbean Peace is driving tentative optimism Members have little to offer each other Pop: 33 million GDP: $120 billion Members: 5 +/- Common Market Began: 1961 Pop: 6 million GDP: $30 billion Members: 15 Common Market Began: 1973 © Prentice Hall, 2008 International Business 4e

Free Trade Area of the Americas Would create the largest free-trade area on the planet From northern tip of Alaska to southern tip of Tierra del Fuego in South America Could mean enormous cost savings for business Protests by many groups is slowing progress Pop: 800 million GDP: $12 trillion Members: 34 Free-Trade Area © Prentice Hall, 2008 International Business 4e

Association of Southeast Asian Nations ASEAN 1. Economic, social, and cultural development 2. Safeguard economic and political stability 3. Serve as a forum to resolve disputes Pop: 500 million GDP: $740 billion Members: 10 General Cooperation Began: 1967 © Prentice Hall, 2008 International Business 4e

Asia Pacific Economic Cooperation APEC: Group of 21 nations ringing the Pacific Ocean that accounts for over half of world trade 1. Not designed as a free-trade bloc 2. Strengthen multilateral trade system 3. Liberalize trade and investment rules © Prentice Hall, 2008 International Business 4e

Gulf Cooperation Council International Business 4e Middle East and Africa Economic Community of West African States (ECOWAS) Common market hopes (1975) Little progress to date Gulf Cooperation Council (GCC) Six Arab nations (1980) Economic and political aims Free travel; property rights © Prentice Hall, 2008 International Business 4e

International Business 4e Chapter Review Define each level of regional integration Identify the potential effects of integration Discuss European integration and enlargement Characterize integration efforts in the Americas Identify why integration in Asia is unique Discuss integration in the Middle East and Africa © Prentice Hall, 2008 International Business 4e