1. Presentation on Regional Economic Integration www.AssignmentPoint.com
This is a test

2. Regional Economic Integration
Levels of economic integration among nations
Economic and political arguments for/against
History/scope, scope and future prospects for: EU
NAFTA
MERCOSUR, and
APEC
Implications for business

3. Regional Economic Integration
Agreements among geographically proximate countries to reduce/remove tariff and non-tariff barriers to free flow of:
Goods
Services
Factors of production

5. Levels of Economic Integration
Free Trade Area (FTA):
removes tariffs among members
members retain own trade policies toward others
Customs Union (CU): FTA+
common trade policy toward others
Common Market (CM): CU+
eliminates intra-market factor of production movements
Economic Union (EU): CM+
full integration of member economies (common policy)
Political Union: EU+
political and economic integration

6. Reasons for Regional Integration
Economic enhancement of the member states
Free trade
Fee FDI
Political Reasons
Linkages of economies create interdependencies that reduce the potential for violent conflict
Grouping gives countries more political clout world-wide
Impediments
Painful adjustments in certain segments of economy
Threat to national sovereignty

8. European Union 25 member countries; 450mm people; GDP > US
members of coal and steel community
France, Germany (W.), Italy, Belgium, Netherlands, Luxembourg
1957 Treaty of Rome: European Community
Common market
Elimination of internal trade barriers
Common external tariff
Free movement of factors of production
1973 1st enlargement: Britain, Ireland, Denmark

10. European Union 1981 2nd enlargement: Greece
1983 3rd enlargement: Portugal, Spain
1992 single European act
Remove all frontier controls
Principle of mutual recognition to product standards
Open public procurement to non-national suppliers
Lift barriers of competition to banks and insurance
Remove restrictions on foreign exchange transactions
Abolish restriction on cabotage (trucking)
1994 Maastricht treaty: European Union
1996 4th enlargement: Austria, Finland, Sweden
2003 5th enlargement: Poland, Hungary, Czech Republic, Lithuania, Estonia, Latvia, Slovenia, Cyprus, Malta, Slovakia

11. The Euro (€) Maastricht treaty:
European common currency adopted 1/1/99
Common foreign and defense policy
Common citizenship
EU parliament with “teeth”
€ now used by 12 countries (since 1/1/02)
Sweden, Denmark, Britain opted out
10 new countries have to qualify

12. Benefits of the Euro (€)
Lower transaction costs for individuals / business
Prices comparable across the continent; increased competition
Rationalization of production across Europe to reduce cost
Pan-European capital market
Increase range of investment options available to both individuals and institutions

13. Costs of the Euro (€) ECB has monetary policy control not nations
Sets interest rates, monetary policy (Frankfurt, Ger.)
Is independent; instructs national central banks
EU is not an optimal currency area
Few similarities in structure of economic activity (e.g., Finland vs Portugal)
Interest rates too high in depressed regions or too low for economically booming regions
May need fiscal transfers from prosperous to depressed regions
Economic and political issues may conflict

14. Early Experience of the Euro (€)
Volatile trading history
€1 = US$1.17
10/ €1 = US$0.83
10/ €1 = US$1.24
EU enlargement will complicate Euro adoption; new members with weaker economies
Major members ignoring monetary union rules to retain control over their fiscal and monetary policies

15. Enlargement of the EU More member disparity, more difficult governance
Norway opted out of the EU (1994)
Membership applications pending: Turkey, Bulgaria, Rumania, Croatia
Turkish application controversial (economic development, religion, labor movement problems)
Other non-European countries will seek membership
US and Asian countries fear that EU will become protectionist (“fortress Europe”)

17. The Americas
North American Free Trade Agreement (NAFTA): USA, Mexico, Canada
The Andean Pact: Bolivia, Chile, Ecuador, Colombia, Peru
MERCOSUR (FTA): Brazil, Argentina, Paraguay, Uruguay
Central American Free Trade Agreement (CAFTA): Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua

18. The Americas

20. Elsewhere Association of Southeast Asian Nations (ASEAN)
Brunei, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam
Asia Pacific Economic Cooperation
USA, Japan, China + 15 Pacific nations

23. NAFTA USA, Canada, Mexico (FTA-1988)
USA-Canada is world’s largest trading relationship
USA is Mexico’s largest trading partner
Mexico, USA’s third largest trading partner
Trade opening process through tariff elimination

24. NAFTA - Key provisions General (effective 1/1/94)
Tariffs of all sectors reduced by 99% over 10 yrs
FDI unrestricted (x-oil and railways in Mexico, Culture in Canada, airlines-communications US)
No free movement of labor (x-white collar easement)
Protection of intellectual property rights
Cross-border flow of services unrestricted
Application of environmental standards
Two commissions have the right to impose penalties on issues of health/safety, child labor, minimum wages

25. Implications for Business
Opportunities
Less protectionism; higher economic growth
Lower cost of doing business (fewer borders)
Threats
Cultural differences persist
Increased price competition within blocks
Across-trading-block rivalry can increase barriers
Improvement of competitiveness of many local firm within the blocks