Transcript ECONOMIC INTEGRATION IB Economics Section 4.3

ECONOMIC
INTEGRATION
IB Economics
Section 4.3
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
fortress”that shut out foreign producers with high tariff
barriers is particularly worrisome to those who believe in the
value of unrestricted free trade
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)
• 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
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
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
III - THE CASE FOR/AGAINST
REGIONAL INTEGRATION
A - TRADE CREATION
Occurs when high-cost domestic producers are replaced by lowcost external suppliers within the free trade area.
B - TRADE DIVERSION
Occurs when lower-cost external suppliers are replaced by highercost 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.
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 world’s 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.
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”
The Treaty of Maastricht 1992
Common currency, lower cost of doing business in
Europe, reduce risks that arise from currency
fluctuations.
National authorities would lose control over monetary
policy
Enlargement of the European Union: Eastern European
Countries?
Fortress Europe?
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
Arguments against NAFTA:
- mass exodus of jobs from the US and Canda
(H. Ross Perot’s “Sucking Sound”)
- Expose Mexican firms to highly efficient
Canadian and American firms.
- Painful Economic Restructuring
Unemployment in Mexico
- Loss of National Sovereignty
and
VI - ASIAN AND AFRICAN TRADING
BLOCKS
ASEAN, APEC
AFRICAN COOPERATION
VII - COMMODITY AGREEMENTS
BUFFER-STOCK SYSTEM
MULTIFIBER ARRANGEMENT (MFA)
VIII - THE UNITED NATIONS
UNCTAD
IX - THE ENVIRONMENT
THE RIO EARTH SUMMIT
Reference:

University of New Mexico, Anderson School
of Management. (2009). Economic Integration.
Retrieved on April 12, 2009, from
mgtclass.mgt.unm.edu/DeGouvea/528/Region
al%20Economic%20Integration.ppt -