chapter 8 regional economic integration. © prentice hall, 2008international business 4e chapter 8 -...
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Chapter 8 - 1International Business 4e© Prentice Hall, 2008
Chapter 8Chapter 8Regional Economic Regional Economic
IntegrationIntegration
© Prentice Hall, 2008 International Business 4e Chapter 8 - 2
Chapter PreviewChapter 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 Chapter 8 - 3
Process whereby countries in a geographic region cooperate to either reduce or eliminate barriers to the free flow of products, people, or capital
Regional Economic IntegrationRegional Economic Integration
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Levels of Regional IntegrationLevels of Regional Integration
Coordinate aspects of members’ economic and political systemsPolitical UnionPolitical Union
Remove barriers to trade, labor, and capital;set a common trade policy against nonmembers; and coordinate members’ economic policies
Economic Economic UnionUnion
Remove all barriers to trade, labor, and capitalamong members; and set a common trade policy against nonmembers
Common MarketCommon Market
Remove all barriers to trade among members, and set a common trade policy against nonmembers
Customs Customs UnionUnion
Remove all barriers to trade among members, but each country has own policies for nonmembers
Free-Trade Free-Trade AreaArea
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Effects of IntegrationEffects of Integration
Potentialbenefits
Potentialdrawbacks
Trade diversion
Shifts in employment
Loss of sovereignty
Trade diversion
Shifts in employment
Loss of sovereignty
Trade creation
Greater consensus
Political cooperation
Creates jobs
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European Union (EU)European Union (EU)
Pop: 485 million
GDP: $9.5 trillion
Members: 27
Economic Union
Began: 1951
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European Union: Early YearsEuropean 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
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Five Key EU InstitutionsFive Key EU Institutions
EuropeanCommission
Council of theEuropean Union
EuropeanParliament
Court ofAuditors
Court of Justice
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Business in Central EuropeBusiness in Central Europe
Don’t rush familiarity
Build relationships
Find a Czech partner
Expect limited resources
Hire local professionals
Establish who’s in charge
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European Union EnlargementEuropean 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
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European Free Trade European Free Trade AssociationAssociation
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
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North AmericanNorth AmericanFree Trade AgreementFree Trade Agreement
Pop: 420 million
GDP: $12 trillion
Members: 3
Free-Trade Area
Began: 1994
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NAFTA Effects NAFTA Effects
JobsJobsand wagesand wages
Three-nationThree-nationtrade flowstrade flows
FutureFutureexpansion?expansion?
““Fast track”Fast track”authorityauthority
SingleSinglecurrency?currency?
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Central American FreeCentral American FreeTrade AgreementTrade 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
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Andean CommunityAndean 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
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Southern Common MarketSouthern 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
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Central America / CaribbeanCentral America / Caribbean
Members have little to offer each other
Peace is driving tentative optimism
Pop: 33 million
GDP: $120 billion
Members: 5
+/- Common Market
Began: 1961
Pop: 6 million
GDP: $30 billion
Members: 15
Common Market
Began: 1973
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Free Trade Area of the Free Trade Area of the AmericasAmericas
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
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Association of SoutheastAssociation of SoutheastAsian NationsAsian Nations
ASEAN
1. Economic, social, and cultural development2. Safeguard economic and political stability3. Serve as a forum to resolve disputes
Pop: 500 million
GDP: $740 billion
Members: 10
General Cooperation
Began: 1967
Pop: 500 million
GDP: $740 billion
Members: 10
General Cooperation
Began: 1967
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Asia Pacific Economic Asia Pacific Economic CooperationCooperation
Asia Pacific Economic Asia Pacific Economic CooperationCooperation
APEC: Group of 21 nations ringing the Pacific APEC: Group of 21 nations ringing the Pacific Ocean that accounts for over half of world tradeOcean that accounts for over half of world tradeAPEC: Group of 21 nations ringing the Pacific APEC: Group of 21 nations ringing the Pacific
Ocean that accounts for over half of world tradeOcean that accounts for over half of world trade
1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc
2. Strengthen multilateral trade system2. Strengthen multilateral trade system2. Strengthen multilateral trade system2. Strengthen multilateral trade system
3. Liberalize trade and investment rules3. Liberalize trade and investment rules3. Liberalize trade and investment rules3. Liberalize trade and investment rules
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Middle East and AfricaMiddle East and Africa
Gulf Cooperation Council(GCC)
Six Arab nations (1980) Economic and political aims Free travel; property rights
Economic Community ofWest African States
(ECOWAS) Common market hopes (1975) Little progress to date
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Chapter ReviewChapter 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