regional economic and political integration

Regional Economic and Political Integration

Reasons for Globalization:• Air transport industry:

FedEx, and Brussels-Based HDL have become the primary movers of companies components, raw materials, and finished products.

• eCommerce• Shorter product cycles• Just-in-time manufacturing• Global sourcing and sale


Ramification of Globalization:

• No one wants obsolete technology. Thus, Semiconductors and equipments are the new “perishable” products.

• 90% of global GNP has become accessible within 48 hours


Facilitators of Globalization:• United Nations

– WTO– IMF– International Aviation Authority: Air transport

coordinator– The World Bank– International Telecommunications Union, which

coordinates satellite-based transfer of data and information.

• Deregulation and Privatization trends• Formation of trade blocs.


Globalization cannot take place without rules and regulations that all nation-states abide to. So, we have to have a legal system that is acceptable to all.

International Monetary System

Different exchange rate systems:

1a-- Another country’s currency as the legal Tender


Different exchange rate systems:

1b-- Common External Currency: a currency that is created for external transactions among nations of the community, usually former colonies.


1c-- Multi-country currency: Euro (1999 and was circulated in 2002), is created to be used by all countries in the Union.


2-- Currency Board


3-- Fixed to a currency or a currency basket


4-- Currency with a band


5-- Crawling Peg: currencies are devalued according to a pre-specified plan in accordance with the relative inflation rate.


6-- Crawling bands: the band within which the exchange rate can crawl is adjustable.


7--- Managed float.


8-- Free float


Demand and supply of foreign exchange and the exchange rate

Demand for the US $

Supply of Euro

US exports

Europe’s imports

Europe’s investment in the US

profits returned to the US

Euro/Dollar

1.0

0.7

1.3

Convertibility• Hard currencies (convertible)

• Soft currencies (inconvertible)

FUNCTIONS OF WTO

• Multilateral trade negotiations

• oversee national and regional trading policies

• reduction of barriers to trade

• Resolution of trade disputes

Free Trade: Good for all

• Wherever goods go tanks will not go



• Promotes global competition: – lower prices and variety of goods

– companies must become more efficient and innovative



• Promotes global competition:

– lower prices and variety of goods


• Because of uneven distribution of resources trade is a necessity







• It helps transfer of technology, therefore,








• It helps with development of all involved by









• efficient allocation of resources










• It increases awareness to the world problems and events










• It increases awareness to the world problems and events

• It increases economic growth and employment

Free Trade: Bad for all

• Global competition means: – loss of jobs


• Global competition means:

– loss of jobs

• Advanced countries argue that LDCs have an unfair advantage because of their cheap labor



– loss of jobs


• Infant industry argument



– loss of jobs



• Strategic industries (agriculture, defense, utilities, telecommunications) are sheltered



– loss of jobs




• Non-tariff trade barriers through– rules and regulations

– financial restrictions.



– loss of jobs




• Non-tariff trade barriers through

– rules and regulations

– financial restrictions.

• Structural unemployment


• Global competition means: – loss of jobs


• Infant industry argument• Strategic industries (agriculture, defense, utilities, telecommunications) are

sheltered• Non-tariff trade barriers through

– rules and regulations– financial restrictions.

• Structural unemployment

• Cultural protectionism through prohibition of books and movies


Degree of Integration: Types of Trade Blocs

Free Trade Areas: a scheme to eliminate tariffs within the are while each individual country keeps its tariff schedule vis-à-vis other countries outside the area. NAFTA is an example of FTA.


Degree of Integration: Types of Trade BlocsFree Trade Areas: a scheme to eliminate tariffs within the are while each

individual country keeps its tariff schedule vis-à-vis other countries outside the area. NAFTA is an example of FTA.

• formed between the US and Canada in 1989.





• Mexico joined in 1994 as the low cost producer, which caused American firms to change their outsourcing directions from Asia to Mexico.




• formed between the US and Canada in 1989. • Mexico joined in 1994 as the low cost producer, which caused American firms to change

their outsourcing directions from Asia to Mexico.

• Plans to incorporate all of the Western Hemisphere into this bloc and create Free Trade Area of Americas FTAA. This would create a bloc which would look like this:





• Mexico joined in 1994 as the low cost producer, which caused American firms to change their outsourcing directions from Asia to Mexico.

• Plans to incorporate all of the Western Hemisphere into this bloc and create Free Trade Area of Americas FTAA. This would create a bloc which would look like this:

• Population > 850 milions

• GDP > 12 Trillions

• Trade volume > 3.5 Trillions


Degree of Integration: Types of Trade BlocsFree Trade Areas

Custom Union:

• eliminates tariffs internally



Custom Union:


• unified tariff scheme vis-à-vis outside



Custom Union:

Common Market:



• free movement of labor and capital internally



Custom Union:

Common Market:

Full economic integration




Custom Union:

Common Market:

Full economic integration• eliminates tariffs internally




Custom Union:

Common Market:






Custom Union:

Common Market:




• Standardization of products, labels, product testing and safety


Degree of Integration: Types of Trade BlocsFree Trade AreasCustom Union: Common Market:

Full economic integration• eliminates tariffs internally• unified tariff scheme vis-à-vis outside• free movement of labor and capital internally• Standardization of products, labels, product testing and safety

• Region-wide policies and laws on agriculture, energy, and corporate behavior

.



Custom Union:

Common Market:

Full economic integration

Political integration

Common economic and political sovereignty is sacrificed to integrate monetary and fiscal policies and to institute a common currency.

regional economic and political integration

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