Introduction to Global Business

Chapter 3
Regional Economic Integration
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 After
After studying
studying this
this chapter,
chapter, you
you should
should be
be able
able to:
to:

1. Explain regional economic integration, its evolution, and

its benefits and costs.
2. Identify how economic geography helps explain,
promote, and segment regional integration blocs.
3. Identify the primary reasons why countries are now
seeking to pursue regional integration at the expense of
multilateral trade liberalization.
4. Explain why the European Union is seen as the most
advanced regional integration bloc.

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 After
After studying
studying this
this chapter,
chapter, you
you should
should be
be able
able to:
to:

5. Describe how NAFTA has affected U.S.–Mexico

bilateral trade in goods and services.
6. Explain the importance of ASEAN and indicate why Asia
may become the most important free trade region for
this century.
7. Explain why regional integration in Latin America is
challenging and why there is potential for a grouping like
MERCOSUR to become more predominant.

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EXHIBIT 3.1 TRANS-PACIFIC PARTERNSHIP AGREEMENT

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 What
What Is
Is Regional
Regional Economic
Economic Integration?
Integration?
• Regional integration
– Implementation of a multitude of economic and/or political steps by
member states to increase their global competitiveness, including
preferential trade access
• Spatial transformations
– The process of allowing efficient geographic distribution of
business activities within and among countries

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 Stages
Stages of
of Regional
Regional Integration
Integration

Common Economi
Free-
Customs (or c and Political
trade
union single) monetary union
area
market union

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EXHIBIT 3.2 FORM AND STAGES OF REGIONAL INTEGRATION

  Harmonization
Abolition of Common and Unification
  Tariffs and External Tariff Abolition of of Economic
Stage of Quotas Among and Quota Restrictions on Policies
Integration Members System Factor Movements and Institutions

Free-trade area Yes No No No

Customs union Yes Yes No No

Common market Yes Yes Yes No

Economic union Yes Yes Yes Yes

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 Pros
Pros and
and Cons
Cons of
of Regional
Regional Integration
Integration

Regional
Integration

Benefits Costs

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 Benefits
Benefits of
of Regional
Regional Integration
Integration
• Creating a larger pool of consumers with growing
incomes and similar culture, tastes, and social values
• Encouraging economies of scale in production, increasing
the region’s level of global competitiveness, and
enhancing economic growth through investment flows
• Freeing the flow of capital, labor, and technology to the
most productive areas in the region
• Increasing cooperation, peace, and security among
countries in the region
• Encouraging member states to enhance their social
welfare to match that of the most progressive states

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 Costs
Costs of
of Regional
Regional Integration
Integration
• Undermining the most-favored-nation status rule, an
essential principle of the WTO
• Imposing uniform laws and regulations that at times do
not take into account national economic, cultural, and
social differences
• Eliminating jobs and increasing unemployment in
protected industries
• Losing sovereignty, national independence, and identity
• Reducing the powers of the national government
• Increasing the problems of illegal drugs and terrorism due
to the ease of cross-border labor movement

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 The
The Economic
Economic Geography
Geography of
of Regional
Regional
Integration
Integration
• Economic geography Steps to Regional
– The study of principles that Integration
govern the efficient spatial
allocation of economic Start small
1
resources and the resulting
consequences
2 Think global

Compensate the
3
least fortunate

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EXHIBIT 3.3 REGIONS CLOSE TO WORLD MARKETS

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EXHIBIT 3.4 REGIONS WITH LARGE LOCAL MARKETS BUT LOCATED FAR
FROM WORLD MARKETS

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EXHIBIT 3.5 REGIONS WITH SMALL LOCAL MARKETS LOCATED FAR
FROM WORLD MARKETS

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 Does
Does Regional
Regional Integration
Integration
Confound
Confound Global
Global Trade?
Trade?

North
American
European
Free Trade
Union (EU)
Agreement
(NAFTA)

Associatio
Regional
n of South
Integration
East Asian
in Latin
Nations
America
(ASEAN)

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 The
The European
European Union
Union (EU)
(EU)
• EU is most highly evolved regional integration:
– EU grew out of European Coal and Steel Community (ECSC).
– The Treaty of Rome in 1957 established the European Economic
Community (EEC).
– The Maastricht Treaty in 1992 created the EU as a full economic
union with free movement of labor among its member countries.
– The euro was adopted as a common currency in 1992.
– Economic coordination and fiscal stability is challenged by the
sovereign debt crisis of some members.

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EXHIBIT 3.6
THE EUROPEAN UNION

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EXHIBIT 3.7 THE EUROPEAN UNION AND THE UNITED STATES:
A COMPARISON

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 The
The North
North American
American Free-Trade
Free-Trade
Agreement
Agreement (NAFTA)
(NAFTA)
• Canada, United States, and Mexico reached a
comprehensive trade agreement in 1994.
• Major NAFTA objectives:
– Trade expansion through the phased elimination of all trade
barriers
– Protection of intellectual property rights
– Creation of institutions to address unfair trade practices, trade
disputes, environmental protection, worker’s rights, competition
policies, and implementation of NAFTA rules and regulations

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EXHIBIT 3.8
NORTH AMERICAN FREE-
TRADE AGREEMENT

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EXHIBIT 3.9 UNITED STATES: EXPORTS OF GOODS TO AND FROM TOP
TEN TRADE PARTNERS (BILLIONS OF U.S. DOLLARS)

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EXHIBIT 3.9 UNITED STATES: IMPORTS OF GOODS TO AND FROM TOP
TEN TRADE PARTNERS (BILLIONS OF U.S. DOLLARS)

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 Association
Association of
of South
South East
East Asian
Asian Nations
Nations
(ASEAN)
(ASEAN)
• ASEAN’s objectives:
– To accelerate economic growth, social progress, and cultural
development in the region
– To promote peace and stability through the rule of law in
relationships among countries in the region
• Bases for ASEAN:
– ASEAN Security Community (ASC)
– ASEAN Economic Community
– ASEAN Sociocultural Community

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EXHIBIT 3.10 ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN)

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EXHIBIT 3.11 ASEAN SELECTED KEY ECONOMIC INDICATORS, 2013

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 Regional
Regional Integration
Integration in
in Latin
Latin America
America
• The Treaty of Montevideo in 1960 created the Latin
American Free Trade Association (LAFTA).
• Bolivia, Chile, Colombia, Ecuador, and Peru created the
Andean Group in 1969.
• Treaty of Asunción in 1991 among Argentina, Brazil,
Paraguay, and Uruguay, created the Southern Cone
Common Market, or MERCOSUR (Mercado Común del
Sur).
• DR-CAFTA (Dominican Republic and Central American
Free Trade Agreement) became effective in 2005.

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EXHIBIT 3.12
REGIONAL INTEGRATION IN
LATIN AMERICA

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 Key
Key Terms
Terms
regional integration economic and monetary
spatial transformations union
free-trade area political union
customs union economic geography
common market or single
market

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