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Regional Economic Integration: Advantages, Challenges, and Future Trends

Explore the levels of economic integration, history, and future prospects of EU, NAFTA, MERCOSUR, and APEC. Understand the implications for businesses, agreements, and reasons for regional integration. Dive into the Euro's benefits, costs, and early experiences, along with the enlargement of the EU and integration in the Americas. Discover the economic and political arguments for and against economic integration and its impact on trade, services, and production factors.

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Regional Economic Integration: Advantages, Challenges, and Future Trends

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  1. Presentation on Regional Economic Integration www.AssignmentPoint.com www.assignmentpoint.com

  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 www.assignmentpoint.com

  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 www.assignmentpoint.com

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  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 www.assignmentpoint.com

  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 www.assignmentpoint.com

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  8. European Union • 25 member countries; 450mm people; GDP > US • 1951 6 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 www.assignmentpoint.com

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  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 www.assignmentpoint.com

  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 www.assignmentpoint.com

  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 www.assignmentpoint.com

  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 www.assignmentpoint.com

  14. Early Experience of the Euro (€) • Volatile trading history • 1999 -- €1 = US$1.17 • 10/2000 -- €1 = US$0.83 • 10/2004 -- €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 www.assignmentpoint.com

  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”) www.assignmentpoint.com

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  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 www.assignmentpoint.com

  18. The Americas www.assignmentpoint.com

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  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 www.assignmentpoint.com

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  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 www.assignmentpoint.com

  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 www.assignmentpoint.com

  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 www.assignmentpoint.com

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