CHAPTER 8:

REGIONAL
ECONOMIC
INTEGRATION
By: Cayla Grace O. Taladua
Arl Mhoneer Unsang II
 Refers to agreements among
countries in a geographic region
REGIONAL to reduce, and ultimately remove,
ECONOMIC tariff and non tariff barriers to the

INTEGRATION free flow of goods, services, and

factors of production between
each other.
LEVELS OF ECONOMIC
INTEGRATION
 P R E S E N TAT I O N T I T L E

All barriers to the trade of goods and

services among member countries are
removed. In the theoretically ideal free
trade area, no discriminatory tariffs,
FREE TRADE quotas, subsidies, or administrative

AREA impediments are allowed to distort

trade between members. Each country,
however, is allowed to determine its
own trade policies with regard to
nonmembers.
 Eliminates trade barriers between
member countries and adopts a
common external policy.
CUSTOM Establishment of a common
UNION external trade policy necessitates
significant administrative
machinery to oversee trade
relations with nonmembers.
 P R E S E N TAT I O N T I T L E

Has no barriers to trade between member

countries, includes a common external
trade policy, and allows factors of
production to move freely between

COMMON countries. Labor and capital are free to

move because there are no restrictions on

MARKET immigration, emigration,

flows of capital between member countries.
or cross-border

Establishing a common market demands a

significant degree of harmony and
cooperation on fiscal, monetary, and
employment policies.
 Involves the free low of products and
factors of production between member

ECONOMIC
countries and the adoption of a
common external policy, but it also

UNION requires a common currency,

harmonization of member’s tax rates,
and a common monetary and fiscal
policy.
POLITICAL In which a central political apparatus
coordinates the economic, social, and
UNION foreign policy of the member states.
 THE CASE FOR
REGIONAL INTEGRATION
IMPEDIMENTS TO INTEGRATION

• First, although economic integration benefits the majority, it has its costs. While a nation

as a whole may benefit significantly from s regional free trade agreement, certain groups

may lose. Moving to a free trade regime involves painful adjustments.

• Second impediment to integration arises from concerns over national sovereignty.

Concerns about national sovereignty arises because close economic integration demands

that countries give up some degree of their control over such key policy issues as monetary

policy, fiscal policy, and trade policy.

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 P R E S E N TAT I O N T I T L E

THE The economic case for integration is

ECONOMIC straightforward. It is easier to establish

CASE FOR
a free trade and investment regime
among a limited number of adjacent

INTEGRATION countries than among the world

community.
 P R E S E N TAT I O N T I T L E

The political case for regional economic

THE integration has also loomed large in most

attempts to establish free trade areas,

POLITICAL custom unions, and the

neighboring economies and making them
like. Linking

CASE FOR increasingly dependent on each other

creates incentives for political cooperation
INTEGRATION between the neighboring states and
reduces the potential for violent conflict.
 THE CASE AGAINST
REGIONAL INTEGRATION
 Occurs when high-cost domestics
producers are replaced by low-cost

TRADE producers within the free trade area. It may

also occur when higher-cost external

CREATION producers are replaced by

external producers within the free trade
lower-cost

area.
 TRADE Occurs when lower-cost external suppliers
are replaced by higher-cost suppliers within

DIVERSION the free trade area.

 REGIONAL ECONOMIC
INTEGRATION IN EUROPE
 P R E S E N TAT I O N T I T L E

The original forerunner of the EU, the European

EVOLUTION
Coal and Steel Community, was formed in 1951
by Belgium, France, West Germany, Italy,
Luxemburg, and the Netherlands. Its objective

OF THE was to remove barriers to intagroup shipments

of coal, iron, steel, and scrap metal. With the

EUROPEAN signing of the Treaty of Rome in 1957, the

European Community was established. The

UNION name changed again in 1994 when the European

Community became the European Union
following the ratification of the Maastricht Treaty.
 C O N T I N U AT I O N … …

The community grew in 1973, when Great

Britain, Ireland, and Denmark joined. These
three wee followed in 1981 by Greece, in 1986

EVOLUTION by Spain and Portugal, and in 1996 by Austria,

Finland, and Sweden bringing the total

OF THE membership to 15 (east Germany became part of

the EC after the reunification of Germany in

EUROPEAN
1990.) with a population of 350 million and a
GDP greater than that of the United States, the
EU through these enlargement became a

UNION potential global superpower.

countries are scheduled to join the EU on May 1,
Another 10

2004, if the electorates in those countries

approve.
 POLITICAL STRUCTURE OF
THE EUROPEAN UNION
E U R O PEA N EU R O P E A N C O U N C IL EUROPEAN COURT OF
C O U N C IL COMMISSION M IN IS T E R PA R L I A M E N T J U S T IC E

Is composed of Is responsible for Represents the Is directly elected Which is

the heads of state proposing EU interests of by the comprised of one
of the EU’S legislation, member states. It populations of the judge from each
member nations implementing it, is clearly the member states. country, is the
and the president and monitoring ultimate supreme appeals
of the European compliance with controlling court for EU law.
Commission. the EU laws by authority within
member states. the EU.
THE SINGLE EUROPEAN ACT

The Single European Act was born of a frustration among EC members that the
community was not living up to its promise. The EC responded by creating the
Delors Commission. Under the chairmanship of Jacques Delors, the former French
finance minister and president of the EC Commissions, the Delors Commissions
produced a discussion paper in 1985. this proposed that all impediments to the
formation of a single market be eliminated by December 31, 1992. the result was
the Single European Act, which was independently ratified by the parliaments of
each member country and became EC law in 1987.
 THE OBJECTIVES OF THE
ACT
• Remove all the frontier controls between EC countries, thereby abolishing delays and reducing the
resources required for complying with trade bureaucracy.
• Apply the principle of “mutual recognition” to product standards. A standard developed in one EC
country should be accepted in another, provided it meets basic requirements in such matters as health
and safety.
• Open public procurement to non national suppliers, reducing costs directly by allowing lower-cost
suppliers into national economies and indirectly by forcing national suppliers to compete.
• Lift barriers to competition in the retail banking and insurance businesses, which should drive down
the costs of financial services, including borrowing, throughout the EC.
• Remove restrictions on foreign exchange transactions between member countries by the end of
1992.
• Abolish restrictions on cabotage ---- the right of foreign truckers to pick up and deliver goods within
another member states border ---- by the end of 1992,. Estimates suggested this would reduce the
cost of haulage within the EC by 10 to 15 percent.
 IMPACT
The act provided the impetus for restructuring of substantial sections
of European industry. The results have included faster economic
growth than would otherwise have been the case. However, 10 years
after the formation of a single market it is clear that the reality still
falls someway short of the ideal.
 THE ESTABLISHMENT OF THE
EURO
• In December 1991, leaders of the EC member states met in Maastricht, the
Netherlands, to discuss the next steps for the EC.
• The 12 members signed the treaty that committed them to adopting a common
currency by January 1, 1999, and paved the way for closer political cooperation.
•The euro is the currency unit now used by 12 of the 15 member states of the
European Union; these 12 states are now members of what is often referred to as
the euro zone.
• After January 1, 2002, euro notes and coins were issued and the national
currencies were taken out for circulation. By mids-2002, all prices and routine
economic transactions within the euro zones were in Euros.
 BENEFITS OF THE EURO
• First, they believe businesses and individuals will realize significant savings from having
to handle one currency, rather than many.

• Second, the adoption of the currency will make it easier to compare prices across Europe.

• Third, faced with lower prices European producers will be forced to look for ways to
reduce their production costs to maintain their profit margin.

•Fourth, the introduction of a common currency should give a strong boost to the
development of a highly liquid pan-European capital market.
 The Maastricht Treaty called for

COST OF establishment of an independent European

Central Bank (ECB), similar in some
respects to the US Federal Reserve, with a

EURO clear mandate to manage monetary policy

so as to ensure price stability.
REGIONAL ECONOMIC
INTEGRATION IN THE
AMERICA
 P R E S E N TAT I O N T I T L E

Regional economic integration in the

REGIONAL Americas refers to the various efforts made

by countries in the region to deepen
ECONOMIC economic cooperation and integration. This

INTEGRATION has been driven by a desire to increase

trade and investment flows, boost economic

IN THE growth and development, and strengthen

AMERICA
political ties between nations. There are
several initiatives and organizations that
are working towards this goal.

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 The government of the U.S. and Canada in 1988
agreed to enter into a free trade agreement,
which took effect January 1, 1989. The goal of
the agreement was to eliminate all tariffs on
bilateral trade between Canada and U.S. by

NAFTA 1998. And this agreement, signed in 1994,

created a free trade area between the U.S.,
Canada, and Mexico. It eliminated most tariffs
and trade barriers, facilitated the movement of
goods and services across borders, and created
new opportunities for business to expand and
grow.
 The agreement became law January 1, 1994.
The contents of NAFTA include the following:

NAFTA’S ● Abolition within 10 years of tariffs on 99

percent of the goods traded between Mexico,

CONTENTS Canada, U.S.

● Removal of most barriers on the cross-border

flow of services, allowing financial institutions,
for example, unrestricted access to the Mexican
market by 2000.

● Protection of intellectual property rights.

 C O N T I N U AT I O N . . . .

• Removal of most restrictions on foreign direct

investment between the three member countries,
although special treatment (protection) will be

NAFTA’S
given to Mexican energy and railway industries,
American airline and radio communications

CONTENTS
industries, and Canadian culture.

● Application of national environmental

standards, provided such standards have
scientific basis. Lowering of standards to lure
investment is described as being inappropriate.

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 C O N T I N U AT I O N . . . .

● Establishment of two commissions with the

NAFTA’S power
privileges
to impose
hen
fins and
environmental
remove
standards
trade
or

CONTENTS legislation involving health and safety, minimum

wages, or child labor are ignored.

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 Under NAFTA, tariffs were eliminated on many
goods traded between the three countries, and
rules we established to protect intellectual

THE CASE OF property rights, facilitate investment, and resolve

disputes between member countries. NAFTA was

NAFTA controversial, with some critics arguing hat it led

to job losses in the U.S. and Mexico, as
companies moved production to Mexico where
labor was cheaper. Supporters of NAFTA argued
that It increased trade and investment, leading
to economic growth and job creation in all three
countries.
THE CASE Critics of NAFTA argued that the

AGAINST
agreement had negative effects on
workers, the environment, and the

NAFTA economy, particularly in the U.S. and

Mexico.
 After Bolivia, Chile, Ecuador, Colombia, and
Peru signed the Cartagena agreement in 1969,
the Andean Pact was formed. Although the

THE ANDEAN Andean Pact was primarily based on the EU

model, it has had less success than expected in

PACT accomplishing its stated objectives. An internal

tariff reduction program, a common external
tariff, a transportation strategy, a common
industrial policy, and special concessions for the
two smallest members, Bolivia and Ecuador,
were among the integration measures that were
started in 1969.

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 C O N T I N U AT I O N . . .

• In the mid of 1980s the Andean pact was a trade

agreement among several south American
countries. The Andean pact faced some
challenges. These challenges ultimately led to the
Andean pact losing momentum.

THE ANDEAN • 1990 the heads of the five current members of the

PACT
Andean pact – Bolivia, Ecuador, Peru, Columbia,
and Venezuela – met in the Galapagos island. The
resulting Galapagos declaration effectively
relaunched the Andean pact. The declaration
objectives included the establishment of a free
trade area by 1992, a customs union by 1994, and
a common market by 1995.
 MERCOSUR originated in 1988 as a free
trade pact between Brazil and Argentina.
According to reports, this agreement's

MERCOSUR
modest tariff and quota reductions
contributed to a late 1980s growth in trade
between the two nations of 80%. This
success encouraged the expansion of the
pact in March 1990 to include Paraguay and
Uruguay.

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 C O N T I N U AT I O N . .

• MERCOSUR was established with the goal

promoting economic integration among its
member countries, as well as enhancing
their competitiveness and increasing their

MERCOSUR trade with other country.

• However, MERCOSUR has its critics,

including Alexander yeats, a senior
economist at the world bank. Who wrote a
stinging critique of MERCOSUR that was
“leaked” to the press in October 1996.

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 C O N T I N U AT I O N . .

• The leaked of the yeats report caused a storm

at the world bank, which typically does not
release reports that are critical of member states
(The MERCOSUR countries are members of he
world bank).it also drew strong protest from

MERCOSUR Brazil, one of the primary target of the critique.

• Argentina wanted to suspend MERCOSUR’s

tariff so that it could abolish duties on imports of
capital equipment, while raising those on
consumer goods o 35 percent (MERCOSUR had
established a 14 percent import tariff on both
sets of goods.)

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 C O N T I N U AT I O N . .

• Brazil agreed to this request, effectively

halting MERCOSUR’s quest to become a
fully functioning custom unions. Hope for a

MERCOSUR revival in the importance if MERCOSUR

rose in 2003when new Brazil President Lula
Da Silva announced his support for a
revitalized and expanded MERCOSUR.

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 P R E S E N TAT I O N T I T L E

CENTRAL • The central American common market was

AMERI CAN established in1960 by five central American

countries: Costa Rica, El Salvador,
COMMON Guatemala, Honduras, and Nicaragua. Its

MARKET AND goal was to promote trade and economic

CARI COM among its member countries.

(CARI BBEAN • CARICOM was established in 1973.

But CARICOM repeatedly failed to progress
COMMUNI TY) toward economic integration.

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 Agreement that aimed to create a free trade

FREE TRADE area encompassing all countries in the

Americas, except for Cuba. The

AREA OF THE negotiations began in 1994, but

ultimately suspended in 2005 because the
were

AMERICAS negotiations were complicated by

disagreements between the United States
ad other Latin American countries and the
agreement was never implemented.

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 P R E S E N TAT I O N T I T L E

In both Asia and Africa, regional economic

R EGIONAL union has been tried on a number of

occasions. Few do, nevertheless, exist in

ECONOMIC forms other than names. The Association of

Southern Asian (ASEAN) is possibly the
INTEGRATION most significant. Additionally, a future free

ELSEWHERE trade region has lately been suggested by

the Asia Pacific Economic Corporation
(APEC) conference.

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ASSOCIATION It was formed in 1967, ASEAN includes
Brunei, Indonesia, Laos, Malaysia,

OF Myanmar, Philippines, Singapore, Thailand,

SOUNTHERN
and Vietnam. The primary objectives of
ASEAN are to promote economic growth,

ASIAN social progress, and cultural development

in the region, as well as to maintain peace
NATIONS and stability and also to foster freer trade

(ASEAN) between member countries and to achieve

cooperation in their industrial policies.

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ASIA PACIFIC
APEC was founded in 1990 and it operates
through annual meetings of its member

ECONOMIC economies. APEC currently has 21 member

states, its aim is to promote economic
COOPERATION cooperation and integration among its

(APEC) member and also to increase multilateral

cooperation in view of the economic rise of
the Pacific nations and the growing
interdependence within the region.

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 Regional trade blocs are agreements between
countries within a geographical region to promote

REGIONAL
trade and economic cooperation. African countries
have been experimenting with regional trade blocs for

TRADE BIOCS
half a century. There are now nine trade blocs on the
African continent which are the EAC, ECOWAS,

IN AFICA
COMESA, CEEAC, SADC, AMU, CENTRAL AFRICAN
ECONOMIC AND MONETARY COMMUNITY,
SOUTHERN AFRICAN CUSTOMERS UNION, AND
WEST AFRICAN ECONOMIC AND MOETARY UNION.
Their program includes cooperation on immigration,
road and telecommunication network, investment, and
capital markets.

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 ATAG holding is a Dutch company that
specializes in manufacturing and

FOCUS ON distribution of kitchen appliances,

operates in Europe, Asia, and Australia.
it

MANAGERIAL Overall, ATAG holding focuses on

IMPLICATIONS
innovation, sustainability, and customer
satisfaction, as well as international
operations, can provide opportunities for
managers to develop new strategies,
improve operations, and build cross cultural
skills.

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 THAT’S ALL,
THANK
YOUUU!!!
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