Term Paper

On
Regional Economic Integration

Course: - Theory & Practice of International Business

Course Code: - EIB 510
Prepared By

Nasir Rifat
Roll No. – 8220110
Semester: Spring 2023
Department of International Business, Executive MBA
University of Dhaka

Submitted To
Dr. Farah Fatema – Associate Professor
Faculty – Theory & Practice of International Business
Department Of International Business
 Letter of Transmittal
15th June, 2023
Dr. Farah Fatema
Associate Professor
Department of International Business
University of Dhaka

Subject: Submission of the term paper on “Regional Economic Integration”.

Dear Madam,
I have prepared my term paper of EIB-510 course on “Regional Economic
Integration.”. Which I’m submitting along with this letter. It was an energizing
experience working on such project where I came to learn new things and apply
my existing knowledge for the work. I’m confident that, this term paper will help
you to understand the different terms and details of several economic integration
around the world. I have tried my best to follow your guidelines while preparing
this term paper. I have presented what I do believe to be most important
information to make this term paper as specific & coherent as possible.

I expect that this term paper will fulfill your requirements. Thank you for your kind
consideration and guidance. I hope my effort would please you.

Yours Sincerely,
Nasir Rifat
ID- 8220110
Abstract :-

This study examines the growth of interregional inequalities in Europe and the United States
during the last few decades, as well as the changes that economic integration in the 1990s and
beyond may bring. By linking them to previous and present changes in interregional inequalities,
the assumptions of existing paradigms on differential regional change are put into context. Data
from European (EC) and US instances are evaluated, offering insights into historical
performance and potential reasons. Following that, a last part explores the features of regional
inversion processes and their potential for lowering interregional differences as economic
integration progresses. These macro-level traits are linked to micro-level processes in which
innovation (technological, organizational, and institutional) is key, allowing less developed
regions to overcome a rigid or static domestic geographic division of labor via the inversion
process.

Executive Summary :-
Countries from the Mediterranean's northern and southern sides resolved in 1995 to strengthen
centuries-old ties in order to achieve a future of peace, stability, and prosperity for the area. This
marked the start of the Barcelona Process, a Euro-Mediterranean alliance that will celebrate its
25th anniversary in 2020. The establishment of the Union for the Mediterranean (UfM) in 2008,
with the purpose of promoting regional integration and cohesion, was a watershed moment.
Since then, the UfM has strived to foster regional cooperation via debate and the execution of
projects and initiatives that have a direct impact on the residents of the region. Regional
Integration in the Union for the Mediterranean: Progress Report examines integration progress in
the Euro-Mediterranean area and outlines policy initiatives required to support ongoing
integration. The COVID-19 pandemic has hampered integration efforts; in particular,
containment measures implemented across the region to combat virus spread have severely
harmed many economies, particularly on the southern coast and in key sectors such as tourism,
costing millions of jobs. Regional integration may help these economies recover by promoting
green and digital transformation, enhancing sustainable trade, investment, and innovation, and
providing good employment and social equity.
 Regional Economic Integration
Regional economic integration happens when nations create free trade zones or customs unions,
which provide members with preferential trade access to each other's markets. The essay
examines the economic consequences of such agreements for member nations and the global
trade system. The advantages and costs of trade creation and trade diversion, as well as profits
from expanded size and competitiveness, all have an impact on member nations. 'Deeper'
integration can be sought by going beyond the elimination of import duties and quotas and using
further steps to eliminate market segmentation and encourage integration. The consequences for
the global trade system are unclear. There is no indication that regionalism has slowed
multilateral liberalization, but there is also little evidence that further regional agreement
expansion will eliminate the need for multilateral liberalization activities.

Regional Integration in Economics

Regional economic integration is a subset of international economics and monetary economics in

economics. States have liberalized trade in international economy to encourage comparative
advantage and economies of scale. From this vantage point, the United States in the nineteenth
century, the European Union, the North American Free Trade Agreement, and the World Trade
Organization are all manifestations of the same process. In all of these cases, the removal of
barriers to the free circulation of factors of production was followed, to varying degrees, by the
development of common regulations to address market failures such as unfair competition (via
merger rules), asymmetric information in market transactions (via consumer protection rules),
and negative externalities (via environmental protection rules). The progress of economic and
monetary unification in Europe, with the formation of the single currency, has resulted in the
revival of the ancient 'Optimum Currency Area' (OCA) theory of monetary unions (Eichengreen
and Frieden 1994). According to the OCA hypothesis, states choose monetary union when the
benefits of maintaining independent exchange rates and interest rates (to meet asymmetric
demand shocks) outweigh the benefits of having a unified currency (lower transaction costs and
better predictability). However, through empirical and theoretical research on monetary
integration in Europe, this theory has been developed to take into consideration both political and
economic calculations, how costs and benefits alter with different levels of trade integration, and
how different assumptions about trade integration affect costs and benefits these computations
are altered by the trade-off between inflation and unemployment.

Recent Examples of Integration—ASEAN, MILA, Hong Kong–

China, Singapore–China, and East Africa

Latin America Integrated Market (MILA)

Pacific Alliance emerged as a trade bloc (Chile, Peru, Colombia, and Mexico) in Latin America
to compete with Mercosur (Brazil, Paraguay, Argentina, Uruguay, and Venezuela). Apart from
intraregional commerce, initiatives like as visa-free travel and integrated visa offices/trade
offices in other countries have been implemented. MILA was Pacific Alliance's integrated capital
market program, which debuted in 2011. As a shared trading platform, it brought together the
stock exchanges of Chile, Peru, and Colombia. Mexico was also included last year. MILA now
competes with Brazil's Bovespa stock exchange in terms of market capitalisation. The early
initiatives focused on increasing investor knowledge of the platform and regional
markets/economies. The goal was to familiarize investors with the firms and areas of possibility
in foreign markets. A communication mechanism was established between these nations' brokers
to facilitate cross-border trade coordination. However, trade volume has been reluctant to
increase. Even with Mexico's accession, the increase in turnover has remained sluggish. One
issue has been investor confidence during election seasons, which adds uncertainty to the
economic forecast. Second, currency conversion to/from US dollars with each of the local
currencies might be difficult for investors due to exchange rate loss and forex fees. Another issue
has been the disparity in tax policy among the participating countries. Finally, the local stock
markets were oriented toward one or more sectors rather than being broad-based across all
sectors, limiting the diversity of investable possibilities accessible to potential investors.

Regulations governing brokerage-sharing across regional brokers are also a source of worry,
since they might affect the commission earned by each broker on the trade.Nonetheless, smaller
markets like Peru have benefited the most from MILA, since it allows them access to a broader
range of investors and goods while ensuring liquidity and depth. It also brings smaller markets to
the attention of global institutional investors, who may not have shown that level of interest on
their own. Furthermore, as a shared platform, it may provide access to a wide range of industries,
which is unlikely if the exchanges promote themselves independently, given the sectoral
skewness in each market. Mutual funds that would invest in the platform have also emerged, and
these might serve as vehicles for mobilizing retail funds into the markets. MILA is an excellent
example of a gradual path toward integration, which is a positive benefit.

The Benefits of Regional Integration

Economic unions have the highest level of economic integration. Members of an economic union
must be able to maintain consistency with monetary policy, fiscal policy, and tax policy, in
addition to all of the economic integration aspects found in common markets. A unified currency
is also used in an economic union. Economic integration is good in many ways since it allows
countries to specialize and trade freely, which benefits all economies. It leads to cost savings
and, eventually, a rise in total wealth. The fundamental characteristics of economic
interdependence are the dependence of companies on external suppliers for their goods and
services, and the dependency of countries on other countries for the production of particular
goods.
 The Global Harmonization Initiative

Additional Harmonization Efforts through Regional Economic Integration and

Bilateral Agreements :-
In addition to global trade integration under the auspices of the WTO, the trend toward regional
economic integration has pushed the harmonization of food safety rules across geographical
regions. Most notably, Europe has a long history of regional integration, which has been
supported by a robust supranational institutional framework (McKay, Armengol, Pineau, 2005).
Since the Treaty of Rome in 1957, the European Economic Community—later known as the
European Union (EU)—has placed a strong emphasis on agriculture (van der Meulen & van der
Velde, 2008). Initially aimed primarily at creating an internal common market for food products,
European food policy underwent a first period of harmonization through vertical legislation (i.e.
composition standards), followed by a second period of harmonization through horizontal
legislation in the mid-1980s. The BSE crisis and subsequent food crises in the mid-1990s
prompted the establishment of a third and new phase of EU food regulation targeted at ensuring
high levels of food safety. The entrance into effect of the cornerstone Regulation (EC) No
178/2002, which established an independent European Food Safety Authority (EFSA) and
defined the main principles of food law, sets the basis for food and feed policy in the now 27-
member bloc.

The North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement, which includes Canada, Mexico, and the United
States, is another example of a regional alliance, but with less formal institutional cooperation
than the EU (McKay et al., 2005). The NAFTA discussions, which overlapped with the Uruguay
Round, generated similar worries about the possibility for arbitrary health and safety
requirements to suit protectionist goals (Bruinsma, 2003). As a consequence, the three trading
partners incorporated an early form of what would later become the SPS Agreement into
NAFTA.
The Asia-Pacific Economic Cooperation (APEC) process is one of the more ambitious regional
attempts in the domain of plurilateral coordination of food laws (Bruinsma, 2003; Josling et al.,
2004b). APEC proposed developing an APEC Food System, which would have featured
measures for both food safety and trade liberalization. The program's food safety component
resulted in the APEC Food Mutual Recognition Agreement, which builds on the SPS Agreement
and permits governments to form agreements to facilitate food commerce in the Asia-Pacific
region.

The bilateral Australia-New Zealand Closer Economic Relations Trade Agreement

(ANZCERTA), often known as CER, resulted in the development of a bi-national food agency in
the Southwest Pacific (Bruinsma, 2003). Since 1996, the Australia New Zealand Food Authority
(ANZFA), subsequently renamed Food Standards Australia New Zealand (FSANZ), has
regulated food safety jointly.

The aim to leverage the transatlantic cooperation between the US and the EU is at the other end
of the range of bilateral approaches to food laws (Bruinsma, 2003). While a number of
potentially major agreements have been reached, these have primarily been agreements for
mutual recognition of testing and certification, rather than acknowledgment of the transatlantic
partner's standards. The escalating and unresolved trade disputes between the world's two largest
economies over GM food restrictions are particularly noteworthy (Patterson & Josling, 2001).
Nonetheless, both sides have long acknowledged the need of scientific collaboration in
protecting public health. The European Food Safety Authority (EFSA) and the US Food and
Drug Administration (FDA) inked a landmark agreement in 2007 to ease the sharing of sensitive
scientific information in the field of assessing food safety risk (FDA/EFSA, 2007). This first
official step has the prospect of tighter coordination, which might help prevent future regulatory
squabbles.

European Union
The same six nations (the Six) decided in 1957 to join the European Economic Community (EEC
or EC) in order to combine their economies into a single market (2 to 5 on the integration scale).
As a result, the European Union symbolizes an advanced degree of economic integration as well
as the start of political integration. The process of industrial, economic, political, legal, social,
and cultural integration of states located entirely or partially in Europe or adjacent is known as
European integration. The European Union and its policies have mostly facilitated European
integration.

An example of an economic union is the European Union (EU). The EU nations coordinate their
separate economic policies, rules, and regulations in order to collaborate on economic and
financial concerns. The Euro, which is used by all 19 EU countries, is also a single currency.

NAFTA
The North American Free Trade Agreement (NAFTA), which was passed in 1994 and
established a free trade zone for Mexico, Canada, and the United States, is the most important
component of the bilateral commercial relationship between the United States and Mexico.
Under the North American Free Trade Agreement (NAFTA), all tariffs and restrictions on US
exports to Mexico and Canada were repealed on January 1, 2008. Mexico is the United States'
third largest commercial partner and the country's second largest export market. Mexico was our
third-largest trade partner (after Canada and China) as well as our second-largest export market
in 2018. Two-way commerce in products and services exceeded USD 678 billion, supporting
millions of employment in the United States both directly and indirectly. In 2018, the United
States sold USD 265 billion in goods to Mexico and USD 34 billion in services, for a total of
USD 299 billion in sales to Mexico. For 27 U.S. states, Mexico is the leading or second-largest
export destination.
Except for aviation transport, marine, and basic telecommunications, NAFTA covers services. In
addition, the agreement protects intellectual property rights in a range of categories, including
patent, trademark, and copyrighted content. NAFTA's government procurement regulations
apply not just to products but also to federal contracts for services and construction. Furthermore,
US investors are promised the same treatment as local investors in Mexico and Canada. NAFTA
permits your firm to send eligible items duty-free to clients in Canada and Mexico. NAFTA's
origin criteria allow goods to qualify in a variety of ways.This might be because the items are
entirely obtained or created in a NAFTA party, or because the product's rule of origin requires a
substantial quantity of effort and materials in a NAFTA party to make the product what it is
when exported.

MERCOSUR
Mercosur's major goal is to achieve free movement of products, capital, services, and people
among its member countries. The trading bloc's official languages are Portuguese and Spanish.
Mercosur, often known as the Common Market of the South, is a South American trade bloc
agreement that exists between Argentina, Brazil, Paraguay, and Uruguay. The trade bloc was
founded in March 1991 by the Treaty of Asuncion, and it was enlarged in 1994 by the Treaty of
Ouro Preto, which established a formal customs union. Mercosur's associate members include
five nations in addition to the four original members plus Venezuela. Bolivia, Chile, Colombia,
Ecuador, Guyana, Peru, and Surinam are among them. They can join free trade agreements as
associate members but do not benefit from the customs union.

CAFTA
The United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras,
and Nicaragua are signatories to the Central America-Dominican Republic Free Trade
Agreement (CAFTA-DR). Depending on the country, implementation dates range from March 1,
2006 to January 1, 2009. The CAFTA-DR encourages increased trade and investment links, as
well as prosperity and stability throughout the region and along our southern border. CAFTA-DR
also enhances customs administration and eliminates technical trade impediments. It covers
public procurement, investment, telecommunications, electronic commerce, intellectual property
rights, transparency, labor, and environmental protection.

Trade and economic growth foster wealth, stability, and opportunity for residents in their native
countries. CAFTA-DR provisions for rule of law and transparent and equitable procedures in
government acts improve the investment and business climate. A stronger economic climate
fosters communities where inhabitants may prosper and youngsters can pursue meaningful
careers at home.

ASEAN
ASEAN, or the Association of Southeast Asian Nations, is a political and economic union of ten
Southeast Asian countries. The union has an area of 4,522,518 km2 and has a population of
roughly 668 million people, accounting for approximately 8.5% of the world's population in
2021.

The Association of Southeast Asian Nations (ASEAN) is a regional organization comprised of

10 members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines,
Singapore, Thailand, and Vietnam. ASEAN member countries have a combined population of
662 million people with a total GDP (gross domestic product) of $3.2 trillion. The organization
has played a key role in Asian economic integration, participating in the world's largest free trade
agreement discussions and establishing six free trade agreements with other regional nations.
However, many believe that ASEAN's effectiveness is hampered by a lack of strategic vision,
divergent interests among member countries, and ineffective leadership. According to them, the
bloc's most difficult issues include forging a cohesive strategy to China, notably in reaction to
territorial disputes in the South China Sea, and responding to Myanmar's civil conflict.

ASEAN is led by a chair, a post that rotates among member countries each year, and is supported
by a secretariat centered in Jakarta, Indonesia. Important choices are often made by conversation
and consensus, governed by the ideals of noninterference in internal affairs and peaceful dispute
resolution. Many analysts perceive the organization's decision-making method as a disadvantage.
"These norms of consensus and noninterference have become increasingly obsolete, and they
have hampered ASEAN's influence on issues such as dealing with China and crises in specific
ASEAN states," writes CFR's Joshua Kurlantzick.

APEC
The Asia-Pacific Economic Cooperation (APEC) is a regional economic conference founded in
1989 to capitalize on the Asia-Pacific region's growing interconnectedness. The 21 members of
APEC want to increase regional prosperity by fostering balanced, inclusive, sustainable, creative,
and secure growth and by speeding regional economic integration.

APEC facilitates the movement of products, services, investment, and people across borders.
Members promote this commerce by facilitating speedier border customs processes, improving
business climates behind the border, and unifying legislation and standards across the region. For
example, APEC's efforts to coordinate regulatory systems are an important step toward
integrating the Asia-Pacific economy. With just one set of uniform standards across all
economies, a product may be exported more readily.

APEC seeks to ensure that all Asia-Pacific inhabitants may participate in the region's booming
economy. For example, APEC initiatives teach digital skills to remote areas and assist
indigenous women in exporting their items overseas. Recognizing the effects of climate change,
APEC nations are also implementing programs to enhance energy efficiency and sustainable
management of forest and marine resources. The forum adjusts to allow participants to deal with
significant new economic difficulties in the region. This encompasses catastrophe preparedness,
pandemic preparation, and dealing with terrorism.

Australia, Brunei Darussalam, Canada, Chile, People's Republic of China, Hong Kong, China,
Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru,
The Philippines, The Russian Federation, Singapore, Chinese Taipei, Thailand, United States of
America, and Vietnam are among the 21 member economies of APEC.

EAC
The East African Community (EAC) is a regional intergovernmental organization with
headquarters in Arusha, Tanzania, that includes Burundi, the Democratic Republic of the Congo,
Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

The EAC strives to broaden and strengthen cooperation among Partner States in areas like as
politics, economics, and social welfare for mutual benefit. To that end, the EAC members
created a Customs Union in 2005 and are striving to build a Common Market by 2010, a
Monetary Union by 2012, and ultimately an East African Political Federation.

The establishment of a large regional economic bloc encompassing Burundi, Kenya, Rwanda,
Tanzania, and Uganda, with a combined population of 120 million people, a land area of 1.85
million square kilometers, and a combined gross domestic product of $ 41 billion, is of great
strategic and geopolitical significance, as are the prospects of a revitalized East African
Community.
Opportunities of Regional Economic Integration
Regional integration enables governments to overcome these expensive divides by integrating
markets for products, services, and factors, so easing the movement of commerce, capital,
energy, people, and ideas. Regional integration can be aided by shared physical and institutional
infrastructure.

 Allows underdeveloped countries to benefit from economies of scale by integrating with

industrialized countries.
 Increases manufacturing capacity and opens up new prospects.
 Aids in international specialization.
 This results in the development of new goods with high quality output.
 The free movement of labor, capital, and things.
 Increases small countries' negotiating strength, efficiency, and production.
 Promotes political concord among member countries.

Threats to Regional Economic Integration

However, four problems appear to be the most pressing in terms of trade-led development and
the possibility for increased regional economic integration. These are-

(a) Port and Customs quality.

(b) Trade and investment impediments.
(c) Development gaps.
(d) Emerging regional economic governance.

Apart from the frequently mentioned issues of corruption, insecurity, undemocratic government,
and civil unrest, there is also a lack of private sector participation in regional integration
programs. Economic changes have also been poorly devised and implemented in some cases.
The organizations engaged show a lack of commitment to integration. Organizational interests
that are at odds. Inadequate resources to build the integrated service. Inadequate payment
systems between organizations.

Conclusion :-
To summarize, regional economic integration may enable its members to participate more
effectively in the multilateral process of economic change by allowing them to experiment with
economic change on a smaller scale and magnitude within the region. Regional Economic
Integration can best be defined as an agreement between groups of countries in a geographic
region, to reduce and ultimately remove tariff and non-tariff barriers to the free flow of goods,
services, and factors of production between each other.

Regional integration enables governments to overcome these expensive divides by integrating

markets for products, services, and factors, so easing the movement of commerce, capital,
energy, people, and ideas. Regional integration can be aided by shared physical and institutional
infrastructure. More precisely, economic integration often results in lower trade costs, increased
availability and variety of goods and services, and efficiency advantages that contribute to more
buying power.