Regional Economic Integration

Learning Outcome:
Ability to appraise economic advantages of regional cooperation among
nations and their impact on overall trade.
WTO is ?
A. Bilateral
Plurilateral
Multilateral
Decisions of Multilateral Agreements are ?
A. Binding
B. Non Binding
Types of Regional Agreements
o free-trade area – agreement to remove trade barriers among
members
example: NAFTA
o customs union – agreement to remove trade barriers among
members and impose uniform trade restrictions against non-
members
example: Benelux
o common market – agreement that permits (1) free trade among
members; (2) common external trade restrictions; and (3) free
movement of factors of production
example: EU
Types of Regional Agreements (cont.)
o economic union – common market agreement with :
1) common national, taxation, fiscal, and social policies among members
2) transfers of sovereignty to a supranational authority
example: Belgium and Luxembourg 1920s
o monetary union – economic union with additional
characteristic of common monetary policy and common
currency
example: United States
OBJECTIVES OF REGIONAL INTEGRATION

1. To explore the economic and political debate surrounding

regional economic integration, paying particular attention to
the economic and political benefits and costs of integration
2. To review progress toward regional economic integration
around the world
3. To map the important implications of regional economic
integration for the practice of international business.
REGIONAL HARMONIZATION: ECONOMIC
INTEGRATION
 To stimulate the exchange of economic wealth within regions and
blocs
 Total trade tends to increase within a region of trading nations due
to reduction of interstate controls.
 Enterprises are artificially encouraged to expand their operations into
other markets within the region.
 To have an overall positive effect on trade by providing increased
understanding within trading blocs and more cooperation among
nations.
 To serve as barriers to outsiders.
 Each form implies more or less control and/or loss of sovereignty.
 All forms of integration require very careful point-by-point interstate
negotiations.
HIERARCHY OF ECONOMIC INTEGRATION
Give up Most Political
Sovereignty union

USA, Canada Ex-

Economic Soviet Union
union

EU (Post-1993)
Common
market

Customs EC (Pre-1993)
union
Give up Most
Sovereignty Free
trade BENELUX
area
Shared, NAFTA
free zone
LAFTA

Give up Least
Sovereignty
 What is NAFTA?
• NAFTA stands for “North American Free Trade Agreement”.

• It is an agreement between the countries of North America: Canada,

United States, & Mexico.
• NAFTA was signed in 1993 and went into effect on January 1st,
1994.

• NAFTA was written to create a Free Trade Area in North America.

• “Free Trade” means that countries may freely trade goods with
each other without having to pay a tariff (tax) on those goods.
• In other words, “free trade” means no trade barriers.
 Free Trade
• The purpose of the agreement is to:
• Allow free movement of goods and services among the countries.
• Promote competition in the free trade areas.
• Protect the property rights of people and businesses in each
country.
• Be able to resolve problems that arise among the countries.
• Encourage cooperation among countries.

• The agreement opened the door for free trade, ending tariffs on
various goods and services, and implementing equality between
Canada, USA, and Mexico.
 Pros
• Free trade increases sales and profits for Mexico, Canada and the
U.S.A., thus strengthening their economies.
• Lack of tariffs has allowed Mexico to sell its goods in the USA
and Canada at lower prices.
• This makes Mexican products more competitive in these markets
and increases Mexico’s profits as it tries to develop its economy.
• Free trade is an opportunity for the U.S. to provide financial help
to Mexico by making jobs available in factories located there.
 Cons
• Free trade has caused more U.S. job losses than gains, especially for higher-
wage jobs.
• People work for lower wages and there are fewer labor regulations in
Mexico, so American factories have moved across the border.
• Factories, called Maquiladoras, are built on the Mexican border and
workers are hired there to make goods at a much lower wage than
workers would be paid in the U.S.A.
• Mexico does not have as strict environmental regulations like Canada &
U.S., so when factories move across the border, they are contributing to
North America’s pollution problem.
• Some argue that our borders should be open like the EU does in Europe.
• That makes some people angry because they feel the borders should be
closed.
The Agreement between the United States of America, the
United Mexican States, and Canada, commonly known by its
American English title United States–Mexico–Canada
Agreement (USMCA), is a free trade agreement concluded between
Canada, Mexico, and the United States as a successor to the
North American Free Trade Agreement (NAFTA).The agreement has
been characterized as "NAFTA 2.0,"[or "New NAFTA,”since many
provisions from NAFTA were incorporated and its changes were seen as
largely incremental. On July 1, 2020, the USMCA entered into force in
all member states.
 ASEAN

The Association of Southeast Asian Nations[ (ASEAN) is a

regional intergovernmental organization comprising ten countries in
Southeast Asia, which promotes intergovernmental cooperation and
facilitates economic, political, security, military, educational, and
sociocultural integration among its members and other countries in
Asia.
 ASEAN (Association of Southeast Asian Nations)
• Founding: 8 August 1967 by
Indonesia, Malaysia, the
Philippines, Singapore and
Thailand

• Enlargement: Brunei Darussalam

(1984); Viet Nam (1995); Lao
PDR and Myanmar (1997); and
Cambodia (1999)

• The ASEAN Charter: 15

December 2008

• Ultimate goal: The ASEAN

Community in 2015
 Pillars of the ASEAN Community
A Community based on three
fundamental pillars:
• ASEAN Political and Security
Political and
Community (APSC)
N Security
• ASEAN Economic Community (AEC) EA Economic
• ASEAN Socio-Cultural Community
(ASCC) AS Community
Roadmap for an ASEAN Community
2015 that includes three Community Socio-Cultural
Blueprints, which provide the impetus
for the realization of the ASEAN
Community 2015
 ASEAN at a glance (2013)
ASEAN Trade
Merchandise Trade (Merchandise) Services Trade
GDP GDP/capita
Country (US$ million) (US$ PPP) As share of GDP (%)
Brunei 16,117 73,775 93.42 27.85 17.46
Cambodia 15,659 3,111 117.02 26.31 32.10
Indonesia 862,568 9,484 42.80 10.97 10.22
Lao PDR 10,283 4,532 57.23 37.27 12.78
Malaysia 312,072 23,089 139.15 38.17 27.41
Myanmar 56,661 3,464 42.89 18.05 6.25
Philippines 269,025 6,404 44.27 8.47 14.44
Singapore 297,941 78,762 262.89 69.37 87.07
Thailand 387,534 14,130 123.41 26.75 29.48
Viet Nam 171,219 5,315 154.64 23.09 13.02
ASEAN 2,397,079 *9,397 104.77 25.39 24.69
Source: ASEAN Statistics; data for 2013
*weighted average

Single Market and
Production Base
• Free Flow of Goods
• Free Flow of Services
• Free Flow of Investment
• Freer Flow of Capital
• Free Flow of Skilled Labour
ASEAN Economic Community
Competitive Economic
Region
• Competition Policy
• Consumer Protection
• Intellectual Property Rights
• Infrastructure Development
• Taxation
• E-Commerce
Equitable Economic Full Integration Into the
Development Global Economy
• SME Development • Coherent Approach towards
• Initiative for ASEAN External Economic Relations
Integration • Enhanced Participation in
Global Supply Networks
 South Asian Free Trade Area

The South Asian Free Trade Area (SAFTA) is an agreement

reached on January 6, 2004, at the 12th SAARC summit in Islamabad,

Pakistan. It created a free-trade area of 1.6 billion people in Afghanistan
, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and
Sri Lanka to reduce customs duties of all traded goods to zero by the
year 2016.
The SAFTA agreement came into force on January 1, 2006, and is
operational following the ratification of the agreement by the seven
governments. SAFTA required the developing countries in South Asia
(India, Pakistan and Sri Lanka) to bring their duties down to 20 percent
in the first phase of the two-year period ending in 2007.
In the final five-year phase ending in 2012, the 20 percent duty was
reduced to zero in a series of annual cuts. The least developed countries in
South Asia (Nepal, Bhutan, Bangladesh, Afghanistan and the Maldives)
had an additional three years to reduce tariffs to zero. India and Pakistan
ratified the treaty in 2009, whereas Afghanistan as the 8th member state
of the SAARC ratified the SAFTA protocol on 4 May 2011
The main objective of the agreement is to promote competition in the
area and to provide equitable benefits to the countries involved. It aims
to benefit the people of the countries by bringing transparency and
integrity among the nations.
The SAFTA was also formed in order to increase the level of trade and
economic cooperation among the SAARC nations by reducing the tariff
and barriers and also to provide special preference to the Least
Developed Countries (LDCs) among the SAARC nations to establish
framework for further regional cooperation.
 BRICS

BRICS is the acronym coined for an association of five major emerging

national economies: Brazil, Russia, India, China and South Africa. The BRICS
members are known for their significant influence on regional affairs. Since
2009, the BRICS nations have met annually at formal summits. Brazil hosted
the most recent 11th BRICS summit on 13–14 November 2019.
Originally the first four were grouped as "BRIC" (or "the BRICs"), before the
induction of South Africa in 2010. The BRICS have a combined area of
39,746,220 km2 (15,346,101.0 sq mi) and an estimated total population of
about 3.21 billion, or about 27% of the world land surface and 41% of the world
population. Four out of five members are among world’s ten largest countries
by population and by area, except for South Africa, the twenty-fourth in both.