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Premium member Presentation Transcript Slide 1: Regional Economic IntegrationCase: Increasing competition in the European automotive market: Case: Increasing competition in the European automotive market 8- 2 In 2002 significant variances remained in price of Automobiles across different countries Primary reasons for price differentials is the Bloc exemption clause In 2002 European commission scrapped the clause and introduced new legislation to encourage competition New rules aimed at weakening control of auto companies on pricing in different marketsLevels of economic integration: Levels of economic integration 8- 3 Free trade area Customs union Common market Economic union Political unionLevels of economic integration: Levels of economic integration 8- 4 Fig 8.1 Economic case for integration: Economic case for integration 8- 5 Stimulates economic growth in countries Increases FDI and world production Countries specialize in those goods and services efficiently produce. Additional gains from free trade beyond the international agreements such as GATT and WTO Because they may be easier to negotiate outside of the GATT and WTOThe political case for integration: The political case for integration 8- 6 Economic interdependence creates incentives for political cooperation This reduces potential for violent confrontation. Together, the countries have more economic clout to enhance trade with other countries or trading blocs Impediments to integration: Impediments to integration 8- 7 Integration is hard to achieve and sustain Nation may benefit but groups within countries may be hurt Potential loss of sovereignty and control over domestic issuesRegional economic integration in Europe: Regional economic integration in Europe 8- 8 Europe has two trade blocks European Union Seen as the emerging power with almost 25 members European Free Trade Association Has only four members Evolution of the European Union: Evolution of the European Union 8- 9 Product of two political factors: Devastation of WWI and WWII and desire for peace Desire for European nations to hold their own, politically and economically, on the world stage 1951 - European Coal and Steel Community. 1957- Treaty of Rome establishes the European Community 1994 - Treaty of Maastricht changes name to the European Union European Union countries: European Union countries 8- 10 Map 8..1Political structure of the European Union: Political structure of the European Union 8- 11 European council Heads of state and commission President resolves policy issues and sets policy direction European Commission 20 Commissioners appointed by members for 4 year terms Proposing, implementing and monitoring legislationPolitical structure of the European Union: Political structure of the European Union European parliament 630 directly elected members Propose amendments to legislation, veto power over budget and single-market legislation, appoint commissioners Court of justice Council of ministers 8- 12Political structure of the European Union: Political structure of the European Union 8- 13 European council Heads of state and commission President resolves policy issues and sets policy direction European commission 20 Commissioners appointed by members for 4 year terms Proposing, implementing and monitoring legislation European parliament 630 directly elected members Propose amendments to legislation, veto power over budget and single-market legislation, appointPolitical structure of the European Union: Political structure of the European Union 8- 14 Court of justice One judge from each country Hears appeals of EU laws Council of ministers One representative from each member country Ultimate controlling authority No EU laws without approval European Act: The causes: European Act: The causes 8- 15 Disharmony among the EC member countries: Trade policy Technical standards Resulted in establishment of the Delors Commission in 1985 Basis for Single European Act European Act: European Act 8- 16 Single market program predicted to give EC firms greater opportunities to exploit economies of scale Removal of trade barriers increases competition forces EC firms to be more efficient Name changed to EU Establishment of the EU: Establishment of the EU 8- 17 Objectives: Remove frontier controls “Mutual recognition” of product standards Open public procurement to non nationals Lift barriers to banking and insurance competition Remove restrictions on foreign exchange transactions Abolish cabotage restrictionsThe Euro: Benefits and costs : The Euro: Benefits and costs Benefits: Savings from using only one currency Easy to compare prices, resulting in lower prices Forces efficiency and slashing costs. Creates liquid pan-Europe capital market. Increases range of investments for individuals and institutions As of 2004 Euro strong against the dollar and expected to rise 8- 18The Euro: Costs and benefits: The Euro: Costs and benefits Costs: Countries lose monetary policy control. European Central Bank controls policy for the “Euro zone” EU is not an” optimal currency area ”. Country economies are different Euro puts the economic cart before the political horse Strong Euro (2004) makes it harder for Euro zone exporters to sell their goods 8- 19Enlargement of the EU: Enlargement of the EU 8- 20 EU in 2004 is the single largest market with a population greater than the US 10 new countries formally accepted into EU in 2002 Population of EU will increase to 450 million Create European barriers to trade from the outside? Might effect EU bureaucracy and decision making processEU after enlargement: EU after enlargement 8- 21 Map 8.2Regional economic integration of the Americas: Regional economic integration of the Americas Regional economic integration is on the rise in the Americas NAFTA MERCOSUR Plans for FTAA 8- 22 Map 8.3 NAFTA: NAFTA 8- 23 Enforced in January, 1994, Over 10 year period: tariffs reduced (99% of goods traded) Removal of most barriers on cross border flow of services Removal of restrictions on FDI except in certain sectors Mexican railway and energy US airline and radio communications Canadian culture NAFTA: NAFTA 8- 24 Protection of intellectual property rights Applies national environmental standards Establishment of commission to police violations: Enlarged and productive regional base Labor-intensive industries move to Mexico Mexico gets investment and employment Increased Mexican income to buy US/Canada goods Demand for goods increases jobs Consumers get lower prices Loss of jobs to Mexico Mexican firms have to compete against efficient US/Canada firms Mexican firms become more efficient Environmental degradation Loss of national sovereignty 8- 25 CONS NAFTA PROSANCOM: Andean Pact: ANCOM: Andean Pact Bolivia, Colombia, Ecuador, Peru, Venezuela Nearly failed. Rejuvenated in 1990 in the Galapagos Declaration Changed from FTA to customs union in 1992 Still has many political and economic problems 8- 26 Mercosur: Mercosur 8- 27 1988: Argentina, Brazil. 1990: Paraguay, Uruguay 1995: Agreed to move toward a full customs union Trade quadrupled between 1990-1998 Has significant trade diversion issues Revival in 2003 by Brazil’s president to be modeled after EU with common currency and elected parliamentOther Hemisphere Associations: Other Hemisphere Associations 8- 28 Central American Common Market 1960s: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua. Collapsed in 1969 CARICOM 1973: English-speaking Caribbean countries 191: Failed for third time to establish common external tariff Free Trade Area of the Americas 1998: 34 heads of state met in Santiago, Chile and inaugurated talks to create a FTAA by 2005Regional trade blocs in Asia : ASEAN: Regional trade blocs in Asia : ASEAN 8- 29 Created in 1967 Objective to achieve free trade between member countries and achieve cooperation in their industrial Brunei, Indonesia, Laos, Malaysia, the Philippines, Myanmar, Singapore, Thailand and Vietnam Progress limited by Asian financial crisis of the 90’sRegional trade blocs in Asia : APEC: Regional trade blocs in Asia : APEC 8- 30 Founded in 1990 to ‘promote open trade and practical economic cooperation’ ‘Promote a sense of community’ 18 members 50% of world’s GNP 40% of global trade Despite slow progress, if successful, could become the world’s largest free trade area APEC members: APEC members 8- 31 Map 8.4 Regional trade blocs in Africa: Regional trade blocs in Africa 8- 32 9 trade blocs on the continent Many countries are members of more than one group Progress slow due to p olitical turmoil and deep suspicion of free trade Less developed, less diversified economies need “protection” In 2001 Kenya, Uganda and Tanzania relaunched the East African Community (EAC) to establish a customs union 24 years after it had collapsed Regional trade blocs in Africa: Regional trade blocs in Africa 8- 33 Map 8.5 Impact on business: Impact on business Opportunities: Creation of single markets Protected markets, now open Lower costs doing business in single market Threats: Differences in culture and competitive practices make realizing economies of scale difficult More price competition Outside firms shut out of market EU intervention in mergers and acquisitions 8- 34 You do not have the permission to view this presentation. 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