In this chapter, you will explore regional economic integration.

You will also:

•Learn about the five different levels of integration.

•Understand the potential benefits and drawbacks of regional integration.

•And examine the progress of various efforts at integration around the world.

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In this chapter, you will explore regional economic integration.

You will also:

•Learn about the five different levels of integration.

•Understand the potential benefits and drawbacks of regional integration.

•And examine the progress of various efforts at integration around the world.

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•The goal of regional economic integration is higher living standards through increased cross-border trade and investment.

•Greater specialization is a byproduct of integration that increases productivity, adds to product choices, and lowers prices.

•A regional trading bloc is a group of nations in a geographic region that are undertaking economic integration.

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Nations can pursue five different levels of regional integration, with each one incorporating the properties of the preceding one.

•A free trade area removes all barriers to trade between members with each nation determining its own barriers against nonmembers. The group may also establish a process for resolving trade disputes among members.

•A customs union adds the requirement that all members set a common trade policy against nonmembers. Members may also negotiate as a group with organizations like the WTOorganizations like the WTO.

•A common market adds the free movement of labor and capital and sets a common trade policy against nonmembers. Yet, cooperating on economic and labor policies can be difficult.

•An economic union forces members to harmonize their tax, monetary, and fiscal policies, create a common currency, and concede some sovereignty to the larger organization.g

•A political union requires members to coordinate their economic and political policies against nonmembers, with some exceptions given.

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In theory, regional integration should increase specialization, efficiency, consumption, and standards of living.

•Integration should also create new trade opportunities and deliver a wider selection of goods and services at lower cost.

•Building consensus may be easier among a small group of countries than it is in larger groups, such as the 150-plus-member World Trade Organization.

•A group of nations may also have more clout than they would have individually when negotiating in a wider forum, like the World Trade Organization.

•Political cooperation may reduce the potential for military conflict among members.

•And new employment opportunities can arise when people are allowed to relocate internationally for work or higher wages.

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But regional integration also has potential drawbacks.

•Trade may be diverted away from nonmember nations and toward members because of the lower tariffs levied on goods from members. Unfortunately, this can reduce trade with a more efficient nonmember nation and boost trade with a less efficient member.

•In the absence of trade barriers, productivity should decide where a good or service is produced. The downside is that one member nation’s unskilled, low-wage jobs may move to a relatively lower wage member Yet the country thatwage jobs may move to a relatively lower-wage member. Yet, the country that loses such jobs may draw upon its relatively higher-skilled workforce and shift its economy toward industries paying higher wages.

•And integration always means surrendering some degree of national sovereignty, with political union demanding the most from member nations.

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Potential benefits of regional economic integration include trade creation, greater consensus, political cooperation, and job creation. Potential drawbacks include trade diversion, shifting employment, and lost sovereignty.

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•In 1951, six countries created the European Coal and Steel Community to remove barriers to trade in coal, iron, and steel.

•In 1957, these same countries expanded their cooperation and created a common market, called the European Economic Community.

•The Community broadened its scope in 1967 to include additional industries and changed its name to the European Community.

•The Single European ACT of 1987 removed remaining trade barriers, increased harmonization of members’ policies, and enhanced the competitiveness of EU companies. This sparked a wave of mergers and acquisitions across Europe as firms sought economies of scale in production.

•And in 1991, members signed the Maastricht Treaty, which created a common currency, set monetary and fiscal targets for countries taking part in monetary union, and proposed an eventual political union.

•In 1994 the group changed its name one final time to the European Union (EU)•In 1994, the group changed its name one final time to the European Union (EU).

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•Candidates for membership in the European Union include Croatia, Turkey, and the Former Yugoslav Republic of Macedonia.

•Before these countries can become members they must satisfy what are called the Copenhagen Criteria.

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Five institutions play key roles in monitoring and enforcing integration in the European Union.

• The European Parliament is the consultative body that debates and amends legislation proposed by the European Commission.

• The Council of the European Union is the legislative body that votes proposed legislation into law or rejects it with a no vote.

• The European Commission is the executive body that can draft legislation, manages and implements policy, and monitors compliance with EU law.

• The Court of Justice is the EU court of appeals, which hears cases that member nations bring before it.

• And the Court of Auditors audits the EU accounts and implements its budget.

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Since NAFTA began, trade among Canada, Mexico, and the United States has grown from $297 billion in 1993 to around $1 trillion.

•Mexico’s exports to the United States rose to $211 billion, and U.S. exports to Mexico grew to over $136 billion.

•Canada’s exports to the United States more than doubled to $300 billion, and U.S. exports to Canada grew to $176 billion.

•Canada’s exports to Mexico nearly tripled to $2.7 billion.

•But the U.S. Trade Representative Office and the AFL-CIO group of unions disagree on what effect NAFTA has on employment and wages.

•The future expansion of NAFTA is questionable, although its chances would improve if sitting U.S. presidents were to receive “trade promotion authority.”

•If enlargement does proceed, the NAFTA economies may possibly adopt a single currency to make trade more efficient.

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The Association of Southeast Asian Nations represents a market of 560 million consumers and a gross domestic product of $1.1 trillion.

•Its stated objectives are to promote economic, social, and cultural development; safeguard economic and political stability; and serve as a forum to resolve disputes fairly and peacefully.

•Adding members Cambodia, Laos, and Myanmar was an effort to counter China’s resources of cheap labor and abundant raw materials.

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Altogether, members of the organization for Asia-Pacific Economic Cooperation account for more than half of world trade.

•Yet, the group is not designed as a free trade bloc.

•The group tries to strengthen the multilateral trading system and expand the global economy by simplifying and liberalizing trade and investment procedures.

•It hopes for completely free trade and investment throughout the region by 2020.

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Australia and New Zealand created the Closer Economic Relations Agreement in 1983 to advance free trade and further integrate their economies.

•They eliminated all tariffs and quotas in 1990, five years ahead of schedule.

•Each nation allows goods and most services sold in the other nation to be sold within its borders.

•Each nation also recognizes the professional certifications of people allowed to practice in the other country.

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the name of the group of 21 nations that ring the Pacific Ocean whose stated aims do not include formation of a formal free trade bloc

is Asia-Pacific Economic Cooperation

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