International Business in English

1. International Business in English BUS 460

2. CHAPTER 3 ECONOMIC INTEGRATION

3. Introduction: • Economic integration around the world has been one of the most significant trends since world war two. • The creation of regional groups is intended to provide both economic stability and growth, as well as • Increasing the level of political cooperation amongst the member nations. • The creation of common markets and the promotion of free trade and investment flows. Requires • A willingness on the part of member nations to subordinate national interests to those of the group.

5. The Pros and Cons of Integration:First: The Pros (Advantages): • (I).The pros (Advantages): • 1- Offers the opportunity for increased wealth. There is evidence to suggest that the GNP of countries that are members of major economic groups will rise faster than that of non members. • 2- A greater level of political cooperation between member countries and a sense that it is easier to reach a consensus view with a small group.

6. The Pros and Cons of Integration:Second: The cons (Disadvantages): • (II).The cons (disadvantages): • 1- Can lead to a diversion of trade which favors member countries at the expense of non-members. • 2- Possible employment consequences of greater levels of integration. Within the EU, there are no restrictions on the movement of labor between countries. • Might lead to ‘brain drain’ (هجرة الادمغة) • 3- Possible impact upon national sovereignty – subordination of national interests to those of the group.

7. Levels of Economic Integration: • Levels of integration (in ascending order): • (من الأضعف الى الأقوى) • I. Free trade area. • II. Customs union. • III. Common market. • IV. Economic union. • EXPLAINED IN DETAIL ON THE NEXT SLIDES

8. Levels of Economic Integration • 1- Free trade area: • A region within which all trade restrictions between member states are removed. • 2- Customs union: • Members agree a common policy for the regulation of trade with non-member countries.

9. Levels of Economic Integration • 3- Common market: • The elimination of regulatory barriers extends beyond the trade in gods and services into the establishment of free movement of capital and labor across member states. • 4- Economic union: • Takes economic integration to its final conclusion via the harmonization of national economic policies, Co-determined via a joint legislators.

10. The Economic Significance of The Major Trading Blocs • Europe: • EU is the most integrated of all the economic blocs. • Estimates have been made of the benefits likely to have accrued from the single market. • The single market creates more competitive economic environment within Europe. • Resulting is more efficient working practices and a superior identification and satisfaction of consumer wants.

11. The Economic Significance of The Major Trading Blocs • North America: • NAFTA, mentioned earlier, is clearly dominated by the huge US economy, with the USA being the most important trading partner for both Mexico and Canada. • Mexico is by far the poorest economy in the trading bloc and, as already indicated .. • The NAFTA agreement has given rise to complaints by US labor unions of job losses. • Caused by companies investing in Mexico.

12. The Economic Significance of The Major Trading Blocs • North America: • The aims of NAFTA are much ambitious than those of the EU. • The objective is the gradual elimination of restrictions on trade and investment flows by 2010. • The expansion of free trade area is now up for discussion.

13. The Economic Significance of The Major Trading Blocs • Asia-Pacific: • The Asia Pacific region is less structured economic blocs than those of Europe and North America. • The group’s declared objectives are to counterbalance the power of NAFTA and the EU. • And, encourage the liberalization of trade amongst group members. The target of NAFTA is 2020. • The major problem of APEC is the diversity of its membership. The geographic spread of membership is also very wide.

14. How Economic Integration Affects World trade • The importance of Intra-Regional Trade Flows (1999) Table 302 (p.60): • Bloc % total imports % total exports • which are intra-regional which are intra-regional • North America 27.1 39.6 • W. Europe 67.6 69.1 • Asia 56.7 46.6 • The statistics show that despite their size and diversity, the large trading blocs still engage in trade with the rest of the world. • Both Asia and the EU find that over half of local requirements can be met from regional imports, but for NAFTA , the level of regional self-sufficiency is much lower.

15. How Economic Integration Affects World trade • Intra-Regional Exports as % of Total Exports (excluding services) Table 3.3 (p.61) • Bloc 1990 1999 Average growth Rate (%) • of intra-regional exports • NAFTA 42.6 54.1 10 • EU 65.1 63.4 4 • Mercosur 8.9 20.3 4 • ASEAN 20.1 22.1 12

16. The Future: Regional Versus Global Free Trade • One problem of regional integration is that it raises the prospect of conflict between the national sovereignty of the member states and the needs of the group. • At the same time, the individual states benefit from the added bargaining power that goes with being part of a large and influential trading bloc. • It would seem that there are strong links between international trade and regionalization, and as suggested earlier, • These links help influence corporate planning at a global level.

17. Regional Integration And Its Effects on Multinational Companies • The potential roles for foreign subsidies: • 1- The supply of goods / services purely to local markets in the host country. • 2- Using the law of comparative advantage, companies will site subsidiaries in locations which can then export output at relatively low cost. • 3- Well-established subsidiaries, with high levels of expertise that can develop, • Produce and market new products that will significantly affect the multinational business.

18. تم بحمد الله • THE END