International Business: The Challenges of Globalization

International Business: The Challenges of Globalization

Regional Economic Integration

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This chapter defines the scope of international business and introduces us to some of its most important topics.

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Learning Objectives

8.1 Outline the levels of economic integration and its debate.

8.2 Describe integration in Europe and its enlargement.

8.3 Describe integration in the Americas and its prospects.

8.4 Summarize integration in Asia and elsewhere.

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In this chapter, we focus on regional efforts to encourage freer trade and investment. We begin by defining regional economic integration and describing each of its five levels. We then examine the case for and against regional economic integration. In the remainder of the chapter, we explore several long-established trade agreements and several agreements in the early stages of development.

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Nestlé’s Global Recipe

Largest food company in the world

In nearly every country on the planet

Food is integral to cultural fabric

Sensitivity to local dietary traditions

Monitoring regional integration

Trade agreements: can be double-edged swords

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Nestlé is the world’s largest food company, earning only 2 percent of its sales at home in Switzerland.

Food and dietary tradition is integral to every culture’s social fabric. So, as Nestlé expands abroad, it monitors changing consumer attitudes resulting from greater regional integration.

When Nestlé and Coca-Cola announced a joint venture to develop coffee and tea drinks, they first had to show the European Union (EU) Commission that they would not stifle the competition.

And to abide by EU environmental protection laws, Nestlé works with Europe’s governments to develop and manage waste-recovery programs.

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Levels of Integration and the Debate

Regional Economic Integration (Regionalism):

Process whereby countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products, people, or capital.

Figure 8.1 Levels of Regional Integration

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The process whereby countries in a geographic region cooperate to reduce or eliminate barriers to the international flow of products, people, or capital is called regional economic integration (regionalism). A group of nations in a geographic region undergoing economic integration is called a regional trading bloc.

Nations have banded together to reap the potential gains of international trade in a variety of ways. Figure 8.1 shows five potential levels (or degrees) of economic and political integration for regional trading blocs. A free trade area is the lowest extent of national integration; political union is the greatest. Each level of integration incorporates the properties of those levels that precede it.

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Degrees of Economic and Political Integration (1 of 2)

Free Trade Area

Removes all barriers to trade among members with each nation determining its own barriers against nonmembers

Customs Union

Adds the requirement that all members set a common trade policy against nonmembers

Common Market

Adds the free movement of labor and capital and sets a common trade policy against nonmembers

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Free Trade Area: Economic integration whereby countries seek to remove all barriers to trade among themselves but where each country determines its own barriers against nonmembers. A free trade area is the lowest level of economic integration that is possible between two or more countries.

Customs Union: Economic integration whereby countries remove all barriers to trade among themselves and set a common trade policy against nonmembers.

Common Market: Economic integration whereby countries remove all barriers to trade and to the movement of labor and capital among themselves and set a common trade policy against nonmembers.

Economic Union: Economic integration whereby countries remove barriers to trade and the movement of labor and capital among members, set a common trade policy against nonmembers, and coordinate their economic policies.

Political Union: Economic and political integration whereby countries coordinate aspects of their economic and political systems.

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Degrees of Economic and Political Integration (2 of 2)

Economic Union

Requires members to harmonize their tax, monetary, and fiscal policies, create a common currency, and concede some sovereignty to the larger organization

Political Union

Requires members to coordinate their economic and political policies against nonmembers, with a few exceptions

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6

The Case for Regional Integration

Case for Regional Integration

Trade Creation

Greater Consensus

Political Cooperation

Employment Opportunities

Corporate Savings

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Trade Creation: The increase in the level of trade among nations that results from regional economic integration. One result of trade creation is that consumers and industrial buyers in member nations are faced with a wider selection of goods and services not previously available.

Greater Consensus: The benefit of trying to eliminate trade barriers in smaller groups of countries is that it can be easier to gain consensus from fewer members as opposed to, say, the 159 countries that comprise the WTO.

Political Cooperation: A group of nations can have significantly greater political weight than each nation has individually.

Employment Opportunities: Regional integration can expand employment opportunities by enabling people to move from one country to another to find work or, simply, to earn a higher wage.

Corporate Savings: Companies that do business throughout this region could save millions of dollars annually from the removal of import tariffs under an eventual agreement. Multinational corporations could also save money by supplying entire regions from just a few regional factories, rather than having a factory in each nation.

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The Case Against Regional Integration

Case Against Regional Integration

Trade Diversion

Shifts in Employment

Loss of National Sovereignty

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Trade Creation: The increase in the level of trade among nations that results from regional economic integration. One result of trade creation is that consumers and industrial buyers in member nations are faced with a wider selection of goods and services not previously available.

Greater Consensus: The benefit of trying to eliminate trade barriers in smaller groups of countries is that it can be easier to gain consensus from fewer members as opposed to, say, the 159 countries that comprise the WTO.

Political Cooperation: A group of nations can have significantly greater political weight than each nation has individually.

Employment Opportunities: Regional integration can expand employment opportunities by enabling people to move from one country to another to find work or, simply, to earn a higher wage.

Corporate Savings: Companies that do business throughout this region could save millions of dollars annually from the removal of import tariffs under an eventual agreement. Multinational corporations could also save money by supplying entire regions from just a few regional factories, rather than having a factory in each nation.

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Quick Study 1

What is it called when countries in a region cooperate to reduce or eliminate barriers to the international flow of products, people, or capital?

What are the names of the lowest and highest levels of regional economic integration?

An increase in trade between nations as a result of regional economic integration is called what?

Trade shifting away from nations not belonging to a trading bloc and toward member nations is called what?

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9

Integration in Europe (1 of 2)

European Union: Early Years

European Coal and Steel Community (1951)

Removed trade barriers in coal, iron, and steel

European Economic Community (1957)

Outlined and took initial steps toward common market

European Community (1967)

Expanded to other industries including atomic energy

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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, those 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.

The Maastricht Treaty of 1991 created a common currency, set monetary and fiscal targets for countries in the monetary union, and proposed an eventual political union.

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

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Integration in Europe (2 of 2)

Single European Act (1987)

Harmonized regulations, strived for lower barriers

Maastricht Treaty (1991)

Set single currency targets, outlined eventual political union

European Union (1994)

Final name change and reduced barriers further

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Table 8.1 The World’s Main Regional Trading Blocs (1 of 2)

EU European Union
Blank Austria, Belgium, Britain, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Greek Cyprus (southern portion), Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden
EFTA European Free Trade Association
Blank Iceland, Liechtenstein, Norway, Switzerland
NAFTA North American Free Trade Agreement
Blank Canada, Mexico, United States
CAFTA-DR Central American Free Trade Agreement
Blank Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Dominican Republic, United States
CAN Andean Community
Blank Bolivia, Colombia, Ecuador, Peru
MERCOSUR Southern Common Market
Blank Argentina, Brazil, Paraguay, Uruguay, Venezuela (Bolivia, Chile, Colombia, Ecuador, and Peru are associate members)
CARICOM Caribbean Community and Common Market
Blank Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago
CACM Central American Common Market
Blank Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua

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Table 8.1 identifies the members of every regional trading bloc presented in this chapter. As you work through this chapter, refer back to this table for a quick summary of each bloc’s members.

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Table 8.1 The World’s Main Regional Trading Blocs (2 of 2)

FTAA Free Trade Area of the Americas
Blank 34 nations from Central, North, and South America and the Caribbean
ASEAN Association of Southeast Asian Nations
Blank Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam
APEC Asia Pacific Economic Cooperation
Blank Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Taiwan, Thailand, United States, Vietnam
CER Closer Economic Relations Agreement
Blank Australia, New Zealand
GCC Gulf Cooperation Council
Blank Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates
ECOWAS Economic Community of West African States
Blank Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo
AU African Union
Blank Total of 53 nations on the continent of Africa

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Integration in Europe (1 of 5)

European Union: European Monetary Union

Economic Criteria

Inflation must be below 3.2 percent.

Inflation must not exceed that of the three best-performing countries by more than 1.5 percent.

Government debt must be no higher than 60 percent of GDP.

Government deficit must be no higher than 3.0 percent of GDP.

Interest rates on long-term government securities must not exceed, by more than 2.0 percent, those of the three with the lowest inflation rates.

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European monetary union is the EU plan that established its own central bank and currency in January 1999.

The Maastricht Treaty stated the economic criteria with which member nations must comply in order to partake in the single currency, the euro.

First, consumer price inflation must be below 3.2 percent and must not exceed that of the three best-performing countries by more than 1.5 percent.

Second, the debt of government must be no higher than 60 percent of GDP. An exception is made if the ratio is diminishing and approaching the 60 percent mark.

Third, the general government deficit must be no higher than 3.0 percent of GDP. An exception is made if the deficit is close to 3.0 percent or if the deviation is temporary and unusual.

Fourth, interest rates on long-term government securities must not exceed, by more than 2.0 percent, those of the three countries with the lowest inflation rates.

Meeting these criteria better aligned countries’ economies and paved the way for smoother policy making under a single European Central Bank.

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Integration in Europe (2 of 5)

Eighteen EU member nations adopted the single currency, the euro.

Management Implications of the Euro:

The euro removes financial obstacles created by the use of multiple currencies.

The euro makes prices among markets more transparent.

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The 18 EU member nations that adopted the single currency are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

Management Implications of the Euro: The move to a single currency influences the activities of companies within the EU.

First, the euro removes financial obstacles created by the use of multiple currencies.

Second, the euro makes prices among markets more transparent, making it difficult to charge different prices in adjoining markets.

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Integration in Europe (3 of 5)

Enlargement of the European Union

Copenhagen Criteria

Stable Institutions

Functioning Market Economy

Assume Membership Obligations

Adopt Rules of the Community, Court Of Justice, and Treaties

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One of the most historic events across Europe in recent memory was the EU enlargement that added 12 new members in 2007. Croatia was the most recent country to join the EU in 2013. Iceland, Montenegro, Serbia, Turkey, and the Former Yugoslav Republic of Macedonia remain candidates for EU membership and are to become members after they meet certain demands laid down by the EU. These so-called Copenhagen Criteria require each country to demonstrate that it:

Has stable institutions, which guarantee democracy, the rule of law, human rights, and respect for and protection of minorities.

Has a functioning market economy, capable of coping with competitive pressures and market forces within the EU.

Is able to assume the obligations of membership, including adherence to the aims of economic, monetary, and political union.

Has the ability to adopt the rules and regulations of the community, the rulings of the European Court of Justice, and the treaties.

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Integration in Europe (4 of 5)

Structure of the EU

Figure 8.2 Institutions of the European Union

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

European Parliament debates and amends legislation proposed by the European Commission.

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

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

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

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

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Integration in Europe

European Free Trade Association (EFTA)

Feared a loss of national sovereignty

Feared destructive rivalry

Desired free-trade gains

Cooperates with EU

Map 8.2 Economic Integration in Europe

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Certain nations in Europe were reluctant to join in the ambitious goals of the EU, fearing destructive rivalries and a loss of national sovereignty.

Some of these nations did not want to be part of a common market but instead wanted the benefits of a free trade area.

In 1960, several countries banded together and formed the European Free Trade Association (EFTA) to focus on trade in industrial, not consumer, goods.

Because some of the original members joined the EU and some new members joined EFTA (www.efta.int), today the group consists of only Iceland, Liechtenstein, Norway, and Switzerland (see Map 8.2).

The population of EFTA is around 13.5 million, and it has a combined GDP of around $895 billion.

Despite its relatively small size, members remain committed to free trade principles and raising standards of living for their people.

The EFTA and the EU created the European Economic Area (EEA) to cooperate on matters such as the free movement of goods, persons, services, and capital among member nations. The two groups also cooperate in other areas, including the environment, social policy, and education.

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Quick Study 2

What is the name of the official single currency of the European Union?

A country may receive membership in the European Union once it meets what are called the what?

Why did nations belonging to the European Free Trade Association not want to join the European Union?

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Integration in the Americas (1 of 6)

North American Free Trade Agreement (NAFTA)

Effective in January 1994

Comprises a market with 450 million consumers

A GDP of around $17 trillion

Free Trade Agreement

Provisions:

Government procurement practices

Subsidies

Countervailing duties

Trade in services

Intellectual property rights

Standards of health

Safety

Environment

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NAFTA (www.nafta-sec-alena.org) became effective in January 1994 and superseded the U.S.–Canada Free Trade Agreement. Today NAFTA comprises a market with 450 million consumers and a GDP of around $17 trillion.

As a free trade agreement, NAFTA has eliminated all tariffs and nontariff trade barriers on goods originating within North America. The agreement also calls for liberalized rules regarding government procurement practices, the granting of subsidies, and the imposition of countervailing duties. Other provisions deal with issues such as trade in services, intellectual property rights, and standards of health, safety, and the environment.

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Integration in the Americas (2 of 6)

Local Content Requirements and Rules of Origin

Local Content Requirements

NAFTA Certificate of Origin

NAFTA Rules of Origin

Effects of NAFTA

Growing trade among the three participating nations

Effect on employment and wages is not as easy to determine

Claims of environmental damage

Environmental protection efforts

Delays in NAFTA expansion

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Producers and distributors are responsible for determining whether a product has sufficient North American content to qualify for tariff-free status.

The producer or distributor must also provide a NAFTA “certificate of origin” to an importer to claim an exemption from tariffs.

Four criteria determine whether a good meets NAFTA rules of origin:

Goods wholly produced or obtained in the NAFTA region

Goods containing non-originating inputs but meeting Annex 401 origin rules (which covers regional input)

Goods produced in the NAFTA region wholly from originating materials

Unassembled goods and goods classified in the same harmonized system category as their parts that do not meet Annex 401 rules but that have sufficient North American regional value content

Since NAFTA came into effect, trade among the three participating nations has increased markedly, with the greatest gains occurring between Mexico and the United States.

The agreement’s effect on employment and wages is not as easy to determine.

Opponents claim that NAFTA has damaged the environment, particularly along the United States–Mexico border.

The U.S. and Mexican federal governments have invested several billion dollars in environmental protection efforts since the creation of NAFTA.

Continued ambivalence among union leaders and environmental watchdogs regarding the long-term effects of NAFTA are partly responsible for delays in its expansion.

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Integration in the Americas (3 of 6)

Central American Free Trade Agreement (CAFTA-DR)

Established in 2006 to include seven countries

The United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.

Combined value of goods traded is around $39 billion

Benefits to the United States

Reduce tariff and nontariff barriers against U.S. exports to the region.

Ensure that U.S. companies are not disadvantaged by Central American nations’ trade agreements with other countries.

Reform of Central American nations’ legal and business environments.

Support U.S. national security interests.

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The Central American Free Trade Agreement (CAFTA-DR) was established in 2006 between the United States and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and, later, the Dominican Republic.

The combined value of goods traded among the United States and the six other CAFTA-DR countries is around $39 billion.

The agreement benefits the United States in several ways.

CAFTA-DR aims to reduce tariff and nontariff barriers against U.S. exports to the region.

It also ensures that U.S. companies are not disadvantaged by Central American nations’ trade agreements with Mexico, Canada, and other countries.

The agreement also requires the Central American nations and the Dominican Republic to reform their legal and business environments to encourage competition and investment, protect intellectual property rights, and promote transparency and the rule of law.

CAFTA-DR is also designed to support U.S. national security interests by advancing regional integration, peace, and stability.

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Integration in the Americas (4 of 6)

Andean Community (CAN)

Comunidad Andina de Naciones, or CAN

Four South American countries located in the Andes mountain range—Bolivia, Colombia, Ecuador, and Peru

A market of around 97 million consumers

A combined GDP of about $220 billion

Rocky beginning

Internal tariff reduction

Common external tariff

Common transport policies

Incomplete customs union

Ideological conflict

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Attempts at integration among Latin American countries had a rocky beginning. The first try, the Latin American Free Trade Association (LAFTA), was formed in 1961. Disappointment with LAFTA led to the creation of two other regional trading blocs—the Andean Community and the Latin American Integration Association.

Formed in 1969, the Andean Community (in Spanish Comunidad Andina de Naciones, or CAN) includes four South American countries located in the Andes mountain range—Bolivia, Colombia, Ecuador, and Peru .

Today, the Andean Community (www.comunidadandina.org) comprises a market of around 97 million consumers and a combined GDP of about $220 billion.

The main objectives of the group include tariff reduction for trade among member nations, a common external tariff, and common policies in both transportation and certain industries.

The Andean Community had the ambitious goal of establishing a common market by 1995, but delays mean that it remains a somewhat incomplete customs union.

Several factors hamper progress. Political ideology among member nations is somewhat hostile to the concept of free markets and favors a good deal of government involvement in business affairs. Also, inherent distrust among members makes lower tariffs and more open trade hard to achieve.

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Integration in the Americas (5 of 6)

Southern Common Market (MERCOSUR)

El Mercado Comun del Sur, or MERCOSUR

Established in 1988 between Argentina and Brazil but expanded to include Paraguay and Uruguay in 1991 and Venezuela in 2006

Associate members include Bolivia, Chile, Colombia, Ecuador, and Peru

Mexico has been granted observer status in the bloc.

A market of more than 275 million consumers

A GDP of around $3.5 trillion

A customs union

Emerging as the most powerful trading bloc in all of Latin America

Worldwide export appeal

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The Southern Common Market (in Spanish El Mercado Comun del Sur, or MERCOSUR) was established in 1988 between Argentina and Brazil but expanded to include Paraguay and Uruguay in 1991 and Venezuela in 2006.

Associate members of MERCOSUR (www.mercosur.int) include Bolivia, Chile, Colombia, Ecuador, and Peru. Mexico has been granted observer status in the bloc.

Today, MERCOSUR acts as a customs union and boasts a market of more than 275 million consumers (nearly half of Latin America’s total population) and a GDP of around $3.5 trillion. Its first years of existence were very successful, with trade among members growing nearly fourfold.

MERCOSUR is progressing on trade and investment liberalization and is emerging as the most powerful trading bloc in all of Latin America.

Latin America’s large consumer base and its potential as a low-cost production platform for worldwide export appeal to both the European Union and the United States.

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Integration in the Americas (6 of 6)

Central America and the Caribbean

Caribbean Community and Common Market (CARICOM)

Was formed in 1973

15 full members, 5 associate members, and 8 observers active

A combined GDP of nearly $30 billion

A market of almost 16 million people

Do not have the imports one another needs

Central American Common Market (CACM)

Was formed in 1961

Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua

A market of 30 million consumers

A combined GDP of about $200 billion

The common market was never realized

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Attempts at economic integration in Central American countries and throughout the Caribbean basin have been much more modest than efforts elsewhere in the Americas.

Caribbean Community and Common Market (CARICOM):

Was formed in 1973. There are 15 full members, 5 associate members, and 8 observers active in CARICOM (www.caricom.org).

As a whole, CARICOM has a combined GDP of nearly $30 billion and a market of almost 16 million people.

The main difficulty CARICOM will continue to face is that most members trade more with nonmembers than they do with one another simply because members do not have the imports each other needs.

Central American Common Market (CACM):

Was formed in 1961 to create a common market among Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.

Together, the members of CACM (www.sieca.org.gt) comprise a market of 30 million consumers and have a combined GDP of about $200 billion.

The common market was never realized, however, because of a long war between El Salvador and Honduras and guerrilla conflicts in several countries.

Yet, renewed peace is creating more business confidence and optimism, which is driving double-digit growth in trade between members.

Furthermore, the group has not yet created a customs union.

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Free Trade Area of the Americas (FTAA)

Would be the largest free-trade area on the planet

From northern tip of Alaska to southern tip of Tierra del Fuego in South America

Comprise 34 nations and 830 million consumers

Protests by many groups is slowing progress

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A truly daunting trading bloc would be the creation of a Free Trade Area of the Americas (FTAA).

The objective of the FTAA (www.alca-ftaa.org) is to create the largest free trade area on the planet, stretching from the northern tip of Alaska to the southern tip of Tierra del Fuego, in South America.

The FTAA would comprise 34 nations and 830 million consumers, with Cuba being the only Western Hemisphere nation excluded from participating.

The FTAA would work alongside existing trading blocs throughout the region.

The ambitious plan of the FTAA means that it will likely be many years before such an agreement would be realized.

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Quick Study 3

Canada, Mexico, and the United States belong to the regional trading bloc called what?

What countries belong to the regional trading bloc called CAFTA-DR?

What is the name of Latin America’s most powerful regional trading bloc?

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Integration in Asia and Elsewhere (1 of 3)

Association of Southeast Asian Nations (ASEAN)

Formed in 1967

Ten ASEAN (www.aseansec.org) countries

Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia

A market of nearly 600 million consumers

A GDP of nearly $2.4 trillion

Main objectives

Promote economic, cultural, and social development in the region

Safeguard the region’s economic and political stability

Serve as a forum in which differences can be resolved fairly and peacefully

China, Japan, and South Korea accelerating efforts to join ASEAN

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Indonesia, Malaysia, the Philippines, Singapore, and Thailand formed the Association of Southeast Asian Nations (ASEAN) in 1967. Brunei joined in 1984, Vietnam in 1995, Laos and Myanmar in 1997, and Cambodia in 1998.

Together, the 10 ASEAN (www.aseansec.org) countries comprise a market of nearly 600 million consumers and a GDP of nearly $2.4 trillion.

The three main objectives of the alliance are to (1) promote economic, cultural, and social development in the region; (2) safeguard the region’s economic and political stability; and (3) serve as a forum in which differences can be resolved fairly and peacefully.

The decision to admit Cambodia, Laos, and Myanmar was criticized by some Western nations.

Companies involved in Asia’s developing economies are likely to be doing business with an ASEAN member. This is even a more likely prospect as China, Japan, and South Korea accelerate their efforts to join ASEAN.

China’s admission would allow the club to bridge the gap between less advanced and more advanced economies.

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Integration in Asia and Elsewhere (2 of 3)

Asia Pacific Economic Cooperation (APEC)

Formed in 1989

Now has 21 members

Account for more than 40 percent of world trade

A combined GDP of about $32 trillion

Aim to strengthen the multilateral trading system

Liberalizing trade and investment procedures among member nations

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The organization for Asia Pacific Economic Cooperation (APEC) was formed in 1989.

Begun as an informal forum among 12 trading partners, APEC (www.apec.org) now has 21 members.

Together, the APEC nations account for more than 40 percent of world trade and have a combined GDP of about $32 trillion.

The stated aim of APEC is to strengthen the multilateral trading system and expand the global economy by simplifying and liberalizing trade and investment procedures among member nations.

In the long term, APEC hopes to have completely free trade and investment throughout the region by 2020.

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Integration in Asia and Elsewhere (3 of 3)

Closer Economic Relations (CER) Agreement

Completely eliminated tariffs and quotas between Australia and New Zealand

Gulf Cooperation Council (GCC)

Evolved to become as much a political entity as an economic one

Economic Community of West African States (ECOWAs)

Progress on market integration is almost nonexistent

African Union (AU)

To strengthen cohesion among the peoples of Africa

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Closer Economic Relations (CER) Agreement: Australia and New Zealand created a free trade agreement in 1966 and formed the Closer Economic Relations (CER) Agreement in 1983 to further advance free trade and integrate their two economies. The CER completely eliminated tariffs and quotas between Australia and New Zealand in 1990, five years ahead of schedule.

Gulf Cooperation Council (GCC): Several Middle Eastern nations formed the Gulf Cooperation Council (GCC) in 1980. Members of the GCC are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Evolved to become as much a political entity as an economic one. Its cooperative thrust allows citizens of member countries to travel freely in the GCC without visas. It also permits citizens of one member nation to own land, property, and businesses in any other member nation without the need for local sponsors or partners.

Economic Community of West African states (ECOWAs): The Economic Community of West African States (ECOWAS) was formed in 1975 but its efforts at economic integration were restarted in 1992 because of a lack of early progress. The most important goals of ECOWAS (www.ecowas.int) include the formation of a customs union, an eventual common market, and a monetary union. Progress on market integration is almost nonexistent.

African Union (AU): A group of 53 nations on the African continent joined forces in 2002 to create the African Union (AU). Its ambitious goals are to promote peace, security, and stability across Africa and to accelerate economic and political integration while addressing problems compounded by globalization.

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Quick Study 4

What are the stated aims of the Association of Southeast Asian Nations (ASEAN)?

The stated aim of which organization is not to build a trading bloc but instead to strengthen the multilateral trading system?

What is the name of the grouping of 53 nations across the continent of Africa?

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Copyright

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