Capitalizing on Global & Regional Integration 8 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted.

Capitalizing on Global &

Regional Integration

8

Chapter 8 - Capitalizing on Global & Regional Integration

Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,

in whole or in part.

LEARNING OUTCOMES

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1 Make the case for global economic integration

2 Explain the evolution of the GATT and the WTO, including current challenges

3 Make the case for regional economic integration

4 List the accomplishments, benefits, and costs of the European Union

Learning Outcomes

LEARNING OUTCOMES

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5 Identify the five organizations that promote regional trade in the Americas and describe their benefits and costs

6 Identify the four organizations that promote regional trade in the Asia Pacific and describe their benefits and costs

7 Articulate how regional trade should influence your thinking about global business

Learning Outcomes (continued)

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Economic Integration

• Regional economic integration: Efforts to reduce trade and investment barriers within one region

• Global economic integration: Efforts to reduce trade and investment barriers around the globe

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Integrating the Global Economy

• Important developments after WWII• General Agreement on Tariffs and Trade

(GATT): Multilateral agreement governing the international trade of goods

• World Trade Organization (WTO): Multilateral trading system and the organization underpinning the system since 1995

• European Union (EU): Official title of European economic integration since 1993

6

Exhibit

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8.1 Benefits of Global Economic Integration

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General Agreement on Tariffs and Trade: 1948-1994

• Reduced level of tariffs through multilateral negotiations

• Areas of concern• No protection for services or intellectual

property • Loopholes needed reform - Multifiber

Arrangement (MFA)• Global recessions led governments to invoke

nontariff barriers (NTBs)

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World Trade Organization: 1995-Present

• GATT’s successor• Features

• General Agreement on Trade in Services (GATS)• Trade-Related Aspects of Intellectual Property

Rights (TRIPS)• Trade dispute settlement mechanisms• Trade policy reviews

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The Doha Round

• Formed in the aftermath of 9/11 attacks• Promoted economic development in

developing countries • The Doha Development Agenda

• Reduce agricultural subsidies in developed countries

• Slash tariffs, especially in areas where developing countries might benefit

• Free up trade in services• Strengthen intellectual property protection

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Pros and Cons of Regional Economic Integration

• Promotes peace• Free trade and investment raise incomes and stimulate economic

growth• Enables to handle disputes constructively• Consistent rules prevent discrimination

Pros

• Discrimination against firms outside of region• Loss of sovereignty

Cons

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Types of Regional Economic Integration

Free trade area

Customs union

Common market

Economic union

Political union

12

Exhibit

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8.2 Types of Regional Economic Integration

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Origin and Evolution of European Union

• Political origin• Countries made an effort to integrate to end the

cycle of hatred and violence• European Coal and Steel Community (ECSC)

Treaty, 1951• Signed by Belgium, France, (West) Germany,

Italy, Luxembourg, and the Netherlands

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Origin and Evolution of European Union (continued)

• Treaty of Rome, 1957• Launched the European Economic Community

(EEC)• Maastricht Treaty, 1993

• Establishment of the European Union• Lisbon Treaty, 2009

• Amended the Maastricht Treaty that served as a constitutional basis for the EU

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European Union (EU)

• Holds 28 member countries, 500 million citizens, $18 trillion GDP

• Contributes 26% of the world’s GDP• World’s largest economy• Largest exporter and importer of goods and

services

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European Union (EU) (continued)

• Euro: Currency used in 18 EU countries• Built a single market in aviation• EU and its predecessors gave more than 70

years of peace and prosperity

17

Exhibit

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8.3 Benefits and Costs of Adopting the Euro

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Challenges Faced by the EU

Internal divisions

Enlargement concerns

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North American Free Trade Agreement (NAFTA)

• Free trade agreement among Canada, Mexico, and the United States

• Benefits• Trilateral merchandise trade increased to $1.1

trillion in the past two decades• Increase in US exports with Canada and Mexico

• Costs• Loss of jobs• Many multinationals have shifted factory work

to China

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Economic Integration in South America

• Andean Community and Mercosur• Customs unions formed in 1969 and 1991,

respectively• Not very effective as majority of its members’

trade is outside the region• Union of South American Nations (USAN)

• Formed in 2008 • Integrates two existing customs unions • Modeled after EU

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Economic Integration in South America (continued)

• United States-Dominican Republic-Central America Free Trade Agreement (CAFTA)• Formed in 2005• Modeled after NAFTA• Six CAFTA countries represent the second largest

US export market in Latin America• Central American countries include Costa Rica, El

Salvador, Guatemala, Honduras, and Nicaragua

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Economic Integration in the Asia Pacific

• Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER)• Removed tariffs and NTBs• Allowed citizens of one country to freely work

and live in the other country

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Economic Integration in the Asia Pacific (continued 1)

• Association of Southeast Asian Nations (ASEAN)• Established Asian Free Trade Area (AFTA)• Main trade partners are outside the region • Launched ASEAN-China Free Trade Agreement

(ACFTA) in 2010

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Economic Integration in the Asia Pacific (continued 2)

• Asia-Pacific Economic Cooperation (APEC) • Includes members of ASEAN, CER, and NAFTA, as

well as Japan, Chile, Peru, and Russia• Contributes 46% of world trade• Commands 54% of world GDP• Provides a forum for members to make

commitments that are largely rhetorical

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Economic Integration in the Asia Pacific (continued 3)

• Trans-Pacific Partnership (TPP)• Multilateral free trade agreement being

negotiated by 12 Asia Pacific countries

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Management Methods

• Focus on regional than global levels• Regional strategies lessen liabilities that foreign

organizations can cause • Know the necessities at global and regional

levels • Good managers change with times and take

advantage of new opportunities

27

Exhibit

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8.4 Implications for Action

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Debate: Food Versus Trade

Food

• Developing nations strengthened food security policies

• Increased subsidization leads to WTO challenges and food wastage

Trade

• TFA simplifies customs red tape but not the issues of agricultural subsidies

• Could boost global economy

KEY TERMS

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Key Terms

• North American Free Trade Agreement

• Regional economic integration

• Global economic integration

• General Agreement on Tariffs and Trade

• World Trade Organization

• European Union

• Multilateral trading system

• Non-discrimination • General Agreement on

Trade in Services• Trade-Related Aspects of

Intellectual Property Rights

• Doha Round• Free trade area• Customs union

KEY TERMS

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Key terms (continued)

• Common market• Economic union• Monetary union• Political union • Schengen • Euro• Euro zone• Andean Community • Mercosur • Union of South-

American Nations

• United States-Dominican Republic-Central America Free Trade Agreement

• Australia- New Zealand Closer Economic Relations Trade Agreement

• Association of Southeast Asian Nations

• Asia-Pacific Economic Cooperation

• Trans-Pacific Partnership

SUMMARY

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• Global economic integration aims at reducing trade and investment barriers around the globe

• GATT aimed at reducing tariffs via intensive negotiations

• Regional economic integration aims to reduce trade and investment barriers within one region

Summary

SUMMARY

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• The European Union currently contributes about 26% of the world’s GDP

• Organizations that promote regional trade in America• North American Free Trade Agreement• Andean Community and Mercosur• Union of South American Nations• United States-Dominican Republic-Central

America Free Trade Agreement

Summary (continued 1)

SUMMARY

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• Organizations promoting regional trade in the Asia Pacific• Australia-New Zealand Closer Economic

Relations Trade Agreement• Association of Southeast Asian Nations• Asia-Pacific Economic Cooperation and Trans-

Pacific Partnership• Managers should focus their attention more

at regional levels

Summary (continued 3)

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