Autor: dreamore2008 01 July 2011
Words: 962 | Pages: 4
Regional Integration For and Against Articles
Andrea D. Tubbs
June 28, 2011
Professor Bryan Spearman
Regional Integration For and Against Articles
Regional economic integration is identified as agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to free flow of goods, services, and factors of production among each other (Hill, 2009). In the last twenty years, the creation of regional trade blocs that support regional economic integration has been exceptional. The levels of economic integration are from least integrated to most integrated and include the following:
• Free trade area – all barriers to the trade of goods and services among member countries are removed.
• Customs union – eliminates trade barriers between member countries and adopts a common external trade policy.
• Common market – had no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.
• Economic union – involves the free flow of products and factors of production between member countries and the adoption of a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.
• Political union – when a central political device coordinates the economic, social, and foreign policy of the member states (Hill, 2009).
The writer of this paper will choose a trading bloc within a region and write one article in favor of regional integration and another article against regional integration. This paper will also describe the advantages and disadvantages of regional integration and relate the stage of economic development of the economically integrated region to potential business opportunities.
The North America Free Trade Agreement (NAFTA) was signed in 1992 by the United States, Canada, and Mexico and went into effect on January 1, 1994. Immediately, NAFTA lifted tariffs on the majority of goods produced by participant nations. Over a period of 15 years, NAFTA called for the gradual elimination of most remaining barriers to cross-border investment and to the movement of goods and services among these three countries (U. S. Customs and Border Protection, 2008). NAFTA created the world's largest free trade zone which now links 450 million people producing $17 trillion worth of goods and services (Office of the United States Trade Representative, 2008). The contents of NAFTA include the following:
• Abolition by 2004 of tariffs on 99 percent of goods traded between Mexico, Canada, and the United States.
• Removal of most barriers on the cross-border flow of services.
• Protection of intellectual property rights.
• Removal of most restrictions on foreign direct investment.
• Application of national environmental standards provided such standards have a scientific basis, and
• Establishment of two commissions with the power to impose fines and remove trade privileges (Hill, 2009).
For regional integration
Supporters recognize that the outcome of NAFTA would be that several U.S. and Canadian firms would move production to Mexico to take advantage of lower labor costs. This move to Mexico would happen in low-skilled, labor-intensive manufacturing industries where Mexico will have a comparative advantage. Mexico would gain internal investment and employment. According to Hill (2009), The United States and Canada would profit because the increased incomes of the Mexicans would allow them to import more U.S. and Canadian goods, therefore increasing demand and making up for lost jobs in industries that moved production to Mexico. The United States and Canada would profit from lower prices of products that were made in Mexico.
Against regional integration
Those in opposition of NAFTA claimed that ratification would be followed by a mass exodus of jobs from the United States and Canada into Mexico as employers seek to profit from Mexico's lower wages and less strict environmental and labor laws (Hill, 2009). One opponent said that up to 5.9 million jobs in the U.S. would be lost to Mexico. However, economists disagreed and think that Mexico would have run a bilateral trade surplus with the United States of close to $300 billion for job loss and that amount was the size of Mexico's Gross Domestic Product (GDP). There was a fear loss of national sovereignty. Critics argued that their country would be dominated by U.S. firms who would not contribute to Mexico's economic growth (Hill, 2009).
The creation of single market through regional economic integration offered important advantages because markets that were formerly protected from foreign competition were increasing. Other advantages arose from the inherent lower costs of doing business in a single market as opposed to 27 national markets in the case of the EU or 3 national markets in the case of NAFTA (Hill, 2009). According to Hill (2009), the free movement of goods across borders, harmonized products standards, and simplified tax regimes made it possible for firms based in the EU and NAFTA to realize potentially significant cost economies by centralizing production where the mix of factor costs and skills is most favorable.
Lowering barriers to trade and investment between countries would lead to increased price competition throughout the EU and NAFTA. The creation of single market and the resulting increased competition in the EU would produce serious attempts by firms to reduce their cost structure by rationalizing production. The emerging role of the European Commission in competition policy suggests the EU is increasing willing and able to intervene and impose conditions on companies proposing mergers and acquisitions (Hill, 2009). This disadvantage would maximum the ability of firms to pursue the corporate strategy of their choice.
Regional economic integration plays an important role in business globally by creating many opportunities as well as threats. This paper explained why NAFTA support and oppose regional integration. This paper also described various advantages and disadvantages of regional integration.
Hill, C. W. (2009). International business. Competing in the global marketplace (7th ed.).
Boston, MA: McGraw-Hill.
Office of the United States Trade Representative. (2008). North America Free Trade Agreement
(NAFTA). Retrieved from http://www.ustr.gov
U. S. Customs and Border Protection. (2008). North America Free Trade Agreement
(NAFTA). Retrieved from http://www.cbp.gov