Regional Integration in North America

Regional Paper

Steve Porter

MGT 448

John Jaggi

April 11, 2007

Regional Integration in North America

“Regional integration is a process in which states enter into a supranational regional organization in order to increase regional cooperation and diffuse regional tensions.”(Regional, n.d.) Agrrements in regional integration can be made to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production between countries.(Hill, 2004 ch. 8) The North American Free Trade Agrrement (NAFTA) is an agreement between the United States , Canada and Mexico that eliminates most tarriffs on products traded between the three countries. This paper will discuss the role of regional integration in promoting global business, discuss the advantages and disadvantages of NAFTA and compare and contrast the economic development stages of the United States , Canada and Mexicoand the ramifications of this region’s economic development for global business.

Promoting Global Business

Regional integration removes trade barriers ie., tarriffs between member countries. While the memmbers of a trade bloc agree on trade policy, each member is free to set its own external trade policy. The removal of trade barriers can reduce the cost of production, increase productivity and maximize profits. These factors can increase an organization’s willingness to extend its trade to other countries. Regional integration promotes global business by maximizing an organization’s abilityand willingness to trade with countries and other organization’s around the world.

Advantages of Regional Integration

“Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country.”(Hill, 2004 ch. 4) The economic theories of Smith, Ricardo, and Heckscher-Ohlin predict that unrestricted free trade will allow countries to specialize in the production of goods and services that they can produce most efficiently resulting in greater production than would be possible with trade barriers and restrictions.(Hill, 2004, ch. 8) NAFTA allows free trade between the U.S., Canada and Mexico. Mexico benefits from this agreement from the increased investment through the outsourcing of lower paying and labor-intensive jobs. Many firms have and may still move these types of jobs to Mexico where labor costs are a fraction of the U.S. and Canadian costs. Many economists believe that this increase in Mexican jobs will benefit the U.S and Canada because increased incomes in Mexico will increase demand for products produced in the U.S and Canada.

Disadvantages of Regional Integration

The disadvantages of NAFTA are so far theory and have not yet come to pass. Some believed that the NAFTA agreement would create a mass movement of jobs to Mexico because of lower labor costs. Others argued that lower governmental standards might result in lower quality products.

Some environmentalists claim that lower environmental standards coupled with the increase of production facilities would result in harm to the environment. Air and water pollution as well as the dumping of toxic waste are not as strictly regulated in Mexico and an increase in economic activity would increase the amount of pollutants already created in Mexico.

Economic Development Stages

Wikipedia Online Encyclopedia defines economic development as “a sustainable increase in living standards that implies increased per capita income, better education and health as well as environmental protection.” The United Nations uses a Human Development Index (HDI)to measure a country’s average achievements