INB-480

Special Topic: Regional Trading Blocs

Regional economic integration: refers to agreements between countries in a geographic region

to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of
production between each other.
Despite the rapid spread of regional trade agreements designed to promote free trade, there are
those who fear that the world is moving toward a situation in which a number of regional trade
blocks compete against each other. In this scenario of the future, free trade will exist within each
bloc, but each bloc will protect its market from outside competition with high tariffs.
There are five levels of economic integration. In order of increasing integration, they include free
trade area, customs union, common market, economic union, and full political union.
The most enduring free trade area in the world is the European Free Trade Association. EFTA
currently joins four countries-Norway, Iceland, Liechtenstein, and Switzerland. Other free trade
areas include the North American Free Trade Agreement (NAFTA).

Customs unions around the world include the current version of the Andean Pact
(between Bolivia, Columbia, Ecuador and Peru).
Currently, MERCOSUR, the South America grouping that includes Brazil, Argentina,
Paraguay, and Uruguay, is aiming to eventually establish itself as a common market.
The European Union (EU) is an economic union, although an imperfect one since not all
members of the EU have adopted the euro, the currency of the EU, and differences in tax
rates across countries still remain.
Integration is not easily achieved or sustained. Although integration brings benefits to the
majority, it is never without costs for the minority. Concerns over sovereignty often slow or stop
integration attempts.
The creation of single markets in the EU and North America means that many markets that were
formerly protected from foreign competition are now more open. This creates major investment
and export opportunities for firms within and outside these regions.
The free movement of goods across borders, the harmonization of product standards, and the
simplification of tax regimes make it possible for firms based in a free trade area to realize
potentially enormous cost economies by centralizing production in those locations within the
area where the mix of factor costs and skills is optimal.

 The Triad
Western Europe
Asia: China, India, South Asia
North America
Much of today's world trade takes place within three regional free-trade blocs (Western Europe; Asia, and
the Americas) grouped around the three dominant currencies (the euro, the yen, and the dollar). These
trade blocs are continually expanding their borders to include neighboring countries, either directly or
with separate agreements.

Other Regions
Central and Eastern Europe
Less Developed Countries (LDCs)

The European Union (EU)

Year of Establishment

Reason for establishment

No of Member state

Level of integration

Headquarter

Characteristics

The creation of EU has not eliminated national pride. Most people in W. Europe still think of themselves
first as British, French, Danish or Italian, and are wary of giving up too much power to centralized
institutions, or of giving up their national culture.
Global Managers and the E.U.

Global managers face two major tasks with respect to the E.U.

How firms outside of Europe can deal with a market giving preference to insiders

How to deal effectively with multiple sets of national cultures, traditions, and customs
within Europe.

NAFTA

Year of Establishment

Reason for establishment

No of Member state

Level of integration

Headquarter

Characteristics

MERCOSUR

Year of Establishment

Reason for establishment

No of Member state

Level of integration

Headquarter

Characteristics

Joint ventures between Mexican and American companies are common. Examples
include the one between Wal-Mart and Cifra, which in 2001 was Mexicos biggest
chain.
Asia

Japan and the Four Tigers Singapore, Hong Kong, Taiwan, and South Korea
provide most of the capital and expertise for Asias developing countries.

In the 1980s and early 1990s, much of Asias economic power and
competitive edge was attributed to Japans keiretsu and S.Koreas chaebol.

Recent economic woes have slowed growth in the region.

ASEAN

Year of Establishment

Reason for establishment

No of Member state

Level of integration

Headquarter

Characteristics

SAARC

Year of Establishment

Reason for establishment

No of Member state

Level of integration

Headquarter

Other Regions in the World

Sweeping political, economic, and social changes around the world present new challenges to global managers.
The worldwide move away from communism, together with the trend toward privatization, has had an
enormous influence on the world economy. Economic freedom is a critical factor in the relative wealth of
nations.
One of the most striking changes today is that almost all nations have suddenly begun to develop
decentralized, free market systems in order to manage a global economy of intense competition, the
complexity of high-tech industrialization, and an awakening hunger for freedom.
The Russian Federation Foreign investment in Russia, as well as its consumers' climbing confidence and
affluence, bode well for the economy. In the first quarter of 2009, for example,FDI into the Russian economy
was about $8.4 billion, However, corruption and government interference persist
The Middle East: The United Arab Emirates is the most competitive economy in the Arab world among the
countries at the third and most advanced stage of development according to The Arab World Competitiveness
Report 2007 by the World Economic Forum. It is followed by Qatar and Kuwait. Among countries at the
second stage of development, Tunisia and Oman are the best performing Arab economies while Egypt is the
regional best performer in the third group of countries. Developing Economies are characterized by change
that has come about more slowly as they struggle with low gross national product (GNP) and low per capita
income, as well as the burdens of large, relatively unskilled populations and high international debt. Their
economic situation and the often-unacceptable level of government intervention discourage the foreign

investment they need. Many countries in Central and South America, the Middle East, and Africa desperately
hope to attract foreign investment to stimulate economic growth
The African Union (AU): The AU comprises the 53 African countries and was formed from theb original
Organization of African Unity (OAU) primarily to deal with political issues. However, that union is not able to
provide a vehicle for integration of trade and economic growth because of the many major problems in the
region. Unfortunately, Africa has been virtually ignored by most of the world's investors, although it receives
increasing investment from companies in South Africa, which has the region's biggest economy.
South Africa: The South African economy has been growing continuously since 1998, amid a more stable
political environment since the defeat of apartheid. The rapid growth of consumer demand, along with
increasing tourism and foreign business investment, has made the country's outlook very positive. Foreign
investment is encouraged through the Strategic Industrial Project, which provides approved companies with
substantial tax reductions as well as other incentives. These incentives, along with more political stability,
encouraged the return of most of the foreign companies which had left during the apartheid era. In addition,
companies in South Africa no doubt realize that they have a competitive edge on the African continent that
they do not have in more developed parts of the world.58