LECTURE 10

REGIONAL ECONOMIC
INTERGRATION
 Regional Economic Integration
America
NAFTA
 1989 US & Canada – 1994 & Mexico

 Remove tariffs on 99% of goods in 10 years

 Removal of barriers to cross-border flow of
services
 Protection of intellectual property rights
 Removal of most restrictions on FDI
 Application of national environmental standards
(scientific basis)
 Establishment of 2 commissions
– Monitor environmental standards & health/safety,
minimum wage or child labor laws
– Impose fines & remove trade privileges for violations
 IMPACT OF NAFTA
For NAFTA
 TRADING RELATIONSHIP BETWEEN U.S AND CANADA
IS LARGEST BILATERAL TRADE IN WORLD
 CANADA IS THE LARGEST EXPORT MARKET TO U.S.
 OPPORTUNITY TO CREATE AN ENLARGED & EFFICIENT
PRODUCTION BASE FOR REGION
MEXICO

 Mexico would benefit from inwards FDI.

 Consumers benefit – lower prices
 Employment creation

US & Canada benefit

 Cheap labor from Mexico- IBM,GAP INC., LIZ
CLAIBORN(TEXTILE CO.)
 Competitiveness of firms that move production to Mexico
 Low cost agricultural products from Mexico
 Large Mexican market
 Against NAFTA
 Mass exodus of jobs from US & Canada to Mexico creates
loss of manufacturing jobs in U.S. E.G IBM and
CANON,SANYO,SAFT

 Mexico’s lower wage labor exploitation- In U.S wage rate is

$21.97 and for Mexican it is $2.48.
Delphi corp. ,U.S auto part company pays $1.90 per hour in
Mexico.

 Investment is shifting from Mexico to china.

 Less strict environmental laws

IMPLICATIONS FOR COPORATE
STRATEGY
 Big rational market
 Automotive products and
electronics companies have
witnessed more growth.
 E.g. Canadian firm established metal
stamping plant in Mexico to supply
Volkswagen the German auto
manufacturer.
 DAIMLER CHRYSLER is producing cars and
trucks in Mexico.
 Issues of NAFTA(ENVIRONMENTAL)
 SANITARY AND PHYTOSANITARY ARTICLE XX (b)

 In WTO agreement, protection of human safety or health,

protection of animal and plant life or health and also
protection of the environment is of prime importance, all
these are broadly covered in Sanitary and Phytosanitary (SPS)
requirements. The agreement on the application of Sanitary and
Phytosanitary Measures is an integral part of final Act GATT
1994 (b) and of Agreement on Agriculture measures are
defined as any measure applied in the following ways-

 The border between Mexico and the United States is an

impoverished area ranging some 1,933 miles with a width of 60
miles on each side. 

 This area is also known for its poor drinking water, inadequate
sewage treatment, mass squatter settlements with deplorable
living conditions, exploding population rates, and rapid
industrial expansion by industries whose air and water
emissions are insufficiently monitored. 

 Every day for example, untracked, unmonitored hazardous

waste from maquiladora companies are dumped onto vast
stretches of desert near the border cities. 
 ISSUES OF NAFTA
2.Marine pollution
 Concern regarding vast marine pollution and endangered
marine resources caused by petroleum spills and wastes from
oil operations off the coast of Mexico. Such carelessness is
beginning to hit home in the United States, as hundreds of
miles of Texas beaches are becoming polluted beyond use.
3. TRUCKS DISPUTE
 Due to the expansion of multinational corporations into Mexico from
the U.S., there is a substantial increase in the transportation of goods across
the border. Mass waves of trucks idling in traffic at international bridges
and border crossings have led to substantial photochemical smog problems
in Tijuana - San Diego and Ciudad Juarez - El Paso.
4.WATER SEWAGE
 As a result of the immense poverty, such border cities as Ciudad Juarez
and Nuevo Laredo lack sewage treatment plants. Thus millions of gallons
of raw sewage are poured daily into the Rio Grande, the main source of
drinking water.
 In addition to having profound effects on the health of the nearby residents,
industries are having increasing difficulties finding fresh water for their
processing needs
 Issue of NAFTA
 5. DOLPHIN –TUNA FISHING DISPUTE -1972
Marine Mammal Protection Act.
(Priti: in 1991, when the Mexican government challenged a United
States law banning imports of tuna from Mexico. The U.S. Marine
Mammal Protection Act prohibited tuna fishing methods that killed
large numbers of dolphins, and banned tuna imports from
countries that used such fishing methods. The Mexican
government argued that this U.S. law was in violation of the rules
of the General Agreement on Tariffs and Trade (GATT).
A GATT dispute panel ruled that the U.S. could not use domestic
legislation to protect dolphins outside its own territorial limits.)

6.The agricultural sectors also face severe

environmental problems.  Large corporations
often feel the need to use harsh pesticides on
their products to ensure the success of their
crops.  These pesticides also contain life-
threatening poisons that have a profoundly
 MERCOSUR(SOUTH AMERICA)
1991 – Treaty of Asucion, updated by 1994 Treaty of Ouro
Preto
Origins – 1985 – Argentina-Brazil – PICE
Mercosur Parliament – Agreed in Dec 2004. Must have 18reps from
each country by 2010
 Full Members
 Argentina
 Brazil
 Paraguay
 Uruguay
 Becoming Full Members
 Venezuela before becoming a full member its entry has to
be ratified by the Paraguayan and the Brazilian parliaments
 Bolivia
 Associate Members (Priti: CCEP – ANDEAN COMMUNITY)
 Chile
 Colombia
 Ecuador
 Peru (CHECK FOOTNOTES OF NEXT SLIDE ALSO)
 Regional Economic Integration
America
Andean Community
 1969 & 1997 – Customs Union of Bolivia,
Chile(No), Ecuador, Colombia, Peru
(Priti:BolCCEP)
 Internal tariff reduction, common external
tariff, transportation policy, common
industrial policy
Priti: The trade bloc was called the Andean Pact until 1996
and came into existence with the signing of the Cartagena
Agreement in 1969. Its headquarters are located in Lima,
Peru
The original Andean Pact was founded in 1969 by Bolivia, Chile, Colombia,
Ecuador and Peru. In 1973, the pact gained its sixth member, Venezuela. In
1976, however, its membership was again reduced to five when Chile
withdrew. Venezuela announced its withdrawal in 2006, reducing the
 Regional Economic Integration
America
Central American Common Market(5 NATIONS
of Central America)
 1960’s – Costa Rica, El Salvador, Guatemala,
Honduras & Nicaragua
 Collapse 1969 – war after soccer game (between
Honduras and El Salvador)
 RESTARTED AFTER 1991
 (Priti: The CACM has succeeded in removing duties on most
products moving among the member countries, has largely
unified external tariffs and increased trade within the member
nations. However, it has not achieved the further goals of
greater economic and political unification that were hoped for
at the organization's founding)
CARICOM
 1973 Caribbean Community (Barbados,
Jamaica, Guyana and Trinidad&Tobago )
(established by the Treaty of Chaguaramas which came
into effect on August 1, 1973)
 (CARICOM replaced the 1965–1972 Caribbean Free
Trade Association (CARIFTA))
 Regional Economic Integration( Asia)
ASEAN(10 MEMBERS)
 1967 – Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore,
Thailand & Vietnam
 500 million people & GDP $740 B
 Foster free trade & cooperate in industrial
policies, social progress
 Companies which benefit are BMW, Matsushita,
Electrical industrial, Honda motor, Proctor and
Gamble.
 Dell computers has established assembly
operations at Malaysia.

(Free trade area, Open Sky(2009), Cultural

Activities, Higher Learning, ASEAN Football
Championship, Paragames(Phys.Disab)
 APEC
 Asia-Pacific Economic Cooperation
 1990 -21 Members (US, Japan, China,
Australia)
 56% GDP & 41% of world trade
 Increase multilateral cooperation in
light of interdependence of Pacific
nations.
 Regional Trade Blocs in Africa
 The Common Market for Eastern and
Southern Africa (COMESA), is a preferential
trading area with twenty member states
stretching from Libya to Zimbabwe. COMESA
formed in December 1994, replacing a
Preferential Trade Area which had existed since
1981. Nine of the member states formed a free
trade area in 2000, with Rwanda and Burundi
joining the FTA in 2004 and the Comoros and
Libya in 2006 .
 The Southern African Development
Community (SADC) is an inter-governmental
organization. It furthers socio-economic
cooperation and integration as well as political
and security cooperation among 15 southern
 Africa
 The Economic and Monetary Community of
Central Africa (CEMAC). Its member states
are Cameroon, the Central African Republic,
Chad, the Republic of the Congo, Equatorial
Guinea and Gabon .

 The West African Economic and Monetary

Union UEMOA was created by a Treaty signed at
Dakar, Senegal, on January 10, 1994 by the
Heads of State and Government of Benin ,
Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal,
and Togo. On May 2 1997, Guinea-Bissau
became its eighth member state.