Full version The Role Of Regional Integration

The Role Of Regional Integration

This print version free essay The Role Of Regional Integration.

Category: Business

Autor: reviewessays 09 April 2011

Words: 1485 | Pages: 6

Global Business as pertaining to our topic describes changes in our world’s economy that result from dramatically increased internationational trade and cultural exchange. This paper will analyze the role of NAFTA (North American Free Trade Agreement) in promoting global business. Besides NAFTA, regional integrations such as: EU, APEC, ASEAN, CAFTA, or others may be discussed for the purpose of comparing advantages and disadvantages of regional integration. Also discussed will be the economic development stages of countries within NAFTA (United States, Canada, and Mexico) and any ramifications of NAFTA development for global business.

NAFTA

NAFTA is an agreement between Canada, the US, and Mexico that took effect on January 1, 1994, designed to increase the scope for the free flow trade and investment among these three countries. It includes measures for the elimination of tariffs and non-tariff barriers to trade, as well as many more specific provisions concerning the conduct of trade and investment that reduce the scope for government intervention in managing trade.

Role of NAFTA in promoting global business

Regional integration is a formation of closer economic linkages among countries that are geographically near each other, especially by forming preferential trade agreements. On the other hand, regional integration also refers to an outcome, occurring when pre set criteria are met. Over the last couple of decades, we have seen an increase in the number and depth of regional integration agreements around the world. Over 40 % of world trade occurs within regional integration agreements like the European Community and the NAFTA and new or expanded agreements continue to be negotiated. A regional integration agreement represents free trade to the extent that it results in trade creation by shifting of the production of some item from a less efficient member country to a more efficient member country. It represents more restricted trade to the extent that it results in trade diversion by shifting of production from an efficient nonmember country to a less efficient member country and promotes global business in this way. NAFTA was destined to recast the economic landscape of North America. For over a century, the U.S. economy had been shaped by growth along an east-west axis. NAFTA was going to be responsible for a sea of change in North American economic and transportation patterns. The business growth along the north-south axis would probably exceed that along the east-west axis in U.S and that NAFTA would be the engine propelling change.

Advantages and disadvantages NAFTA

Of course the obvious point of regional integration is to benefit all involved. Under most circumstances the advantages of integration out way the disadvantages. NAFTA is voluntary as are many other regional integrations. Some reasons countries band together are: Cost–sharing on regional projects, a stable financial region, Pooling of technical expertise, Joint representation at international conferences and meetings, and having a stable financial region.

The North American Free Trade Agreement (NAFTA) creates a single, North American market of nearly 400 million consumers larger than the 12 countries of the European Community and a combined GDP of $11 trillion. United States, Mexico, and Canada are encouraged to trade amongst one another, free of tariffs and idealistically free of barriers. NAFTA's lower tariffs and other provisions have provided more choices in foods, goods and services at competitive prices, and increased standard of living. The movement of goods and people creates stronger international linkages among our three countries, facilitating tourism, travel and greater understanding through the constant exchange of ideas and cultures. One vitally important benefit that has accrued to all three countries as a direct result of NAFTA's success has been the strong growth in foreign direct investment (FDI). While all three countries received sizable FDI flows both and after 1994, FDI increased more than 200%. NAFTA improves incentives for buying within the North American region and ensures that North American producers receive the primary benefits of all newly established tariff preferences. Goods not originating from the United States, Mexico, or Canada must be significantly transformed or processed in that country before they receive NAFTA's lower duties for shipment to one of the two other countries. Another benefit is the protection of intellectual property rights (patents, copyrights, and trademarks) among the three countries. NAFTA represents a brand new market with almost unlimited growth potential. With that the case, we can expect NAFTA to have a growing impact on our economic destinies in the new millennium.

One of the disadvantages of regional integrations (or NAFTA) is the assumption that all participating nations are equally capable of producing and have equivalent economies. Such an ideal scenario does not exist among the participating nations of NAFTA. Prior to the 1994 approval, the United States produced a total output twenty five times that of Mexico, and ten times that of Canada. The discrepancies in each nation’s capability to produce serve as a major fault in the assumed "equality" between the nations, leading one to question whether free trade in the allocated zone is a truly plausible goal. As a result of NAFTA and other "trading blocs," many developing nations encounter difficulties entering into and competing in the world market. Another problem is the labor. Labor unions in Canada and the United States have opposed NAFTA for fear that jobs would move out of the country due to lower wage costs in Mexico.

Economic development stages of NAFTA

NAFTA has helped transform the three economies while creating synergies that go far beyond economic prosperity. As with any trade liberalization initiative or other economic change, NAFTA affected some sectors positively and others adversely, but there is little doubt that on the whole, the agreement produced real net benefits for workers and consumers of the three countries. It is important to note how different our three economies might look today if we had not had a free trade agreement. As designed, NAFTA has progressively eliminated tariffs and non-tariff barriers to trade in goods, improved access for services trade, established rules for investment, strengthened protection of intellectual property rights and created an effective dispute settlement mechanism. Although both Mexico and Canada attracted considerable new US investment, the percentage of US-owned companies in each country did not increase. In fact, Canadian investment in the United States grew even faster that did US investment in Canada. Although no trade agreement is perfect, NAFTA has been a remarkable success at meeting its objectives. Virtually all tariffs on manufactured goods and practically all tariffs on agricultural products have now been eliminated, a significant improvement over the previous situation, especially in the case of US trade with Mexico (this was largely accomplished through the US-Canada FTA of 1989). While most of Canada's tariffs applied to US goods were low even before the US-Canada FTA of 1989, Mexico's tariffs were significantly higher before NAFTA, averaging 10%. Now, more than 85% of US goods enter Mexico duty-free, and by 2008, all tariffs will be eliminated. Some 70 million passengers cross the US-Canada border each year (twice the population of Canada), along with 7 million commercial trucks, and 1.3 million rail containers. This contributes to a total two-way trade of $394 billion in 2003 ($1.08 billion a day). Since NAFTA's implementation in 1994, total merchandise trade between the US and Canada has grown by over 120%, and when you include trade in services, the growth has been closer to 140%. US trade with Mexico has shown even more significant growth (nearly tripled) over the same period. The total trade between the United States, Canada and Mexico has more than doubled, rising from $306 billion in 1993 to over $621 billion last year. United States exports to Canada and Mexico have surged 85% from $142 billion to $263 billion in the same period, significantly higher that the 41% increase of United States exports to the rest of the world. All United States exporters to Canada and Mexico have benefited from NAFTA, but small businesses have particularly seen an increase in exporting opportunities. Canada has proven to be the most popular export destination for United States businesses. 94% of all United States exports to Canada were from small firms.

Conclusion

While many disagree with globalization, there is quite a lot of evidence that suggest we, as a world, moving closer to it. Regional integration seems to be pushing the world’s marketers towards complete globalization. While most (not all) economists are for globalization, there are advantages and disadvantages to both regional integration and globalization.

References

Hodlers, H. D. (2006) Tutorial help with NAFTA Retrieved on January 19, 2006, from http://www.brainmass.com/homeworkhelp/economics/internationaltrade/16456

Jackson, J. (1997) More than 400,000 Lost Jobs Later, Media Still Selling NAFTA. FAIR (Fairness And Accuracy In Reporting). Retrieved January 19, 2006, from http://www.fair.org/index.php?page=1396

Wayne, A. (2004) Assistant Secretary for Economic and Business Affairs Testimony before the Subcommittee on International Economic Policy, Export, and Trade Promotion

Senate Committee of Foreign Relations. Retrieved on January 19, 2006, from http://www.state.gov/e/eb/rls/rm/31645.htm

Woodhead, G. (2000) NAFTA’s 7 Year Itch. Retrieved on January 19, 2006, from http://www.citizenstrade.org/pdf/nafta_at_seven.pdf#search='nafta%20benefits%20advantages'