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What are the economic and political arguments for regional

economic integration? Given these arguments, why dont we see more
substantial examples of integration in the world economy?
The economic argument for regional integration is straight forward. Unrestricted
free trade allows countries to specialize in the production of goods and services
that they can produce most efficiently. If this happens as the result of economic
integration within a geographic region, the net effect is greater prosperity for the
nations of the region. From a more philosophical perspective, regional economic
integration can be seen as an attempt to achieve additional gains from the free
flow of trade and investment between countries beyond those attainable under
international agreements such as the World Trade Organization. The political
case for integration is also compelling. Linking neighboring economies and
making them increasingly dependent on each other creates incentives
for political cooperation between neighbouring states. The potential for violent
conflict between the states is also reduced. In addition, by grouping their
economies together, the countries can enhance their political weight in the
world. Despite the strong economic and political arguments for integration, it has
never been easy to achieve on a meaningful level. There are two main reasons
for this. First, although economic integration benefi ts the majority, it has
its costs. While a set of nati ons as a whole may benefi t signifi cantly
from a regional free trade agreement, certain groups may lose. The
second impediment to integration arises from concerns over national
1) Based on the theory of integration, the real economic argument is the trade
diversion. That means the third countries which might have lower opportunity
cost than the member countries are excluded by the import tariffs. The consumer
surplus will decrease because of the integration. But counter argument is that
the trade creation will exceed the trade diversion as we have seen in the case of
the European integration and NAFTA.
The political argument is that it is based mainly on geography. The members
countries have to be neighbouring countries. But there are many countries which
have the main trade partners so far away. And many neighbouring countries
have border disputes. ASEAN for example, has been integrated because of the
political factor. But at the beginning the intra-trade between them was minimal.
It has been taken for decades until the PTA (partial trade agreement) could
begin. Until now the intra-trade in the ASEAN 10 is still less than 50%, compared
to 80% in Europe.
) Politically and economically infeasible. Bilateral free trade agreement is used
Q3 Discuss some of the major implication of recent developments in the
European Union for ASEAN, Australian and New Zealand firms wishing
to do business in Europe.
Q4. How should an Australian or NZ firm that currently exports to only
ASEAN countries respond to the creation of a single market in this
regional grouping? Disadvantage as an outsider. CAREFUL CONSIDERATION An
Australian business firm that is currently exporting to only ASEAN countries
should seriously consider opening a facility somewhere in this grouping, as the
economics of a common market suggest that outsiders can be at a disadvantage
to insiders. The opening of borders within the ASEAN bloc also has the potential
to increase the size of the market for the firm. Of course it is possible, after
careful consideration, that exporting may still be the most appropriate means of
serving the market.

Q5 NAFTA has produced significant benefits for the Canadian, Mexican

and U.S. economy. Discuss. Are there any implications for the ASEAN
and CER members from the experiences of these countries? NAFTAs
proponents argue that the agreement should be viewed as an opportunity to
create an enlarged and more productive base for the U.S., Canada, and Mexico.
as low-income jobs move from Canada and the United States to Mexico, the
Mexican economy should be strengthened giving Mexico the ability to purchase
higher-cost American and Canadian products. The net effect of the lower
income jobs moving to Mexico and Mexico increasing its imports of high quality
American and Canadian goods should be positive for the American and Canadian
economies. In addition, the international competitiveness of U.S. and
Canadian firms that move production to Mexico to take advantage of lower
labour costs will be enhanced, enabling them to better compete with Asian and
European rivals.
NAFTA Decreased Tariffs
A tariff is a tax that a national government places on an imported or exported
good or service to encourage or discourage trade. Tariffs increase costs for
consumers, which in turn discourages consumption of those items. One of the
most common reasons governments impose tariffs is to "protect" domestic
companies from cheaper foreign competitors. Tariffs can also be used to retaliate
against a trading partner's own tariffs or to express disapproval of a country's
foreign policy. The decreased trade restrictions brought about by NAFTA have
made it easier for Americans to purchase Canadian and Mexican goods. As of
2010, the most recent year for which these data were available, the United
States received about a quarter of its imports from these two countries, which
are its second and third largest suppliers of imported goods. In particular, the
U.S. gets much of its crude oil, vehicles, machinery and gold from these two
countries, as well as fresh produce, snack foods, live animals, red meat and
chilled and frozen foods.
All Three Countries Experienced Real Wage Increases
According to a November 12 Washington Post article, a study done by three
Federal Reserve economists showed that NAFTA increased wages in the U.S. by
0.17%, in Canada by 0.96% and in Mexico by 1.3%. We don't doubt that these
economists were rigorous in their analysis, but numerous factors can affect
wages, so it's difficult to tell how much influence one factor really had.
NAFTA Increased Trade between the U.S., Mexico and Canada
NAFTA is credited with significantly increasing trade among the U.S., Mexico and
Canada. The U.S. alone traded $1.6 trillion in goods and services with its NAFTA
partners in 2009, the latest year for which data are available, and the U.S. sold
32.2% of its exports to Canada and Mexico in 2010. Trade of goods and services
between the U.S., Canada and Mexico has increased from $337 billion in 1993,
before NAFTA went into effect, to $1.182 trillion in 2011.
NAFTA Increased Industrial Integration between the U.S. and Mexico
Occidental College Dean Jorge Gonzales said in a recent NAFTA summit that U.S.
Mexico industrial integration, particularly in automobile manufacturing, was
NAFTA's greatest success, the San Antonio Express News reported. The biggest
categories of U.S. exports to Canada and Mexico in 2010 were electrical
machinery, vehicle parts, mineral fuel and oil and plastics. The U.S. also saw
800,000 new manufacturing jobs from 1994 through 1998, reversing a 13-year
trend during which the country lost 2 million manufacturing jobs.

NAFTA Created Jobs for U.S. Workers

According to the U.S. Chamber of Commerce, increased trade from NAFTA
supports about 5 million U.S. jobs. The chamber of commerce also points out that
unemployment was 7.1% in the decade before NAFTA and 5.1% from 1994 to
2007. We can't say for sure that this decrease is attributable to NAFTA, and we
also know that unemployment from 2008 to 2012 has been significantly higher a point that the chamber doesn't seem eager to attribute to the free trade
Mexican Workers Have Benefited Less Than Expected
While NAFTA encouraged significant U.S. investment in Mexico, much of that
investment has been in the form of factories near the border that are called
maquiladoras, where Mexican workers provide cheap labour to produce U.S.
goods. This arrangement has fallen short in its goal of increasing the size of
Mexico's middle class because Asian labour has proven to be cheaper, and
maquiladora towns have a poor quality of life for workers.
NAFTA Lifted Tariffs but not Regulations.
NAFTA may have eliminated tariffs between the U.S., Canada and Mexico, but it
didn't do away with the numerous customs regulation that can stifle trade. Rule
of origin regulations decide whether a good qualifies for trade under NAFTA
guidelines, and exporters must complete certificate of origin paperwork. More
rules determine what records businesses must keep for trades under NAFTA and
for how many years. Businesses that believe their goods have wrongly been
deemed unqualified can go through an appeals process. Each of the three
countries has a different procedure for NAFTA claims, and businesses that violate
the laws or customs procedures of any country are subject to administrative, civil
or criminal penalties. In other words, even without tariffs, there are still plenty of
government-imposed barriers to trade.
Q6 outline the major developments in APEC and their implications for
Australia, New Zealand and ASEAN firms
Q8 Discuss some of the major issues that Australia and New Zealand
are likely to face if they progress down the path of monetary union
Q9 under CER there has been free trade in goods between Australia and
New Zealand since 1990. Yet imports of New Zealand apples into
Australia have been banned. How can it be?