CHAPTER 9:

Regional Economic Integration

International Business
and Trade

Prepared by:

Dela Cruz, Charlemagne

Evangelio, Roxan

Gala, Neva Kate Ann

Galendez, Lady Bill

Oling, Rajane

Vasquez, Monique Nicole

BAFM2

Adviser:
Paolo Augustus R. Bagares

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 TABLE OF CONTENTS

Cover page 1

List of Contents 2

Mechanics of the Activity 3-5

Synthesis 5-6

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 Mechanics of the Game

1. Select one representative per group to receive the first gift. (6

toothpicks and 3 lemons)

2. Each group must have the required object to trade lemon and
toothpicks.

1 pair of earrings = 3 toothpicks

1 bracelet = 3 toothpicks

1 necklace = 3 toothpicks

1 ring = 2 lemons

1 watch = 2 lemons

(1 minute for planning & 1 minute for trading)

3. Each representative will pick a paper inside the box.

4. The four representatives can trade the lemons and toothpicks from
other groups.

5. Make your lemonsito tower for 5 minutes!

6. Then combine your lemonsito tower with your color partners.

7. The highest tower will be awarded.

8. (Another twist) Pick one representative to answer the question. If the

answer is correct the tower will stay the same. If not, the representative
will eat the top lemon.

Description of the Activity

This activity is known as "Lemonsito Tower" , an activity that

focuses on the five (5) objectives of REI which, students will learn the
different levels of Regional Economic Integration. From least integrated to
most integrated, they are a free trade, a custom union, a common
market, an economic union and political union. Now, in the first
mechanics of the activity, selecting representative per groups is a must,

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enable to have a smooth and organize flow of the activity. Just like the
Regional Economic Integration, the agreements among four (4) groups to
select their representative to reduce, and ultimately remove, extra
movements (which serve as a barriers) to the flow of goods
(lemonsito&toothpick) between each other. Next is the trading, it helps
students to understand economic union in which, it involves the free flow
of goods (lemon&toothpick) and the adaptation of a common external
trade policy (which is, in 1 pair of earrings = 3 toothpicks, 1 bracelet = 3
toothpicks, 1 watch = 2 lemons and so on...) and it requires a common
currency (which are the jewelries). Each representative per group will
pick a paper inside the box to determine whether they are
partner/member or not. Now, in the next mechanics, the four
representatives can trade the lemons and toothpick among each other.
Remember that, there must be a required object equivalent to the lemons
and toothpick. In this case, it relates to the two levels of REI : Free trade
and a Custom union. Free trade, in a way that if two groups are member,
there are no subsidies (required object equivalent to the goods) between
them and all barriers are removed, but each group determines its own
external trade policy. (Like different object to be required for non-
members in able to get the goods) Custom union, barriers and subsidies
among members are also removed and have a common external trade
policy for non-members. (Like the same object to be required for non-
members) Now, it's time to build the lemonsito tower. After building it,
each group should coordinate their partners to combine their tower.
Each group must have a coordination and unity in order to build the
highest tower. This case relates to the Common Market, it is similar to
the Custom Union except that a common market also allows factors of
production to move freely between the countries. So, it allows the groups
to coordinate freely because there is no restriction between member
groups.

The economic arguments for REI are that, opening a country to

free trade stimulates economic growth, which creates dynamic gains
from trade. Free trade and investment is a positive-sum game in which
all participating countries stand to gain. But the thing is, In a world of
many nations and political ideologies, it is very difficult to get all
countries to agree to a common set of rules. It is easier to establish a free
trade and investment regime among a limited number of countries than
among the world community. Coordination and policy harmonization
problems are largely a function of the number of countries that seeks

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agreements. The greater the number of countries involved, the more
perspective that must be reconciled, and the harder it will be to reach
agreement.

The political arguments for REI are that, linking neighboring

economies and making them increasingly dependent on each other
creates incentives for political cooperation. By grouping their economies,
the countries can enhance their political weighs in the world.

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 Synthesis

In this chapter there are five objectives: to delineate the different

levels of regional economic integration; to understand the economic and
political arguments for regional economic integration; to understand the
economic and political argument against regional economic integration;
to explain the history, current scope, and future prospect of the world’s
most important regional economic agreements; and to understand the
implications for business that are inherent in regional economic
integration agreement. The following points are made this chapter. The
number of levels of economic integration is possible in a theory. To
increase integration, they include a free trade area, a custom union, a
common market, an economic union, and full political union. In free
trade area, barriers are removed if you trade between member countries,
but each country determines its own external trade policy. In a custom
union, internal barriers to trade are removed and common external trade
policy is adopted. The common market is similar to the customs union,
except that the common market allows factors of production to move
freely between countries. An economic union involves even closer
integration, including establishment of common currency and
harmonization of the tax rates. The political union is the logical
culmination of attempts to achieve the ever-closer economic integration.
The regional economic integration is an attempt to achieve economic
gains from the free flow of trade and the investment between the
neighboring countries. Integration is not easily achieved or sustained.
Although integration brings benefits to the majority, it is never without
costs for minority. Concerns over the national sovereignty often slow or
stop the integration attempt. The regional integration will not increase
the economic welfare if the trade creation effects in the free trade area
are out weight by the trade diversion effects.
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The Single European Act sought to create a true single market by

abolishing administrative barriers to the free flow of trade and
investment between the European Union (EU) countries. Common
currency such us euro, is now used by the 12 members of EU. And from
the reduced exchange costs, reduced risk associated with the currency

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fluctuations and the increasing price competition within the EU it is
where the EU gains to its economics from the common currency.

The European Commission increasingly taking an activist stance

with regards to the competition policy, intervening to restrict mergers
and acquisitions that believes to reduce competition in the European
Union. Although there is no other attempt to regional economic
integration that comes close to the EU in terms of potential economic
and political significance, there are still various other attempts that are
being made in the world. And the most notable of it includes NAPTA in
North America, the Andean Community and the Mecrosur in Latin
America. It also includes the ASEAN in Southeast Asia and perhaps the
APEC as well.

The creation of single markets in the European Union and North

America causes that many markets that were formerly protected from
foreign competition are now more open. And by its opening, it creates
major investments and more export opportunities for firms that is within
and outside the regions. The harmonization of product standards and
the simplification of tax regimes make it possible to the firms to realize
potentially the enormous cost of economics because of the free
movements of goods across the borders. It is also because of the
centralization of production in the location that is within the area
wherein, the mix factor of cost and skills is optimal. And by the lowering
the barriers to trade and invest between two countries within the trade
group it will probably be followed by the sudden increase of price
competitions.