1. Economic Integration

2. A/qadir Farah MOHAUD Ahmed Mohamud Jama Kayse Mohamed Khalif Mustafe Abdi Hashi Mohamud Mohamed mohamud Fadumo Jama Aadan Farah Osman Said Bashir A/lahi Jama 3. Contents: Meaning of economic integration Forms of Economic Integration Levels Of Economic Integration Benefits of economic Integration Problems of Economic Integration Trade-Creating Customs Union Trade-Diverting Customs Union Static & Dynamic custom union Static & Dynamic Benefits of custom union North America Free Trade (NAFTA) European Free Trade Association (EFTA) Agenda Asia-specific Economic (APEC) 4. Economic integration is the commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joining together. 5. o Preferential Trade Agreement o Free trade Agreement o Customs Union o Common market o Economic union/monetary union 6. Preferential trade arrangements provide lower barriers on some trade among participating nations than on trade with non-member nations. It is the loosest form of economic integration 7. A free trade area is the form of economic integration wherein all barriers are removed on trade among members, but each retains its own barriers to trade with nonmembers, such as EFTA, NAFTA, 8. A customs union allows no tariffs or other barriers on trade among members, and in addition it harmonizes trade policies (such as the setting of common tariff rates) toward the rest of the world, such as EU, or European Union. 9. A common market goes beyond a customs union by also allowing the free movement of labor and capital among member nations. The EU achieved the status of a common market at the beginning of 1993 10. An economic union goes still further by harmonizing or even unifying the monetary and fiscal policies of member states. This is the most advanced type of economic integration. An example is Benelux 11. 1.Progress in trade. All countries that follow economic integration have extremely wide assortment of goods and services from which they can choose 2.Ease of agreement. When countries enter into regional integration, they easily get into agreements and stick to them for long periods of time. 3.Improved political cooperation. Countries entering economic integration form groups and have greater political influence as compared to influence created by a single nation. 12. 4.Opportunitieforemployment. The various options available in economic integration help to liberalize and encourage trade. 5.Beneficialforfinancialmarkets. Economic integration is extremely beneficial for financial markets as it eases firm to borrow finances at low rate if interest. 6.IncreaseinForeignDirectInvestments. Economic integration helps to increase the amount of money in Foreign Direct Investment (FDI). Thus economic integration is a win-win situation for all the firms, people and the economies involved in the process 13. One-off cost of introducing a single currency Due to language differences, European labor is not a mobile as America workers No unified central EU financial Authorities ( only European central bank) European countries have different business cycle Inability to devalue ones currency 14. A trade creating customs union is a union that leads to trade creation only and increases the welfare of both member and nonmember nations. Trade creation occurs when some domestic production in a nation (a member of the customs union) is replaced by lower-cost imports from another member nation. . It also increases the welfare of nonmembers because some of the increase in its real income spills over into increased imports from the rest of the world 15. It is a customs union that leads to both trade creation and trade diversion. It may increase or reduce the welfare of member nations, depending on the relative strength of these two opposing forces. Trade diversion occurs when lower-cost imports from outside the union are replaced by higher cost imports from a union member. This is because of the preferential trade treatment given to member nations. 16. Besides these static welfare effects, there are several important dynamic effects that customs union offers to member countries. These are due to increased competition, economies of scale, stimulus to investment, and better utilization of economic resources. The main reason for that are the long-term effects which result from the possibility of a preferential access to larger market of the union and increasing export possibilities 17. Comparison of the static and dynamic benefits: These dynamic gains of a customs union are presumed to be much greater than the static gains and to be very significant. Recent empirical studies indicate that these dynamic gains are about five to six times larger than the static gains. 18. In September 1993, the United States, Canada, and Mexico signed the NAFTA, which took effect on January 1, 1994. This agreement will eventually lead to free trade in goods and services over the entire North American area 19. NAFTA benefits the United States by increasing competition in product and resource markets, and by lowering the prices of many commodities to U.S. consumers. NAFTA benefited Mexico by (1) Leading to greater export-led growth resulting from increased access to the huge U.S. market (2) Encouraging the return of flight capital (3) Fostering more rapid structural reforms domestically. Mexico suffered a net loss of jobs and incomes in agriculture, but these losses were more than matched by net increases in industry. 20. The European Free Trade Association was formed by the United Kingdom, Austria, Denmark, Norway, Portugal, Sweden, and Switzerland, with Finland becoming an associate member in 1961. The EFTA achieved free trade in industrial goods in 1967, but only a few special provisions were made to reduce barriers on trade in agricultural products. 21. APEC's 21 Member Economies are Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.