Page 95 - Introduction to Business

CHAPTER 2 The Environment of Business 69

the group. While the motives of the member countries may be similar (not identical)—
creation of greater business opportunities, increased value (better choice, price, and
service) for consumers, shared values, peace within the region, and common security
against threat—the degree of success of the integrated group will largely depend on
how well they implement the agreed-on economic policies. The effect of regional inte-
gration will depend on the net impact of the benefits and costs listed below.
The benefits of regional integration include
• Creating a large pool of consumers with growing incomes, similar culture,
tastes, and social values
• Encouraging economies of scale in production and increasing the level of
competition and economic growth through investment flows
• Freeing the flow of capital and labor to the most productive regions
• Increasing cooperation, peace, and security among countries in the region
• Encouraging member states to enhance their level of social welfare to that of
the most progressive states
The costs of regional integration include
• Undermining the most-favored-nation status rule, an essential principle of the
WTO (The lowest tariff applicable to one member must be extended to all
members.)
• Imposing uniform laws and regulations that at times do not take into account
national economic, cultural, and social differences
• Eliminating jobs and increasing unemployment in protected industries
• Losing sovereignty, national independence, and identity
• Reducing the powers of the national government
• Rising crime associated with drugs and terrorism (because of ease of cross-
border labor movement)

reality Are you concerned that greater regional integration will hurt rather
CH ECK than help the United States? Why?

LEARNING OBJECTIVE 8
Identify the major regional trading blocs and explain why some have succeeded
while others have not.

Major Regional Integration Blocs. Groups of countries in all continents of
the world have formed various forms of cooperation agreements, primarily to
enhance issues of mutual interest. Each step up the economic integration ladder leads
to closer integration of the countries involved, and the final stage (economic union)
will lead to the transfer of some sovereignty to supranational organizations (e.g., the
European Commission). As countries clamor for bilateral or regional trade agree-
ments, economists are concerned that the prospects of creating a truly open global
economic system may recede. Some governments may sign trade pacts (the proposed
U.S.–Middle East free trade area) to cement diplomatic or security ties that risk slow-
ing the momentum behind multilateral trade liberalization. Described briefly below
are the major regional economic blocks that are of importance to business.
THE EUROPEAN UNION (EU). The EU (www.eurunion.org and http://europa.eu.int),
headquartered in Brussels, Belgium, is the most highly evolved example of regional
integration in the world. It is already in the fourth stage of the economic integration
process and is moving toward the final step that calls for political union with com-
mon defense and foreign policy institutions. After the devastation of infrastructure
in Europe during World War II, the United States chose to help rebuild Europe
through the Marshall Plan. In addition, the World Bank (especially the International
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