Chapter 5

Multilateral organizations and regional

integration

1. What are the economic and political

arguments for regional integration?

 It is known that countries integrate for

both economic and political reasons. The
main economic argument for regional
integration is that countries could benefit
from the free trade of goods and services
at least on a limited basis. The main
reason would be exploiting the gains
from investment and free trade. The free
flow of trade among countries would also
benefit consumers since they would have
a wider choice of goods and services and
they won’t have to pay very high prices
for those goods. The political reason for
integration has two main points: first it is
better for countries to stick together and
to be more dependent on each other
because this way the chances of any
violent conflicts and war are decreasing.
Second point is that countries that form a
bloc have greater power, better
economic development and they are also
stronger politically in case they have to
deal with other countries, they act as a
whole. Despite these arguments there
are not many examples of regional
integration in the world economy and
there are some reasons for that. First,
when it comes to economic integration,
nations could benefit from it but it does
not mean that all individuals benefit from
it. For ex. the agreement between North
America, Canada and Mexico better
known as NAFTA is a free trade area and
(increased production in Mexico,
increased political stability in Mexico,
Mexico benefits from more jobs as
companies from Canada and USA shift
production there in order to take
advantage of the low cost labor,
Americans changed the way they eat with
the increased imports of avocados from
Mexico in the USA which benefited both
USA and Mexico etc), lots of individuals in
the USA and Canada that worked in the
textile industry lost their jobs as
production was moved to Mexico.

Second reason why we do not see more

regional integration in the world
economy is national sovereignty.
Countries that are taking part in regional
integration have to give up some of their
nat. sovereignty, for ex. countries
members of the EU which have adopted
the euro as a currency, had to give up on
their monetary policy and they gave it to
the European Central Bank. This is why
countries like Britain, Sweden and
Denmark opted out of the euro zone,
because they did not want to give their
monetary policy to the European Central
Bank because they did not want to lose
and give up this autonomy. Another
example given in Hill: ,,Internat. business
competing in the global market place’’
(2014) is Mexico’s concern about not
being able to control its oil interests and
as a result it made an agreement with
USA and Canada ( NAFTA) to exempt the
Mex. oil industry from any liberalization
of foreign investment regulations
achieved under NAFTA.
There are some more examples of blocs
like EU, NAFTA and ASEAN that I will refer
to, some of the achievements and losses
that these blocs have had.

The EU is an imperfect example of an

economic union, which means that it has
managed to achieve free flow of factors
of production among member countries,
common external trade policy but some
members have not adopted the euro as a
common currency and tax rates are not
the same among all member countries, so
we could not say that it has achieved all
points. The EU policy shapes how
internat. business can be done:

The single or common market has

managed to remove most internal trade
barriers among members and achieve the
four freedoms- free movement of people,
capital goods and services. Even though
the EU has made lots of efforts to
accomplish this it has been a very
complex political process among national
or local regulations if they believe they
could be more efficient without the EU.
Also for the free flow of services it has
been even more difficult since services/
sectors like banking, hotels or
telecommunications demand more local
presence and have harder regulatory
regimes. Another example of regional
integration is the ASEAN which includes
Brunei, Cambodia, Laos, Vietnam,
Singapore, Thailand, Myanmar,
Indonesia, Malaysia and the Philippines.

ASEAN just like most other blocs was

created to enable free flow of trade
among members and also ASEAN is the
world’s greatest labor force because of
the huge number of population ASEAN’S
population spend more time on the
Internet than the rest of the world, which
is why major tech players like Facebook
and Google want share of ASEAN’S digital
economy. Even though it was created to
make progress in the free trade among its
members it has made slow progress
mostly because its main trading partners
are the USA, Japan and China countries
out of the bloc. Also ASEAN experiences
more internal political tensions, religious
and cultural diversity than other blocs.

Another example of regional integration

among countries is the Andean
Community. Andean Community was
created as a free trade area, determined
to achieve free flow of trade among its
member countries Colombia, Ecuador,
Peru, Bolivia, Venezuela and Chile but it
has failed to achieve any of its goals and
in 2003 it signed an agreement with
Mercusor to work towards achieving a
free trade area among members.
 Mercusor began as a free trade
agreement among Brazil and Argentina
and afterwards Paraguay and Uruguay
joined. Mercusor was often criticized that
by putting high tariffs to outside countries
it was actually diverting trade and
companies in these industries could not
compete in global markets. Also
members of both trade blocs had a
common problem, both were trading the
most with the USA which is not a
member, instead of trading with each
other. Uruguay for instance decided to
sign a separate trade deal with the USA
despite being a member of Mercusor.

Cases like these that occurred among

blocs like the EU, NAFTA, ASEAN and
others, are examples that these regional
integration blocs have managed to
achieve some goals but some of them
have not managed to accomplish
anything. The fear of losing national
sovereignty and depending a lot on other
countries, job losses, higher pollution are
some of the main reasons why examples
of regional integration are decreasing,
countries may not be that prepared to
completely rely on each other.