Topic 5

International Business:
International cooporation
The Challenges of
among nations
Globalization
Agenda

5.1 Regional Economic Integration

5.2 Regional Trading Agreements
5.1 Regional Economic Integration

Regional economic integration refers to the growing economic

interdependence that results when two or more countries within
a geographic region form an alliance aimed at reducing barriers
to trade and investment.
5.2 Regional Trading Agreements

Regional trading agreements is signed by two or more countries to

encourage the free movement of goods and services across the
borders of its members.
5.2 Regional Trading Agreements

Types of Regional Trading Agreements

1. Free trade area
2. Custom union
3. Common market
4. Economic union
5. Political union
5.2 Regional Trading Agreements
5.2.1 Free Trade Area (FTA)

In a free trade area, all trade barriers

among members are eliminated,
which means that they can freely
move goods and services among
themselves.
Main FTAs with Vietnam
SUMMARY OF VIETNAM'S FTAs TO JANUARY 2022

Source: Viet Nam’s Ministry of Industry and Trade (MOIT)

SUMMARY OF VIETNAM'S FTAs TO JANUARY 2022

Source: Viet Nam’s Ministry of Industry and Trade (MOIT)

Class activity

What are pros and cons of free trade area?

5.2 Regional Trading Agreements
5.2.2 Customs unions

A customs union is an agreement between two or more neighboring countries

to remove trade barriers, reduce or abolish customs duty, and eliminate quotas.
5.2 Regional Trading Agreements
5.2.2 Customs unions
European Customs Union

The European Customs Union was established in 1968, towards ease of

movement of goods and people across Europe.

27 nations that are part of the European Union, which:

– Iceland, Liechtenstein, and Norway are part of the European Economic Area
(EEA) but not the European Union.

– The United Kingdom officially withdrew from the European Union in 2020.
5.2 Regional Trading Agreements
5.2.2 Customs unions
European Customs Union

The rule was designed to maintain the quality and security of goods imported
to the union, which:

– Protection of health and safety in the region,

– Prevention of smuggling of endangered, or protected plants, animals, or

prohibited products,

– Cooperation with law enforcement officials to clamp down on illegal activity.

Class activity

What are pros and cons of customs union?

5.2 Regional Trading Agreements
5.2.3 Common market

– The European Common Market, has European Economic Community

(EEC) established by the Treaty of Rome in 1957.
– The European Common Market was created by a trade agreement
among participating countries, including all of the European Union
nations and non-EU members.
– The common market could compete globally more effectively than its
component nations could on their own.
Class activity

What are pros and cons of common market?

5.2 Regional Trading Agreements
5.2.4 Economic union

A group of countries coming together to allow goods and

services to move freely in and out of these countries to
remove trade barriers and create better employment of
skills and resources.
5.2 Regional Trading Agreements
5.2.4 Economic union
5.2 Regional Trading Agreements
5.2.4 Economic union

Objectives 1: Increase Efficiency

Production costs are reduced, which increases the profit margins

of the member countries, which leads to greater specialization
and better use of resources as each country produces those
goods in which it has a comparative advantage.
5.2 Regional Trading Agreements
5.2.4 Economic union

Objectives 2: Consumer Satisfaction

The free flow of goods and services occurs, and the customs
duties are removed, the price of imported goods and services
reduces.
5.2 Regional Trading Agreements
5.2.4 Economic union

Objectives 3: Higher Standards of Living

The free movement of production factors, people are presented

with greater employment opportunities leading to higher incomes
and better utilization of skills.
5.2 Regional Trading Agreements
5.2.4 Economic union

Objectives 4: Increase Competitiveness

Due to the cost of production reduction, member countries in an

economic union make them more competitive in the world
economy and more profitable.
5.2 Regional Trading Agreements
5.2.4 Economic union

Objectives 5: Strengthening Diplomacy

Due to allegiance between the countries, they gain a stronghold in

world diplomacy as their interdependence increases in the union.
5.2 Regional Trading Agreements
5.2.4 Economic union

For example 1: Eastern and Southern Africa (COMESA).

For example 2: Mercosur (between Brazil, Argentina,

Paraguay, and Uruguay)
Class activity

What are pros and cons of economic union?

Figure 2: Levels of Economic Integration
What are pros and cons of regional trading agreement?
Regional Economic Integration
The World's Main Regional Trading Blocs
Regional Economic Integration
The World's Main Regional Trading Blocs
ASEAN 4.0: What are the key opportunities and challenges of
the Fourth Industrial Revolution for Vietnam in AEC?
QUIZZES
The main difference between a free trade area and a customs
union is that the members of a customs union ________.

A. agree to the free movement of all factors of production

B. harmonize their tax, monetary, and fiscal policies and create a common
currency
C. agree to treat trade with all nonmember nations in a similar manner, by
having a common external tariff.
D. accept a common stance on economic and political policies regarding
nonmember nations
A benefit of regional economic integration is that it always
expands employment opportunities in all nations.

A. TRUE
B. FALSE
Which of the following is an important goal of regional
economic integration?

A. to increase the selling prices of products

B. to raise the living standards of people
C. to limit the choice of products available to customers
D. to establish a socialist government
All barriers to the free flow of goods and services between
member countries are removed, and a common policy toward
nonmembers is established in a

A. Free trade area

B. Customs union
C. Common market
D. Economic union
NAFTA is an example of a(n)

A. Free trade area

B. Customs union
C. Common market
D. Economic union
When higher cost suppliers within the free trade area replace
lower cost external suppliers

A. The bloc as a whole benefits

B. There is trade creation
C. There is trade diversion
D. External suppliers benefit
End of chapter 6