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LEARNING MODULE-5

in

ENT 13
INTERNATIONAL BUSINESS AND TRADE

(Bachelor of Science in Entrepreneurship)

2ND Semester, AY 2021-2022

Prepared by:

Jackylou Hingpit Canta

Instructor

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 1

 TABLE OF CONTENTS

Module 5 Topics Pages

Introduction to Economic Integration ------------------------------------------------ 3

Advantages of Economic Integration Trade Creation ------------------------------ 3
Disadvantages of Economic Integration --------------------------------------------- 3
Levels of Economic Integration ------------------------------------------------------- 4
Five Additive Levels of Economic Integration --------------------------------------- 5
The European Community ------------------------------------------------------------- 6
The Origin of the European Community --------------------------------------------- 6
The Organizations of the European Community ------------------------------------ 7

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 2

TITLE: ECONOMIC INTEGRATION

Learning Objectives
In this lesson, the learners will be able to:
a. Identify the additive levels of economic integration;
b. Know the organizations of the European Community ;
c. Explain the advantage and disadvantage of economic
integration.

Learning Activities
Read and comprehend the whole concept.

INTRODUCTION TO ECONOMIC INTEGRATION

Economic integration is a process whereby countries cooperate with one

another to reduce or eliminate barriers to the international flow of products, people or
capital. Basically, there are two approaches to international trade liberalization and
economic integration:
a. The international approach and the regional approach.
b. The international approach involves international conferences under WTO.

The purpose of these international conferences is to reduce barriers to

international trade and investment. The regional approach involves agreements among
a small number of nations whose purpose is to establish free trade among themselves
while maintaining barriers to trade with the rest of the world.

Advantages of Economic Integration Trade Creation

Member countries have:
a. wider selection of goods and services not previously available;
b. Acquire goods and services at a lower cost after trade barriers due to lowered
tariffs or removal of tariffs.
c. Encourage more trade between member countries the balance of money
spend from cheaper goods and services, can be used to buy more products
and services.
d. Employment Opportunities.

Disadvantages of Economic Integration

a. Creation Of Trading Blocs - it can also increase trade barriers against non-
member countries.
b. Trade Diversion - because of trade barriers, trade is diverted from a non-
member country to a member country despite the inefficiency in cost. For
example, a country has to stop trading with a low cost manufacture in a non-

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 3

 member country and trade with a manufacturer in a member country which
has a higher cost.
c. National Sovereignty - requires member countries to give up some degree of
control over key policies like trade, monetary and fiscal policies. The higher
the level of integration, the greater the degree of controls that needs to be
given up particularly in the case of a political union economic integration
which requires nations to give up a high degree of sovereignty.

Preferential trade agreements provide lower barriers on trade among

participating nations than on trade with nonmember nations. That is, lower tariffs on
imports of each other. This is the loosest form of economic integration. A good example
is the Commonwealth Preference System, which was established in 1932 among 48
Common wealth countries of the British Empire.
Free Trade Area (FTA) - an agreement between two or more countries to
remove all trade barriers between themselves. A free trade area occurs when a group
of countries agree to eliminate tariffs between themselves, but maintain their own
external tariff on imports from the rest of the world. Examples of FTA are: The ASEAN
Free Trade Agreement (AFTA) and the North American Free Trade Areas (NAFTA).

LEVELS OF ECONOMIC INTEGRATION

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 4

Five Additive Levels of Economic Integration

Free Trade
Tariffs a tax imposed on imported goods between member countries are
abolished or significantly reduced.
Each member country keeps its own tariffs in regard to third countries. The
general goal is to develop economies of scale and comparative advantages,
which promotes economic efficiency.
Examples of FTA are: The ASEAN Free Trade Agreement (AFTA) and the North
American Free Trade Areas (NAFTA).sets common external tariffs among
member countries, implying that the same tariffs are applied to third countries.

Custom Union
Particularly useful to level the competitiveness playing field and address the
problem of re-exports (using preferential tariffs in one country to enter another
country.)
An agreement between two or more countries to remove tariffs between
themselves and set a common external tariff on imports from non- member
countries.
Each country determines its own barriers and maintains its own external tariffs
on imports against non-members.
A customs union has common policies on product regulations and movement of
factors of productions in goods, services, capital and labor amongst members.
An example of a customs union is the established customs union between the
European Union and Turkey, which came into effect in 1996.

Common market
Factors of production such as labor and capital, are free to move within member
countries, expanding scale economies and comparative advantages. Thus, a
worker in a member country is able to move and work in another member
country.
An agreement between two or more countries to remove all barriers to trade and
allow free mobility of capital and labor across member countries.
Harmonize trade policies by having common external tariffs against non-
members.
Example is the European Union (EU) previously known as European Economic
Community(EEC)

Economic union
An agreement between two or more countries to remove barriers to trade, allow
free flow of labor and capital and coordinate economic policies.
Sets trade policies through common external tariffs on non-members.
Integration is more intense in an economic union compared to a common
market, as member countries are required to harmonize their tax, monetary, and
fiscal policies and to create a common currency.

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 5

 Example is the European Union (EU) where economic and monetary integration
has created a single market with a common euro currency.
Political union
Represents the potentially most advanced form of integration with a common
government and were the sovereignty of member country is significantly
reduced. Only found within nation states, such as federations where there is a
central government and regions having a level of autonomy.
An agreement between two or more countries to coordinate their economic
monetary and political systems.
Required to accept a common stance on economic and political policies against
non- members.
Example is US where each US state has its own government that sets policies
and laws. But each state grant control to the federal government over foreign
policies, agricultural policies, welfare policies and monetary policies. Goods,
services, labor and capital can all move freely without any restrictions among the
US states and the government sets a common external trade policy.

The European Community

The European Community, also called the European Communities or the
European Economic Community, was the predecessor of the European Union and aimed
to create economic integration among its member states.
The European Community was originally composed of three international
organizations—European Coal and Steel Community, European Atomic Energy
Community, and the European Economic Community – with six founding member
states.

The Origins of the European Community

The European Coal and Steel Community (ECSC) was founded first in 1951,
followed by the European Atomic Energy Community (EAEC) and the European
Economic Community (EEC) in 1957.
Each community included the same six founding members who signed the
treaties. The six founding countries included France, Germany (West), Italy, Belgium,
the Netherlands, and Luxembourg. In 1967, the three communities were brought
together to be known as the European Communities – the European Economic
Community being the most important one. By 1986, the European Community’s
membership included Denmark, the U.K., Ireland, Greece, Portugal, and Spain.

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 6

The Organizations of the European Community
The European Community was composed of three international organizations,
each with its own functions and responsibilities. The organizations were formed through
a series of treaties, beginning with the Treaty of Paris in 1951, followed by the Treaty
of Rome in 1957.

1. European Coal and Steel Community (ECSC)

First proposed to end the war between France and Germany, the ECSC was the
first organization that unified members in Europe, making its formation the first step
towards the European Union.
The ECSC created a common market in Europe for coal and steel trading and
encouraged peace in Europe at the same time. It also laid the foundation for the
formation of the EAEC and the EEC.

2. European Atomic Energy Community (EAEC)

The EAEC was first established in 1957 to develop nuclear energy and distribute
it to member states and create a common market for nuclear power.
Today, the EAEC remains the only European Community outside of the European
Union and is responsible for matters related to nuclear power, radiation, the
safeguarding of nuclear weapons, radiation protection, and construction of the
International Fusion Reactor.

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 7

3. European Economic Community (EEC)
The EEC was by far the most important of the three European communities and
led to the creation of the common market – the main ideology behind the European
Union. The EEC eliminated trade barriers among member states, ensuring peace
through economic cooperation across Europe. It also created economic integration
through a customs union.
Complete free trade and movement of goods, services, and people within the
EEC was achieved in 1993, and the EEC was renamed as the European Community
under the Maastricht Treaty.

ACTIVITY

Instruction:
Search a country who is engaging a free trade and know its positive influence.
Rationalize how its economic situation exceeds and sustains. Justify also the
agreements they organized and made.

Note: Each of you will have different countries to search on.

REFERENCES:
https://www.slideshare.net/niaz007/niaz007-49485210
https://www.academia.edu/4745410/The_Levels_of_Economic_Integration
https://corporatefinanceinstitute.com/resources/knowledge/economics/european-
community/

ENT 13 – INTERNATIONAL BUSINESS AND TRADE 8