This article focuses on the common market. It provides an overview of the relationship between common markets, nations, and the global economy. The stages of economic integration, free trade agreements, customs unions, common markets, and economic unions, are discussed. The issues related to common markets and industry regulation are addressed. A case study of the Caribbean region's common market, referred to as the CARICOM Single Market and Economy, is included as an opportunity to see how common markets operate in real world conditions.
Keywords Common Market; Customs Union; Economic Integration; Economic Union; Emerging Markets; Free Trade Agreement; Global Economy; Globalization; International Trade; Market; Nations; Tariffs; Trade; World Bank
International Business: Common Market
Economic globalization is increasing the economic integration between nations. Economic integration, which refers to the joining of commercial and financial activities among countries through the abolishment of nation-based economic institutions and activities, includes four stages: Free trade agreements (FTA), customs unions (CU), common markets, and economic unions. Common markets, which refer to customs unions with provisions to liberalize movement or mobility of people and capital and eliminate non-tariff barriers to trade, tend to be based on geographic proximity. For example, the Common Market of the South (MERCOSUR), established in 1991, is an example of a common market based on geographic relationship and proximity. The Common Market of the South, which began as a customs union with the goal of becoming a common market of member nations, is a trade agreement between the neighbor countries of Argentina, Brazil, Uruguay, and Venezuela. Founding member Paraguay was suspended in 2012. In 2013, a number of other Latin American countries were associate members, with Bolivia awaiting ratification and full membership.
Common markets, also referred to as single markets, are growing in number and importance in the global economy. Common markets set the prices for goods that are traded between member nations. Understanding how common markets work and why they are increasing in number and size around the world is crucial for all those interested in trade, development, economics, business, and politics. The following section provides an overview of the relationship between common markets, nations, and the global economy. This section serves as the foundation for later discussion of the four stages of economic integration: Free trade agreements, customs unions, common markets, and economic unions. The issues related to common markets and industry regulations are addressed. A case study of the Caribbean region's common market, referred to as the CARICOM Single Market and Economy, will be included as an opportunity to see how common markets operate in real world conditions.
Common markets, including the European Union's common market and Caribbean Community's common or single markets, are emerging in every region of the world engaged in international trade. The new global economy is characterized by growth, in populations and in output and consumption per capita, interdependence of nations, and international management efforts. Indicators of global growth and economic interdependence include the huge increases in communication links, world output, international trade, and international investment since the 1970s. The global economy is built on global interdependence of economic flows linking the economies of the world. The global economy is characterized by economic sensitivity. National economic events in one region often have profound results for other regions and national economies. National economies exist not in isolation but in relationship and tension with other economies worldwide.
The global economy includes numerous economic phenomena and financial tools shared between all countries. Examples include common markets (and related stages of economic integration) as well as the price of gold, the price of oil, and the related worldwide movement of interest rates. The new global economy is characterized and controlled through global management or governance efforts. International organizations, both public and private, work to establish norms, standards, and requirements for international financial governance. These international organizations, including the G-20, Financial Stability Forum, the International Organization of Securities Commissions Organization for Economic Co-operation and Development (OECD), and the Basle Committee on Banking Supervision, develop and encourage implementation of standards, principles, best practices, and economic architecture (Preston, 1996).
The global economy is a product of economic globalization. Global markets are characterized by an increasing mobility in capital, research and design process, production facilities, customers, and regulators. Global markets, created through socio-economic changes, political revolutions, and new Internet and communication technology, have no national borders. The modern trend of globalization, and resulting shifts from centralized to market economies in much of the world, has created opportunities for increased trade, investment, business partnerships, and access to once closed global markets.
Economic environments around the world are changing due to the forces of globalization. Globalization is characterized by the permeability of traditional boundaries of nations, culture, and economic markets. The fundamental economic forces and events influencing globalization around the world include the end of communism; the shift from an economy based on natural resources to one based on knowledge industries; demographic shifts; the development of a global economy; increased trade liberalization; advances in communication technology; and increased threat of global terrorism (Thurow, 1995). Globalization creates a turbulent global socio-political environment characterized by competing political actors, shifting power relations, and politically-driven changes in national economies around the world. Businesses work to find opportunity and profit in the political and economic changes. The political turbulence and upheaval has resulted in a move from centralized economies to a decentralized global economy and has created numerous common markets and emerging markets. Emerging markets refer to capital markets in developing countries that have chosen to liberalize their financial systems in order to increase capital flows and foreign investment.
The increase in the number and size of common markets in the global economy has the potential to increase economic growth for member nations. According to the World Bank, economic growth of nations refers to the quantitative change or expansion in a country's economy. Economic growth occurs in two distinct ways. Economic growth of a nation occurs when a nation grows extensively by using more physical, natural, or human resources or intensively by using resources more efficiently or productively. According to the World Bank, intensive economic growth of nations requires economic development. The growth of nations varies between regions, nations, and historical eras. Economic and political changes promote or depress the growth of nations depending on variables such as national leadership, political and economic stability, natural resources, international relations, and infrastructure. The current era of the global economy, a product of economic globalization, is creating strong, though variable, national economic growth and development worldwide. Ultimately, common markets, and related stages of economic globalization, connect the economies and welfare of nations (Jones, 2005).
Customs markets are one stage in the process of economic integration between nations. Economic integration between nations includes the following four stages (Holden, 2003):
- Free Trade Agreements (FTA)
- Customs Unions (CU)
- Common Markets
- Economic Unions.
Nations choose different levels of economic integration based on variables such as the strength of their national economy and trade relationships and forecasted trade prospects. Nations may have multiple trade relationships and levels of economic integration with other countries or none at all. Nations that reject or do not pursue the stages of economic integration, as described above, are characterized as autarky. Autarky, or an autarkic nation, refers to self-sufficient countries that do not participate in international trade. Autarky, which means self-sufficiency in Greek and provides independence from other states, results in both benefits and costs (Anderson & Marcouiller, 2005). The stages of economic integration are rarely fixed or permanent but instead are generally fluid and overlapping. Economic integration, as described below, is an evolving process responsive to the shifting socio-economic climates.
Free Trade Agreements
Free trade agreements are...
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