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Benefiting from Regional Integration Bernard Hoekman Maurice Schiff Junichi Goto.

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Presentation on theme: "Benefiting from Regional Integration Bernard Hoekman Maurice Schiff Junichi Goto."— Presentation transcript:

1 Benefiting from Regional Integration Bernard Hoekman Maurice Schiff Junichi Goto

2 Regional trade agreements (RTAs) are proliferating and now cover more than one third of world trade, but their liberalizing effect has not always been large.Regional trade agreements (RTAs) are proliferating and now cover more than one third of world trade, but their liberalizing effect has not always been large. RTAs can create trade and bring many other benefits for development … but results are not automatic and depend critically on design and implementation.RTAs can create trade and bring many other benefits for development … but results are not automatic and depend critically on design and implementation. RTAs have systemic consequences that adversely affect excluded countries, requiring international attention.RTAs have systemic consequences that adversely affect excluded countries, requiring international attention. Key Messages

3 EU EAEC NAFTA APEC Mercosur REGIONALISM IN THE WORLD AFTA (FTAA)

4 Regional Trade Agreements are proliferating… …and now potentially cover more than one-third of global trade New agreements annually Annual number Total in force Cumulative in force

5 Some Theories of Regional Integration Agreement

6 Stages of Economic Integration (five stages according to Balassa) Free Trade Area (FTA) –starting point –rules of origin Customs Union –common external tariffs Common Market –movement of capital and labor Economic Union –coordination of fiscal and monetary policy Complete Economic Union –super-natural institution

7 Trade Creation Before: A=100, B=90*1.2=108, C=90*1.2=108 After: A=100, B=90, C=90*1.2= percent tariff

8 Trade Diversion Before: A=100, B=80*1.2=96, C=70*1.2=84 After: A=100, B=80, C=70*1.2=84 20 percent tariff

9 Expansion of the FTA and the Third Country welfare Size of FTA

10 Further cost of S-S RIA

11 Article XXIV of the GATT ‘non-discrimination; MFN’ as the basic principle of WTO/GATT FTA and Customs Union as exceptions to the fundamental principle Article XXIV of the GATT sanctions if –complete liberalization (100 percent, substantially all the trade) –no increase in external barrier Ambiguous –how soon –“substantially all the trade” –shall not on the whole be more restrictive Various proposal for strengthening it –e.g. Bhagwati (set to the lowest)

12 Assessing RIAs in the World

13 South-South RTAs predominate in number, but not in trade covered South- South European Union US South- South European Union Percent of World Trade Covered Number of RTAs US

14 …and regional agreements are a relatively small driver of trade reform Decomposing 20% pt. decline Source: Martin and Ng, 2004 Av. Tariffs, 1983 and Decomposing tariff reductions in response to multilateral, regional and own initiatives Decomposing tariff reductions in response to multilateral, regional and own initiatives

15 Estimated exponential impact on trade Intra-regional trade Overall exports Overall imports Note: The bars show the magnitude of the dummy variables capturing respectively the extent to which intraregional trade, overall imports and overall exports differ from the “normal” levels predicted by the gravity model on the basis of economic size, proximity and relevant institutional and historical variables, such as a common language. Effects on members: Do RTAs create – or divert -- trade?

16 Agreements with high external tariffs risk trade diversion Note: Tariffs are import-weighted at the country level to arrive at PTA averages Source: UN TRAINS, accessed through WITS Average weighted tariffs

17 Lower external tariffs are associated with greater regional integration MNA SAS SSA LAC ECAEAP Average external tariffs

18 StandardsTransport Customs cooperationServices Intellectual PropertyInvestment Dispute SettlementLaborCompetition U.S.-Led US-JordanNo Yes No US-ChileYesNoYes US-SingaporeYesNoYes US-AustraliaYesNoYes US-CAFTAYesNoYes No US-MoroccoYesNoYes No NAFTAYesNoYes E.U.-Led EU-South AfricaYes EU-MexicoYes NoYes EU-ChileYes NoYes South-South MERCOSURNo Yes NoYes NoYes Andean CommunityNo Yes NoYes NoYes CARICOMYes NoYes AFTAYes NoYesNo SADCYes NoYes COMESAYes NoYes Other Japan-SingaporeYesNoYes Canada-ChileNo Yes NoYes Chile-MexicoYes RTAs go far beyond trade

19 StrengthsStrengths –Locking in reforms by binding commitments –Services liberalization –Move to international standards WeaknessesWeaknesses –Restrictive rules of origin –Exemptions, esp. agriculture North-South RIAs South- South RIAs StrengthsStrengths –Nonrestrictive rules of origin –Adjacency permit trade facilitation Some sweeping generalization… Weaknesses Weaknesses  Small markets/Higher external barriers  Exemptions  Minimal services Both North-South and South-South accords can be improved …

20 Design Design  Large ex-post market  Low external tariff barriers  Nonrestrictive rules of origin  Wide product coverage with minimal exemptions  Liberalization of services  Deeper integration Implementation: Avoiding paper agreements Implementation: Avoiding paper agreements Design are crucial to achieving objectives Design are crucial to achieving objectives

21 International community through the WTOInternational community through the WTO –Get Doha done –Concentrate on transparency High income countriesHigh income countries –Widen coverage in FTAs (i.e. agriculture) –Move toward conformity in rules of origin, and make less restrictive Developing countriesDeveloping countries –Unilateral liberalization: driving competitiveness –deep integration and institutional reforms (customs, ports, trade-related standards) Policy implications…


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