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Regional Economic Integrations and Cooperative Agreements

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Presentation on theme: "Regional Economic Integrations and Cooperative Agreements"— Presentation transcript:

1 Regional Economic Integrations and Cooperative Agreements

2 Regionalism described in the Dictionary of Trade Policy Terms, as;
“actions by governments to liberalize or facilitate trade on a regional basis, sometimes through free-trade areas or customs unions”.

3 Average Tariff Rates on Manufactured Products
1913 1950 1990 2002 France 21 % 18 % 5.9 % 4.0 % Germany 20 % 26 % Italy 25 % Japan 30 % -- 5.3 % 3.8 % Holland 5 % 1 % Sweden 9 % 4.4 % Great Britain % United States 44 % 14 % 4.8 % Under the umbrella of GATT, eight rounds of negotiations among member states (now numbering 148) have worked to lower barriers to the free flow of goods and services. The most recent round of negotiations, known as the Uruguay Round, was completed in December The Uruguay Round further reduced trade barriers; extended GATT to cover services as well as manufactured goods; provided enhanced protection for patents, trademarks, and copyrights; and established the World Trade Organization (WTO) to police the international trading system. Table 1.1 summarizes the impact of GATT agreements on average tariff rates for manufactured goods. As can be seen, average tariff rates have fallen significantly since 1950 and now stand at about 4.0 percent.

4 Introduction One notable trend in the global economy in recent years has been the accelerated movement toward regional economic integration Regional economic integration refers to agreements among countries in a geographic region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other While the move toward regional economic integration is generally seen as a good thing, some observers worry that it will lead to a world in which regional trade blocs compete against each other. In this possible future scenario, free trade will exist within each bloc, but each bloc will protect its market from outside competition with high tariffs. The specter of the EU and NAFTA turning into economic fortresses that shut out foreign producers with high tariff barriers is worrisome to those who believe in unrestricted free trade. If such a situation were to materialize, the resulting decline in trade between blocs could more than offset the gains from free trade within blocs.

5 Regional Economic Integration Logic
Distance goods need to travel between countries is short Consumers’ tastes are likely to be similar Distribution channels can be easily established in adjacent countries Neighboring countries may have common history and interests By end 2005, all 150 WTO members reported participation in at least one regional trade agreement 7-3

6 The coverage and depth of preferential treatment varies from one RTA to another.
Modern RTAs, and not exclusively those linking the most developed economies, tend to go far beyond tariff-cutting exercises. They provide for increasingly complex regulations governing intra-trade (e.g. with respect to standards, safeguard provisions, customs administration, etc.) and they often also provide for a preferential regulatory framework for mutual services trade. The most sophisticated RTAs go beyond traditional trade policy mechanisms, to include regional rules on investment, competition, environment and labour.

7 Levels of Regional Integration
Coordinate aspects of members’ economic and political systems Political Union Remove barriers to trade, labor and capital, set a common trade policy against nonmembers, and coordinate members’ economic policies Economic Union Remove all barriers to trade, labor and capital among members, and set a common trade policy against nonmembers Common Market Remove all barriers to trade among members, and set a common trade policy against nonmembers Customs Union Remove all barriers to trade among members, but each country has own policies for nonmembers Free-Trade Area


9 Regional Integration Benefits: Drawbacks: Trade Creation
Greater Consensus Political Cooperation Employment Opportunities Drawbacks: Trade Diversion Shifts in Employment Loss of national Sovereignty

10 European Union (EU) Pop: 455 million GDP: $9.3 trillion Members: 27
Economic Union Began: 1951

11 European Union: Early Years
European Coal and Steel Community (1951): Removed trade barriers in coal, iron and steel European Economic Community (1957): Outlined and took initial steps toward common market European Community (1967): Expanded to other industries including atomic energy European Union (1994): Final name change and reduced barriers further Additional milestones: Single European Act (1987): Harmonized regulations, strived for lower barriers Maastricht Treaty (1991): Single currency targets, outlined eventual political union

12 Initially, the EU consisted of just six countries: Belgium, Germany, France, Italy, Luxembourg and the Netherlands. Denmark, Ireland and the United Kingdom joined in 1973, Greece in 1981, Spain and Portugal in 1986, Austria, Finland and Sweden in In 2004 the biggest ever enlargement took place with 10 new countries joining. In 2007 another two countries; Bulgaria and Romania have joined the EU.

13 Five Key EU Institutions
European Parliament Court of Justice Court of Auditors Council of the European Union European Commission

14 European Union Enlargement
• Stable institutions of human rights, democracy, and law • Functioning and capable market economy • Assume economic, monetary, and political obligations • Adopt rules of Community, Court of Justice, and Treaties Future members must meet Copenhagen Criteria 

15 European Union Issues Abolish the right of individual EU countries to run their own foreign policies Have the right to raise direct taxes Use common border controls Integrate the European police force Influence national governments’ budgets much more strongly Create a European president to run the Council of Ministers 7-9

16 European Free Trade Association
Iceland, Liechtenstein, Norway, Switzerland Feared lost sovereignty Feared destructive rivalry Desired free-trade gains Cooperates with EU Pop: 12 million GDP: $410 billion Members: 4 Free-Trade Area Began: 1960

17 North American Free Trade Agreement
US-Canada (CAFTA) 1989 US-Canada-Mexico (NAFTA) Trade in many goods, services Complicated rules of origin Effects still fiercely debated Pop: 420 million GDP: $12 trillion Members: 3 Free-Trade Area Began: 1994

18 NAFTA Effects Three-nation trade flows Jobs and wages “Fast track”
authority Future expansion? Single currency?

19 Andean Community Internal tariff reduction Common external tariff
Common transport policies Impaired by ideological conflict Pop: 105 million GDP: $500 billion Members: 5 Customs Union Began: 1969

20 Southern Common Market
MERCOSUR Very successful early Future “SAFTA”? Impaired by ideology and economic hardships Pop: 220 million GDP: $2 trillion Members: 4 (+2) Customs Union Began: 1988

21 Central America / Caribbean
Peace is driving tentative optimism Members have little to offer each other Pop: 33 million GDP: $120 billion Members: 5 +/- Common Market Began: 1961 Pop: 6 million GDP: $30 billion Members: 15 Common Market Began: 1973

22 Free Trade Area of the Americas
Would create the largest free-trade area on the planet From northern tip of Alaska to southern tip of Tierra del Fuego in South America Could mean enormous cost savings for business Protests by many groups is slowing progress Pop: 800 million GDP: $14 trillion Members: 34 Free-Trade Area

23 Association of Southeast Asian Nations
ASEAN 1. Economic, social and cultural development 2. Safeguard economic and political stability 3. Serve as a forum to resolve disputes Pop: 500 million GDP: $800 billion Members: 10 General Cooperation Began: 1967

24 Association of South East Asian Nations (ASEAN)
Organized in 1967 Member countries are protected in terms of tariff and nontariff barriers Holds tremendous potential market opportunities with more than 500 million consumers 7-13

25 The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in Bangkok by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Laos and Myanmar on 23 July 1997, and Cambodia on 30 April 1999.

26 The Framework Agreement on Enhancing Economic Cooperation was adopted at the Fourth ASEAN Summit in Singapore in 1992, which included the launching of a scheme toward an ASEAN Free Trade Area or AFTA. The strategic objective of AFTA is to increase the ASEAN region’s competitive advantage as a single production unit. The elimination of tariff and non-tariff barriers among the member countries is expected to promote greater economic efficiency, productivity, and competitiveness In 1995, the ASEAN Heads of States and Government re-affirmed that “Cooperative peace and shared prosperity shall be the fundamental goals of ASEAN.”

27 ASEAN cooperation has resulted in greater regional integration
ASEAN cooperation has resulted in greater regional integration. Within three years from the launching of AFTA, exports among ASEAN countries grew from US$43.26 billion in 1993 to almost US$80 billion in 1996, an average yearly growth rate of 28.3 percent. In the process, the share of intra-regional trade from ASEAN’s total trade rose from 20 percent to almost 25 percent.

28 Asia Pacific Economic Cooperation
APEC: Group of 21 nations ringing the Pacific Ocean that accounts for over half of world trade 1. Not designed as a free-trade bloc 2. Strengthen multilateral trade system 3. Liberalize trade and investment rules

29 Asia Pacific Economic Cooperation
Founded in 1990 to ‘promote open trade and practical economic cooperation’. ‘Promote a sense of community.’ 18 members. 50% of world’s GNP. 40% of global trade.


31 Gulf Cooperation Council
Middle East and Africa Economic Community of West African States (ECOWAS) Common market hopes (1975) Little progress to date Gulf Cooperation Council (GCC) Six Arab nations (1980) Economic and political aims Free travel; property rights

32 Regional Trade Blocs in Africa
9 trade blocs on the continent. Many countries are members of more than one group. Progress has been slow. Political turmoil. Deep suspicion of free trade. Less developed, less diversified economies need “protection”. Gulf Cooperation Council (GCC) Among Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates


34 Impact on Business Positive: Negative: Protected markets, now open.
Lower costs doing business in single market. Negative: Differences in culture and competitive practices make realizing economies of scale difficult. Threats: More price competition. Firms become more competitive. Outside firms shut out of market.

35 Commodity Agreements Attempts to counteract price instability through:
Exercise of market power through international commodity agreements Stabilization of producer revenues through risk-management instruments, such as commodities futures Stabilization of government revenues through precautionary savings funds 7-15

36 Organization of Petroleum Exporting Countries (OPEC)
Producer cartel Group of commodity-producing countries that control supply and price OPEC controls price by establishing production quotas on member countries OPEC member countries produce 41% of the world’s crude oil and 155 of its natural gas 7-16

37 Bilateral vs Multilateral
Bilateral agreement: between two countries To improve climates for investments abroad ‘safeguard’ for businesses to expand between those countries Multilateral agreement: between more than two countries

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