Presentation on theme: "Regional Economic Integrations and Cooperative Agreements"— Presentation transcript:
1 Regional Economic Integrations and Cooperative Agreements 7-1
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 1913195019902002France21 %18 %5.9 %4.0 %Germany20 %26 %Italy25 %Japan30 %--5.3 %3.8 %Holland5 %1 %Sweden9 %4.4 %Great Britain%United States44 %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 IntroductionOne notable trend in the global economy in recent years has been the accelerated movement toward regional economic integrationRegional 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 otherWhile 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 shortConsumers’ tastes are likely to be similarDistribution channels can be easily established in adjacent countriesNeighboring countries may have common history and interestsBy end 2005, all 150 WTO members reported participation in at least one regional trade agreement7-3
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 systemsPolitical UnionRemove barriers to trade, labor and capital,set a common trade policy against nonmembers, and coordinate members’ economic policiesEconomic UnionRemove all barriers to trade, labor and capitalamong members, and set a common trade policy against nonmembersCommon MarketRemove all barriers to trade among members, and set a common trade policy against nonmembersCustoms UnionRemove all barriers to trade among members, but each country has own policies for nonmembersFree-Trade Area
9 Regional Integration Benefits: Drawbacks: Trade Creation Greater ConsensusPolitical CooperationEmployment OpportunitiesDrawbacks:Trade DiversionShifts in EmploymentLoss of national Sovereignty
10 European Union (EU) Pop: 455 million GDP: $9.3 trillion Members: 27 Economic UnionBegan: 1951
11 European Union: Early Years European Coal and Steel Community (1951): Removed trade barriers in coal, iron and steelEuropean Economic Community (1957): Outlined and took initial steps toward common marketEuropean Community (1967): Expanded to other industries including atomic energyEuropean Union (1994): Final name change and reduced barriers furtherAdditional milestones:Single European Act (1987): Harmonized regulations, strived for lower barriersMaastricht 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 ParliamentCourt of JusticeCourt of AuditorsCouncil of the European UnionEuropean Commission
14 European Union Enlargement • Stable institutions of humanrights, democracy, and law• Functioning and capablemarket economy• Assume economic, monetary,and political obligations• Adopt rules of Community,Court of Justice, and TreatiesFuture members must meet Copenhagen Criteria
15 European Union IssuesAbolish the right of individual EU countries to run their own foreign policiesHave the right to raise direct taxesUse common border controlsIntegrate the European police forceInfluence national governments’ budgets much more stronglyCreate a European president to run the Council of Ministers7-9
16 European Free Trade Association Iceland, Liechtenstein, Norway, SwitzerlandFeared lost sovereigntyFeared destructive rivalryDesired free-trade gainsCooperates with EUPop: 12 millionGDP: $410 billionMembers: 4Free-Trade AreaBegan: 1960
17 North American Free Trade Agreement US-Canada (CAFTA) 1989US-Canada-Mexico (NAFTA)Trade in many goods, servicesComplicated rules of originEffects still fiercely debatedPop: 420 millionGDP: $12 trillionMembers: 3Free-Trade AreaBegan: 1994
18 NAFTA Effects Three-nation trade flows Jobs and wages “Fast track” authorityFutureexpansion?Singlecurrency?
19 Andean Community Internal tariff reduction Common external tariff Common transport policiesImpaired by ideological conflictPop: 105 millionGDP: $500 billionMembers: 5Customs UnionBegan: 1969
20 Southern Common Market MERCOSURVery successful earlyFuture “SAFTA”?Impaired by ideology and economic hardshipsPop: 220 millionGDP: $2 trillionMembers: 4 (+2)Customs UnionBegan: 1988
21 Central America / Caribbean Peace is drivingtentative optimismMembers have littleto offer each otherPop: 33 millionGDP: $120 billionMembers: 5+/- Common MarketBegan: 1961Pop: 6 millionGDP: $30 billionMembers: 15Common MarketBegan: 1973
22 Free Trade Area of the Americas Would create the largest free-trade area on the planetFrom northern tip of Alaska to southern tip of Tierra del Fuego in South AmericaCould mean enormous cost savings for businessProtests by many groups is slowing progressPop: 800 millionGDP: $14 trillionMembers: 34Free-Trade Area
23 Association of Southeast Asian Nations ASEAN1. Economic, social and cultural development2. Safeguard economic and political stability3. Serve as a forum to resolve disputesPop: 500 millionGDP: $800 billionMembers: 10General CooperationBegan: 1967
24 Association of South East Asian Nations (ASEAN) Organized in 1967Member countries are protected in terms of tariff and nontariff barriersHolds tremendous potential market opportunities with more than 500 million consumers7-13
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 competitivenessIn 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 PacificOcean that accounts for over half of world trade1. Not designed as a free-trade bloc2. Strengthen multilateral trade system3. 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 AfricaEconomic Community ofWest African States(ECOWAS)Common market hopes (1975)Little progress to dateGulf Cooperation Council(GCC)Six Arab nations (1980)Economic and political aimsFree 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 agreementsStabilization of producer revenues through risk-management instruments, such as commodities futuresStabilization of government revenues through precautionary savings funds7-15
36 Organization of Petroleum Exporting Countries (OPEC) Producer cartelGroup of commodity-producing countries that control supply and priceOPEC controls price by establishing production quotas on member countriesOPEC member countries produce 41% of the world’s crude oil and 155 of its natural gas7-16
37 Bilateral vs Multilateral Bilateral agreement: between two countriesTo improve climates for investments abroad‘safeguard’ for businesses to expand between those countriesMultilateral agreement: between more than two countries