Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..

8–1

Chapter 8Regional economic integration

F T A A

NAFTA EU

(25) APEC

A F T A

Australia–New Zealand

MERCOSUR


8–2

Lecture plan

• Why regionalism?

• Definition of regional economic integration

• Five levels of regional economic integration

– industrial free trade area; full free trade area; customs union; common market; economic union

• Trade effects of regional integration

• Regional groups: EU, NAFTA, AFTA, MERCOSUR

• Bilateral free trade agreements

• Is regionalism the path to globalism?


8–3

Regional economic integration

• 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 among each other.

• It is estimated that currently there are about 220 regional trade arrangements!


8–4

Regional trade arrangements

• Exception to MFN (Most Favoured Nation) rule in GATT/WTO; allows regional agreements to provide higher preferential treatment to members than to non-members.

• Five levels of regional economic integration– industrial free trade area– full free trade area– customs union– common market – economic union


8–5

Regional economic integration Free Trade Area (FTA)

• No tariffs and quotas among members• National tariffs against non-members• Partial (industrial) FTA and full FTA

• Australia’s bilateral FTAs with New Zealand, Singapore, USA, Thailand

• Pluri-lateral FTA: EFTA, NAFTA, AFTA

Free TradeArea


8–6

Regional economic integration customs union

No tariffs and quotas among members. Common tariffs operate against non-members.

Examples: European Community EC (1968) MERCOSUR (South American Union)

Customs Union

Free TradeArea


8–7

Regional economic integration common market

Abolition of restrictions on factor movements

Example: The European

‘Single Market’ (1992)

Customs Union

Free TradeArea

Common Market

© Copyright J. Gionea RMIT 2003


8–8

Regional economic integration economic union

Customs Union

Free TradeArea

Common Market

Economic UnionCharacterised by• harmonisation and unification of economic policies• common currency Example: European Union


8–9

Trade effects of integration

• Trade creation

– trade up through lower-cost goods and services (e.g. European Union: industrial sector)

• Trade diversion

– less efficient producers inside the area replace more efficient external producers (e.g. EU: common agricultural policy)


8–10

Intra-regional trade under major regional trade agreements, 2002, $US billion, %

Regional

Trade Agreements

Intra-regional trade

($US billion)

Share of World exports

(%)

EU (15) 1,509 24.1

NAFTA (3) 626 10.0

AFTA (10) 97 1.6

CEFTA (7) 19 0.3

MERCOSUR (4) 10 0.2

ANDEAN (5) 5 0.1


8–11

Intra-exports as % of total merchandise exports of selected regional trading blocs

0

10

20

30

40

50

60

70

% of total exports

1990 64.9 42.6 20.1 8.9

2002 61.6 56.5 24.0 11.5

EU NAFTA AFTA Mercosur


8–12

Intra-imports as % of total merchandise imports of selected regional trading blocs

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

% of total Imports

1990 63.0 34.4 16.2 14.5

2002 61.9 38.1 23.6 17.0

EU NAFTA ASEAN Mercosur


8–13

European economic integration

1957 European Communities (6): France, Western Germany, Italy, Belgium, Luxemburg, Netherlands

1968 Customs union

1973 UK, Ireland, Denmark, Greece (1981), Spain and Portugal (1986)

1992 European single market

1996 Austria, Finland, Sweden

2002 European Monetary Union (currently 12 members)

2004 10 new members: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia (500 million people).


8–14

North American Free Trade Agreement (NAFTA)

US, Canada, Mexico• Became law 1/1/1994• Over 15 year period

– tariffs reduced (99% of goods traded)– non-tariff barriers reduced– investment opportunities increased

• Protects intellectual property• Three-side agreements

– environmental protocols– labour protocols– snap-back provision

• Special treatment for many industries


8–15

MERCOSUR (Southern Common Market)

• Originated in 1988 as a free trade pact between Brazil and Argentina

• Expanded in March 1990 to include Paraguay and Uruguay

• Combined population of 200 million

• 1995: 5-year plan to move to full customs union

• Objective: South American Free Trade Area (SAFTA)


8–16

The Free Trade Area of the Americas (FTAA)

• Old plan of ex-US president George Bush, pursued now by his son.

• FTAA = 34 nations (including NAFTA and MERCOSUR members) with population of 880 million; world’s largest free trade area.

• The Quebec 34-country Summit of March 2001 agreed on an FTAA to be launched in 2005.

• President Bush obtained fast-track authority (now renamed Trade Promotion Authority).


8–17

ASEAN (10)

• AFTA = ASEAN Free Trade Area; launched in 1992• Members: Singapore, Indonesia, Thailand, Malaysia,

Philippines, Brunei, Vietnam, Burma, Laos, Cambodia (550 million people).

• On the Common Effective Preferential Tariff (CEPT) of AFTA, the 6 founding members agreed (individually) to achieve a minimum of 85% of the tariff lines on their inclusion lists in the 0-5 % range by 2000, covering 90% of intra-ASEAN trade.

• They also brought forward from 2003 to 2002 the date of implementation of the CEPT; few extensions (e.g cars).

• ASEAN + 3 (China, Japan, South Korea).• ASEAN–China FTA: >1.7 billion people; GDP: US$1.65 trill.


8–18

MFN simple mean tariffs 1999 vs CEP tariff rates 1999, 2003, % in selected ASEAN countries

MFN

1999

CEPT

1999 (%)

CEPT

2003 (%)

Indonesia 10.9 5.85 3.71

Malaysia 7.1 3.17 2.06

Philippines 10.0 4.45 2.06

Thailand 21.6 9.75 4.64

MFN = Most Favoured Nation: non-discrimination. (All WTO signatories have MFN status.)

CEPT = Common Effective Preferential Tariff: a comprehensive timetable for gradual phase out of intra-ASEAN tariffs on nominated goods.


8–19

Automotive MFN tariffs in selected ASEAN countries, %

Country CKD* Tariff (MFN)

CBU** Tariff (MFN)

Malaysia 42–80 140–300

Thailand 33 80

Indonesia 35–50 65–80

Philippines 10 30

Malaysia 42–80 140–300

*CKD: Completely Knocked Down car kits

*

**CBU: Completely Built Units


8–20

Three-way balance (E. Asia, EU, US)output, trade with the ROW*, reserves

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Output(WBA) Output(PPP) Trade Reserves

US

$ B

ln East Asia

EU

US

* ROW = Rest of the World

Based on Fred Bergsten’ s Economist article


8–21

Why the push for East-Asian integration?

• East Asian financial crisis

• Failures of WTO and APEC to make headway on trade liberalisation

• Positive inspiration provided by European integration (especially the euro)

• Broad disquiet with behaviour of boththe US and EU

Based on Bergsten, 2000. (See References.)


8–22

Bilateral Free Trade Agreements (FTAs)

• Singapore’s free trade agreements with – US, Japan, Australia, New Zealand,

Mexico• Mexico-European Union• Australia’s FTAs with

– New Zealand, Singapore, Thailand, USA (under Australian Senate approval)

• Australian discussions for FTAs with China and Malaysia


8–23

The share of regional trading blocs in Australia’s merchandise exports 1974, 1989, 2002

Regional Bloc 1974 1989 2002

European Union 16.5 14.4 12.4

NAFTA 12.4 12.5 11.5

ASEAN 8.0 9.6 12.2

MERCOSUR 0.2 0.5 0.6

New Zealand 6.6 5.4 6.6

SAARC 3.4 1.8 3.1

Source: adapted from DFAT, Direction of Trade Time Series, 1974 to 1994 and Composition of Trade, 2003


8–24

Is regionalism a path to globalism?

Two key questions: 1. Does regional integration increase or

decrease global economic welfare? 2. Will regional trading blocs lead to global

trade more quickly than the multilateral process?

Two views • regional trading blocs = ‘stumbling’ blocs• regional trading blocs = building blocsHopefully, the latter view will prevail.


8–25

References

• Bergsten, F. 2000, ‘Towards a tripartite world’, The Economist,15 July.

• Gionea, J. 2003, International Trade and Investment, McGraw-Hill, Sydney.

• Hill, C. 2003, International Business, Competing in the Global Marketplace, McGraw-Hill, New York.


8–26

Australia’s trade with ASEAN in passenger motor vehicles, A$ million, 1999–2003

0

50

100

150

200

A$ million

PMV Exports 84 158 120 87 52

PMV Imports 105 76 100 125 143

1999 2000 2001 2002 2003

Source: adapted from DFAT, Composition of Trade, 2003


8–27

Australia’s trade with NAFTA in passenger motor vehicles (PMV), A$ million, 1999–2003

25

0

37

1

59

35

39

25

6

27

0

37

4

39

54

91

51

60 200 400 600 800 1000 1200

1999

2000

2001

2002

2003

A$ million

PMV exports PMV imports


8–28

Australia’s trade with NAFTA in motor vehicle parts (MVP), $A million, 1999–2003

29

83

41

31

03

38

30

9

51

4

64

4

59

2

64

36

04

0 200 400 600 800 1000 1200

1999

2000

2001

2002

2003

A$ million

MVP exports MVP imports


8–29

Australia’s cumulative trade (PMV + MVP) with NAFTA, A$ million, 1999–2003

0

200

400

600

800

1000

1200

A$ million

Exports 548 712 903 877 565

Imports 784 1018 987 1134 1120

1999 2000 2001 2002 2003

Source: adapted from DFAT, Composition of Trade, 2003

Documents

Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared