Upload
kellie-hebard
View
218
Download
1
Tags:
Embed Size (px)
Citation preview
EurAsian Customs Union
• Launched in July 2010• between Belarussia, Kazakhstan and Russia• with Kyrgyzstan expected to be the next
member to join• maybe now overtaken by Armenia
www.geraldpech.net 3
Free Trade Agreements
• Parties to free trade agreement abolish tariffs (and non tariff barriers) between members
• Each country has its own tariff regime against the rest of the world
• Examples of free trade blocs: NAFTA, CISFTA
www.geraldpech.net 5
Problems with Free Trade Agreements
• Third country imports– Trade deflection: Imports enter through country
with lowest outside tariff, say Kyrgyzstan– But other countries in the free trade bloc often
wish to “protect” themselves against third country imports
– Border controls have to be maintained to impose the “origin principle”.
www.geraldpech.net 6
Customs Union
• A customs union abolishes all tariffs (and non tariff barriers) among the member countries
• Common tariff is applied to third countries
www.geraldpech.net 8
Customs Union
• Trade creation effect– CU partners trade more intensively because of
reduction of tariff/non tariff cost of trade
• Trade diversion effect: – as barriers to imports from third countries
increase, producers within the customs union are at an advantage
www.geraldpech.net 10
Winners and Losers in CU
• There are winners …– Within a Customs Union, most industrialized
country typically wins: Belarus• and losers
– Kazakhstan’s imports from CU countries increased more than exports
– and consumers are worse off with higher external tariff
– Kyrgyzstan would have been a loser too but, as we shall see, it also loses by being non-member
www.geraldpech.net 11
Customs Union and Free Trade Blocs
• Customs unions and free trade blocs can in principle co-exist– remember that there are border controls which
prevent that the free trader becomes the point of entry for imports into the customs union
• Examples: CISFTA/EurAsian CU, EFTA/EU– In the long term some EFTA members ended up
joining the Union (Finland) while others stayed separate (Norway)
www.geraldpech.net 12
• Could one country engage in free trade with two customs unions?
– why not, as long as origin principle is enforced
More Complicated Constructions
EU
EurAsian CU
Ukraine
www.geraldpech.net 13
• Could one country (Ukraine) do free trade with one customs union (EU) and be member of another customs union (EurAsian CU)?
– difficult unless EurAsian Customs Union would like to engage in free trade with Europe
– “cannot” (Barroso)
More Complicated Constructions
EU
EurAsian CU
Ukraine
www.geraldpech.net 14
More Complicated Constructions
• Solution: Second class membership?– Ukraine as free trader with Europe and EurAsian
CU member with separate border controls?– This might be the final outcome for Kyrgyzstan
with border controls remaining between Kazakhstan and Kyrgyzstan
– and maybe for Ireland if Britain leaves the EU?– similarly for independent Scotland if it joins?
www.geraldpech.net 15
Which is the Logic behind the Timing of Customs Union Formation
• Why was Eurasian CU not founded in one step?– Perceived benefits of political decision makers
change over time– Institutions and infrastructure take time to build– “Momentum” created by foundation of core
customs union
www.geraldpech.net 17
A Historical Precedent
• Neither was the European Union created in one step
• nor the other particularly successful customs union – the Zollverein
• which ultimately resulted in German nationhood
www.geraldpech.net 18
The Zollverein
• The German Customs Union (Zollverein) was founded in 1833 between independent German states
• Starting with Prussian drive for economic integration of their own territory in 1819
• Smaller German states experienced negative impact on their trade with the emerging union
• and one after the other joined
www.geraldpech.net 19
Footnote: How come Prussia was the driving force behind the Zollverein?
• Prussia did not benefit that much from trading with the smaller states
• But it gained better a bargaining position when negotiating over trade with big players such as England and France
www.geraldpech.net 21
What creates “momentum”?
• We have seen that because of trade diversion effects at the first stage of creating a customs union
• smaller countries will see their trade balance with the union deteriorate
• and be more willing to join• the same seems to happen to Kyrgyzstan
www.geraldpech.net 22
Trade diversion in KyrgyzstanAnnual Percentage Change in Exports to CIS
Countries
-40-30-20-10
0102030
2010 2011 2012
source: cisstat.com
Kyrgyzstan
Compared to CIS
Other CIS
www.geraldpech.net 23
The Logic behind the Timing of Customs Union Formation
• Assume a leading country such as Russia can choose whether to offer Kyrgyzstan immediate membership or second round membership
• It is aware that Kyrgyzstan needs to be compensated to join such that it is not worse off than before
www.geraldpech.net 24
The Logic behind the Timing of Customs Union Formation
• Now if Kyrgyzstan is a loser in the customs union it would need compensation when joining in the first round
• But it also loses by staying out!• Once it has realized its losses by staying out, it
will be more willing to join • for less
– i.e. willing to accept less favourable terms of entry than it would have requested in the first round
www.geraldpech.net 25
The Logic behind the Timing of Customs Union Formation
• In the following diagram we measure as wKyr and wRus the welfare for Kyrgyzstan and Russia
• We further assume that different membership arrangements are differently advantageous for Kyrgyzstan and Russia– moreover, there is a trade-off between advantage
for Russia and Kyrgyzstan
www.geraldpech.net 26
core customs union
Rusw
Kyrw
status quo ante
0
Kyrw
ˆKyrw
0
Rusw
B
A
C
ˆ Rusw
A: Immediate Entry Solution: Full Access to CU market, compensation for losses
B: Full access to CU market, less some compensation
C: “Second class membership” with limited access to CU market, and some compensation
www.geraldpech.net 27
Conclusion and Outlook
• The “momentum” argument helps understand the process of customs union formation
• There are other dynamic aspects of interest, such as: – Does customs union lead to ever deeper
integration ?
www.geraldpech.net 28
Conclusion and Outlook
• The EU has experienced ever deeper integration• Recall that extension creates winners and losers• So if there are losers, they need to be
compensated• How can this be done?
– winners agree to pay some money (not credible in long run)
– bargaining over joint institutions (EurAsian EC?)– common budget
www.geraldpech.net 29
Some further reading
• Alimbekov/Madumarov/Pech (2013), Sequencing in Customs Union Formation, KIMEP, at www.geraldpech.net
• Jandosov/Sabyrov (2011), Tariff Protection Level in Kazakhstan, RAKURS discussion paper 5.3./5.4.
• Macho-Stadler/Xue (2006), Winners and Losers from the Gradual Formation of Trading Blocs, working paper, Barcelona.
• Mattli (1999), The Logic of Regional Integration, Cambridge UP and google-books.
www.geraldpech.net 30
New in the Master of Arts in Economics Program
• From Fall 2014• Three full professors in economics
– PhD’s from US and Australia
• One health economist!• Major in Financial Economics!• Expected: Scholarships
www.geraldpech.net 31
EurAsian Customs Union
• 1995: First agreement signed between Belarus, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.– Uzbekistan not interested at the moment– Tajikistan only has land border with Kyrgyzstan
• 2007: Dushanbe agreement on customs union signed between BY, KZ and RU
• 2010: Official launch of CU with external tariff at (high) Russian rates– for some goods July 2010, for others July 2011
www.geraldpech.net 33
Other Organizations
• CISFTA: Free trade agreement between Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, and Ukraine, signed in October 2011
• EurAsian Economic Union: Creation of single economic space between Belarus, Kazakhstan and Russia launched in 2012
www.geraldpech.net 34
Winners and Losers
• Economic welfare of a country is sum of– Consumer surplus– Tariff revenue– Profits of home producers– We assume that foreign firms have market power!
• As a proxy for impact of CU we use– change in current account balance – change consumer surplus of non numeraire good
• Political benefits and costs!
www.geraldpech.net 35
Tariff Protection
simple average 2009
weighted average 2009
Kazakhstan 6.78% 5.52%
Belarus 8.00% 2.3%
Russia 8.09% 5.9%
EU 10.6% 7.37%
from: Jandasov/Sabyrova 2009
www.geraldpech.net 36
Trade diversion and creation in different CIS countries
-20-10
0102030405060
Aze
rba
ijan
Arm
en
ia
Be
laru
s
Ka
zak
hs
tan
Ky
rgy
zsta
n
Mo
ldo
va
Ru
ss
ia
Ta
jikis
tan
Uk
rain
e
Annual Changes in Exports to CIS Countries
2011
2012*
www.geraldpech.net 37source: CISSTAT
Standard and non standard channels
Source: Vashakmadze, E., Kaminski, B., Mironova, Y., (2011).
www.geraldpech.net 38