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Regional Economic Regional Economic Integrations and Cooperative Integrations and Cooperative
AgreementsAgreements
7-1
RegionalismRegionalism
described in the Dictionary of Trade described in the Dictionary of Trade Policy Terms, as;Policy Terms, as;
“ “actions by governments to liberalize actions by governments to liberalize or facilitate trade on a regional basis, or facilitate trade on a regional basis, sometimes through free-trade areas sometimes through free-trade areas or customs unions”.or customs unions”.
Average Tariff Rates on Average Tariff Rates on Manufactured ProductsManufactured Products
19131913 19501950 19901990 20022002
FranceFrance 21 %21 % 18 %18 % 5.9 %5.9 % 4.0 %4.0 %
GermanyGermany 20 %20 % 26 %26 % 5.9 %5.9 % 4.0 %4.0 %
ItalyItaly 18 %18 % 25 %25 % 5.9 %5.9 % 4.0 %4.0 %
JapanJapan 30 %30 % ---- 5.3 %5.3 % 3.8 %3.8 %
HollandHolland 5 %5 % 1 %1 % 5.9 %5.9 % 4.0 %4.0 %
SwedenSweden 20 %20 % 9 %9 % 4.4 %4.4 % 4.0 %4.0 %
Great Great BritainBritain
---- %% 5.9 %5.9 % 4.0 %4.0 %
United United StatesStates
44 %44 % 14 %14 % 4.8 %4.8 % 4.0 %4.0 %
IntroductionIntroduction
One notable trend in the global economy in One notable trend in the global economy in recent years has been the accelerated recent years has been the accelerated movement toward regional economic movement toward regional economic integrationintegration• Regional economic integration refers to Regional economic integration refers to
agreements among countries in a geographic agreements among countries in a geographic region to reduce, and ultimately remove, tariff region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, and non-tariff barriers to the free flow of goods, services, and factors of production between services, and factors of production between each othereach other
Regional Economic Integration Regional Economic Integration LogicLogic
Distance goods need to travel between Distance goods need to travel between countries is shortcountries is short
Consumers’ tastes are likely to be similarConsumers’ tastes are likely to be similar Distribution channels can be easily Distribution channels can be easily
established in adjacent countriesestablished in adjacent countries Neighboring countries may have common Neighboring countries may have common
history and interestshistory and interests By end 2005, all 150 WTO members By end 2005, all 150 WTO members
reported participation in at least one reported participation in at least one regional trade agreementregional trade agreement
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The coverage and depth of preferential treatment The coverage and depth of preferential treatment varies from one RTA to another.varies from one RTA to another.
Modern RTAs, and not exclusively those linking Modern RTAs, and not exclusively those linking the most developed economies, tend to go far the most developed economies, tend to go far beyond tariff-cutting exercises. They provide for beyond tariff-cutting exercises. They provide for increasingly complex regulations governing intra-increasingly complex regulations governing intra-trade (e.g. with respect to standards, safeguard trade (e.g. with respect to standards, safeguard provisions, customs administration, etc.) and they provisions, customs administration, etc.) and they often also provide for a preferential regulatory often also provide for a preferential regulatory framework for mutual services trade.framework for mutual services trade.
The most sophisticated RTAs go beyond The most sophisticated RTAs go beyond traditional trade policy mechanisms, to include traditional trade policy mechanisms, to include regional rules on investment, competition, regional rules on investment, competition, environment and labour. environment and labour.
Levels of Regional IntegrationLevels of Regional Integration
Coordinate aspects of members’ economic and political systemsPolitical UnionPolitical Union
Remove barriers to trade, labor and capital,set a common trade policy against nonmembers, and coordinate members’ economic policies
Economic Economic UnionUnion
Remove all barriers to trade, labor and capitalamong members, and set a common trade policy against nonmembers
Common MarketCommon Market
Remove all barriers to trade among members, and set a common trade policy against nonmembers
Customs Customs UnionUnion
Remove all barriers to trade among members, but each country has own policies for nonmembers
Free-Trade Free-Trade AreaArea
Regional IntegrationRegional Integration
Benefits:Benefits:• Trade CreationTrade Creation• Greater Greater
ConsensusConsensus• Political Political
CooperationCooperation• Employment Employment
OpportunitiesOpportunities
Drawbacks:Drawbacks:• Trade DiversionTrade Diversion• Shifts in Shifts in
EmploymentEmployment• Loss of national Loss of national
SovereigntySovereignty
1010
European Union (EU)European Union (EU)
Pop: 455 million
GDP: $9.3 trillion
Members: 27
Economic Union
Began: 1951
European Union: Early YearsEuropean Union: Early Years
European Coal and Steel Community (1951): European Coal and Steel Community (1951): Removed trade barriers in coal, iron and steelRemoved trade barriers in coal, iron and steel
European Economic Community (1957): European Economic Community (1957): Outlined and took initial steps toward common Outlined and took initial steps toward common marketmarket
European Community (1967): Expanded to European Community (1967): Expanded to other industries including atomic energyother industries including atomic energy
European Union (1994): Final name change European Union (1994): Final name change and reduced barriers furtherand reduced barriers further
Additional milestones:Additional milestones:• Single European Act (1987): Harmonized Single European Act (1987): Harmonized
regulations, strived for lower barriersregulations, strived for lower barriers• Maastricht Treaty (1991): Single currency targets, Maastricht Treaty (1991): Single currency targets,
outlined eventual political unionoutlined eventual political union
Initially, the EU consisted of just six Initially, the EU consisted of just six countries: Belgium, Germany, France, countries: Belgium, Germany, France, Italy, Luxembourg and the Italy, Luxembourg and the Netherlands. Denmark, Ireland and the Netherlands. Denmark, Ireland and the United Kingdom joined in 1973, United Kingdom joined in 1973, Greece in 1981, Spain and Portugal in Greece in 1981, Spain and Portugal in 1986, Austria, Finland and Sweden in 1986, Austria, Finland and Sweden in 1995. In 2004 the biggest ever 1995. In 2004 the biggest ever enlargement took place with 10 new enlargement took place with 10 new countries joining. In 2007 another two countries joining. In 2007 another two countries; Bulgaria and Romania have countries; Bulgaria and Romania have joined the EU.joined the EU.
Five Key EU InstitutionsFive Key EU Institutions
EuropeanCommission
Council of theEuropean Union
EuropeanParliament
Court ofAuditors
Court of Justice
European Union EnlargementEuropean 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
European Union IssuesEuropean Union Issues
Abolish the right of individual EU countries Abolish the right of individual EU countries to run their own foreign policiesto run their own foreign policies
Have the right to raise direct taxesHave the right to raise direct taxes Use common border controlsUse common border controls Integrate the European police forceIntegrate the European police force Influence national governments’ budgets Influence national governments’ budgets
much more stronglymuch more strongly Create a European president to run the Create a European president to run the
Council of MinistersCouncil of Ministers
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European Free Trade European Free Trade AssociationAssociation
Iceland, Liechtenstein, Iceland, Liechtenstein, Norway, SwitzerlandNorway, Switzerland
Feared lost sovereigntyFeared lost sovereignty Feared destructive Feared destructive
rivalryrivalry Desired free-trade Desired free-trade
gainsgains Cooperates with EUCooperates with EU
Pop: 12 million
GDP: $410 billion
Members: 4
Free-Trade Area
Began: 1960
North AmericanNorth AmericanFree Trade AgreementFree Trade Agreement
US-Canada (CAFTA) 1989US-Canada (CAFTA) 1989 US-Canada-Mexico (NAFTA)US-Canada-Mexico (NAFTA) Trade in many goods, Trade in many goods,
servicesservices Complicated rules of originComplicated rules of origin Effects still fiercely debatedEffects still fiercely debated
Pop: 420 million
GDP: $12 trillion
Members: 3
Free-Trade Area
Began: 1994
NAFTA Effects NAFTA Effects
JobsJobsand wagesand wages
Three-nationThree-nationtrade flowstrade flows
FutureFutureexpansion?expansion?
““Fast track”Fast track”authorityauthority
SingleSinglecurrency?currency?
Andean CommunityAndean Community
Internal tariff reductionInternal tariff reduction
Common external tariffCommon external tariff
Common transport policiesCommon transport policies
Impaired by ideological Impaired by ideological conflictconflict
Pop: 105 million
GDP: $500 billion
Members: 5
Customs Union
Began: 1969
Southern Common MarketSouthern Common Market
MERCOSURMERCOSUR Very successful earlyVery successful early Future “SAFTA”?Future “SAFTA”? Impaired by ideology and Impaired by ideology and
economic hardshipseconomic hardships
Pop: 220 million
GDP: $2 trillion
Members: 4 (+2)
Customs Union
Began: 1988
Central America / CaribbeanCentral America / Caribbean
Members have littleMembers have little to offer each otherto offer each other
Peace is driving tentative optimism
Pop: 33 million
GDP: $120 billion
Members: 5
+/- Common Market
Began: 1961
Pop: 6 million
GDP: $30 billion
Members: 15
Common Market
Began: 1973
Free Trade Area of the Free Trade Area of the AmericasAmericas
Would create the largest Would create the largest free-trade area on the free-trade area on the planetplanet
From northern tip of From northern tip of Alaska to southern tip of Alaska to southern tip of Tierra del Fuego in South Tierra del Fuego in South AmericaAmerica
Could mean enormous Could mean enormous cost savings for businesscost savings for business
Protests by many groups Protests by many groups is slowing progressis slowing progress
Pop: 800 million
GDP: $14 trillion
Members: 34
Free-Trade Area
Association of SoutheastAssociation of SoutheastAsian NationsAsian Nations
ASEANASEAN
1. Economic, social and cultural development1. Economic, social and cultural development2. Safeguard economic and political stability2. Safeguard economic and political stability3. Serve as a forum to resolve disputes3. Serve as a forum to resolve disputes
Pop: 500 million
GDP: $800 billion
Members: 10
General Cooperation
Began: 1967
Pop: 500 million
GDP: $800 billion
Members: 10
General Cooperation
Began: 1967
Association of South East Asian Association of South East Asian Nations (ASEAN)Nations (ASEAN)
Organized in 1967Organized in 1967 Member countries Member countries
are protected in are protected in terms of tariff and terms of tariff and nontariff barriersnontariff barriers
Holds tremendous Holds tremendous potential market potential market opportunities with opportunities with more than 500 more than 500 million consumersmillion consumers
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The Association of Southeast Asian The Association of Southeast Asian Nations or ASEAN was established on 8 Nations or ASEAN was established on 8 August 1967 in Bangkok by the five August 1967 in Bangkok by the five original Member Countries, namely, original Member Countries, namely, Indonesia, Malaysia, Philippines, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Singapore, and Thailand. Brunei Darussalam joined on 8 January 1984, Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Laos and Vietnam on 28 July 1995, Laos and Myanmar on 23 July 1997, and Cambodia Myanmar on 23 July 1997, and Cambodia on 30 April 1999. on 30 April 1999.
The Framework Agreement on Enhancing The Framework Agreement on Enhancing Economic Cooperation was adopted at the Economic Cooperation was adopted at the Fourth ASEAN Summit in Singapore in 1992, Fourth ASEAN Summit in Singapore in 1992, which included the launching of a scheme which included the launching of a scheme toward an ASEAN Free Trade Area or AFTA. toward an ASEAN Free Trade Area or AFTA. The strategic objective of AFTA is to increase The strategic objective of AFTA is to increase the ASEAN region’s competitive advantage as a the ASEAN region’s competitive advantage as a single production unit. The elimination of tariff single production unit. The elimination of tariff and non-tariff barriers among the member and non-tariff barriers among the member countries is expected to promote greater countries is expected to promote greater economic efficiency, productivity, and economic efficiency, productivity, and competitivenesscompetitiveness
In 1995, the ASEAN Heads of States and In 1995, the ASEAN Heads of States and Government re-affirmed that “Cooperative peace Government re-affirmed that “Cooperative peace and shared prosperity shall be the fundamental and shared prosperity shall be the fundamental goals of ASEAN.”goals of ASEAN.”
ASEAN cooperation has resulted in ASEAN cooperation has resulted in greater regional integration. Within three greater regional integration. Within three years from the launching of AFTA, exports years from the launching of AFTA, exports among ASEAN countries grew from among ASEAN countries grew from US$43.26 billion in 1993 to almost US$80 US$43.26 billion in 1993 to almost US$80 billion in 1996, an average yearly growth billion in 1996, an average yearly growth rate of 28.3 percent. In the process, the rate of 28.3 percent. In the process, the share of intra-regional trade from ASEAN’s share of intra-regional trade from ASEAN’s total trade rose from 20 percent to almost total trade rose from 20 percent to almost 25 percent.25 percent.
Asia Pacific Economic Asia Pacific Economic CooperationCooperation
Asia Pacific Economic Asia Pacific Economic CooperationCooperation
APEC: Group of 21 nations ringing the Pacific APEC: Group of 21 nations ringing the Pacific Ocean that accounts for over half of world tradeOcean that accounts for over half of world tradeAPEC: Group of 21 nations ringing the Pacific APEC: Group of 21 nations ringing the Pacific
Ocean that accounts for over half of world tradeOcean that accounts for over half of world trade
1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc1. Not designed as a free-trade bloc
2. Strengthen multilateral trade system2. Strengthen multilateral trade system2. Strengthen multilateral trade system2. Strengthen multilateral trade system
3. Liberalize trade and investment rules3. Liberalize trade and investment rules3. Liberalize trade and investment rules3. Liberalize trade and investment rules
Asia Pacific Economic Asia Pacific Economic CooperationCooperation
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.
Middle East and AfricaMiddle East and Africa
Gulf Cooperation CouncilGulf Cooperation Council(GCC)(GCC)
Six Arab nations (1980)Six Arab nations (1980) Economic and political Economic and political
aimsaims Free travel; property Free travel; property
rightsrights
Economic Community ofWest African States
(ECOWAS) Common market hopes (1975) Little progress to date
Regional Trade Blocs in AfricaRegional 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
Impact on BusinessImpact on Business Positive:
• 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.
Commodity AgreementsCommodity Agreements
Attempts to counteract price Attempts to counteract price instability through:instability through:• Exercise of market power through Exercise of market power through
international commodity agreementsinternational commodity agreements• Stabilization of producer revenues Stabilization of producer revenues
through risk-management instruments, through risk-management instruments, such as commodities futuressuch as commodities futures
• Stabilization of government revenues Stabilization of government revenues through precautionary savings fundsthrough precautionary savings funds
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Organization of Petroleum Organization of Petroleum Exporting Countries (OPEC)Exporting Countries (OPEC)
Producer cartelProducer cartel Group of commodity-producing countries Group of commodity-producing countries
that control supply and pricethat control supply and price OPEC controls price by establishing OPEC controls price by establishing
production quotas on member countriesproduction quotas on member countries OPEC member countries produce 41% of OPEC member countries produce 41% of
the world’s crude oil and 155 of its natural the world’s crude oil and 155 of its natural gasgas
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Bilateral vs MultilateralBilateral vs Multilateral
Bilateral agreement: between two Bilateral agreement: between two countriescountries• To improve climates for investments To improve climates for investments
abroadabroad• ‘‘safeguard’ for businesses to expand safeguard’ for businesses to expand
between those countriesbetween those countries
Multilateral agreement: between Multilateral agreement: between more than two countriesmore than two countries
