capitalizing on global and regional integration
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Objectives
Importance of economic integrationGlobal integrationRegional integrationRegional organizations of interestImplications for action
Economic Integration
Regional economic integration: Efforts to reduce trade and investment barriers within one region
Global economic integration: Efforts to reduce trade and investment barriers around the globe
Integrating the Global Economy
Important developments after WWII General Agreement on Tariffs and Trade (GATT):
Multilateral agreement governing the international trade of goods
World Trade Organization (WTO): Multilateral trading system and the organization underpinning the system since 1995
European Union (EU): Official title of European economic integration since 1993
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Exhibit
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8.1 Benefits of Global Economic Integration
Global Integration
General Agreement on Tariffs and Trade – 1948 –multilateral agreement governing the international trade of goods (merchandise goods) Multilateral – many countries (bilateral, 2 countries) Agreement to reduce tariffs
• Avg. developed country tariffs dropped from 40% in 1948 –3% in 2005
Not an organization Problems
• Merchandise, not services or IP• Loopholes• Didn’t address non-tariff barriers
World Trade Organization
Grew out of GATT in 1995 True organization headquartered in Geneva,
Switzerland Includes GATT plus agreements on:
• Trade in Services• Intellectual Property Rights• Dispute settlement mechanisms• Trade policy reviews – peer review of policies
World Trade Organization
Objectives of WTO
1.Non-discrimination2. Freer Trade3. Predictability – don’t raise tariffs4. “Fair Competition” – no subsidies5. Encourage development and economic reform
Dispute Settlement
Time limited reviews
Panel of three neutral countries
Enforcement still lacking Ruling is recommendation
• Can sanction retaliatory tariffs, not optimal… No way of truly enforcing
• Change policies• Carry on and face retaliatory tariffs
Most countries change policies
Debates
Turtles Turtles are endangered On US endangered species list Shrimpers in US must use Turtle Excluder Device In 1989 US banned imports from countries not requiring TEDs,
including India, Malaysia, Pakistan, and Thailand Is this allowable?
Meat and Meat Products 1996 US protested European prohibition of hormone infused beef
• Discriminated against beef from the US Is this allowable?
Future of WTO
Another round of negotiations Seattle 1999 “Doha Round” – 2001
• Followed 9/11 emphasis on unity• Promote development in developing countries• Objectives
– Reduce agricultural subsidies in developed countries– Slash tariffs – esp. to help developing countries– Free trade in services– Strengthen IP protection
Negotiations broke down
Breakdown
Subsidies EU refused to reduce farm subsidies Japan refused to reduce rice subsidies
• Rice farmers very powerful politically US wouldn’t cut farm subsidies either (increased)
Intellectual property Developing countries refused to tighten protection
• India – pharmaceuticals• No reduction in subsidies, no IPR protection
July 2006 in Geneva Doha round closed Lots of finger pointing
Regional Economic Integration
The European Union Political origins – effort to stop cycle of hatred and
violence. First step – European Coal and Steel Community
(1951)• Belgium, France, W. Germany, Italy, Lux.,
Netherlands 1957 – Treaty of Rome, launches European Economic
Community (EEC).• FTA -> Customs Union -> Common Market
Regional Economic Integration
The European Union 1993 – Treaty of Maastricht, establishing European
Union, goes into effect• Launched toward the Euro
Monetary Union in 1999 (12 of 15 countries)• Euro not used in UK, Denmark, or Sweden
Built a single market• Companies compete in multiple countries on equal
terms– Ex: airlines, trucking companies, etc.
EU Today
28 countries in EU 19 in Euro Zone (countries the use the Euro) Little more than half
50 years of peace500 Million citizens22% of World GDP
What will happen with the exit of UK?
Spend the next 15 minutes researching the implications of Brexit on the EU.
The Euro
BenefitsReduces conversion costsFacilitates price comparisonImposes monetary
disciplineBoosted trade in EU by 10%
CostsLoss of monetary policy at
country levelLimits fiscal flexibility Deficits < 3% GDP
Greece, Italy, Ireland, Spain, Portugal,…
Cyprus
Challenges for EU
Southern EU countries are different from northern Southern countries have inflated/devalued their way out of debt
crises in the past Can no longer do that when all using the same currency, need
bailouts and guarantees from north
Economic and political union or just economic? Or maybe customs union…
Cost of enlargement Poor countries entering will use resources of wealthier Membership of Turkey? EU á la carte?
NAFTA
North American Free Trade Agreement
US, Canada, Mexico
Successful? Up for debate
Counties are neighbors and trading partners
Dreamstime.com
North American Free Trade Agreement
US, Canada, Mexico
No “sucking sound”, US exports tripled first decade
Estimates vary but since agreement US created 20 million new jobs!
Mexican GDP per capita grew 24%
Most benefits probably accrued to Mexico “Importance of Being Unimportant”
Maquiladora (export assembly factories) production peaked in 2000 Potentially oversold to Mexicans, disappointment
South America
Andean and Mercosur not effective, major trade partners outside agreement (US)
CAFTA includes US and is successful Contains US, major
trading partner
Australia-New Zealand Closer Economic Relations Trade Agreement
Let’s just call it CER Free Trade Area
• Removes tariffs and NTBs Citizens can freely work and
move between countries Very successful
• Similar countries that are trading partners
Liberation.typepad.com
Asia
Assoc. of Southeast Asian Nations
Formed 1967AFTA in 1992Limited by
membershipExpanded to
include China in 2002, ASEAN-China
Source: Ball 12e
Asia-Pacific Economic Corporation
ASEAN EffectiveCER EffectiveASEAN and CER
countries joinedInvited JapanUS has pacific coast,
Mexico and Canada
Russia does too.So does Peru…Not effectiveDiscussion but no
binding agreements
Too big! Too diverse!Ineffective!
Takeaways
Lots of agreements out there NAFTA, CAFTA, ASEAN, APEC Haven’t even considered bilateral agreements Some effective some not…
If regional agreements are too large or too diverse may not be effective
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