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- 1. Chapter 8 Global andRegional Integration
- 2. LEARNING OBJECTIVES After studyingthis chapter, you should be able to: 1. make the case for global economic integration 2. understand the evolution of the GATT and the WTO, including current challenges 3. describe the advantages and disadvantages of regional economic integration 4. understand regional economic integration efforts in Europe, the Americas, Asia Pacific, and Africa 5. participate in two debates on global and regional economic integration 6. draw implications for action
- 3. GLOBAL ECONOMIC INTEGRATION Regionaleconomic integration - efforts to reduce trade and investment barriers within one region Global economic integration - efforts to reduce trade and investment barriers around the globe benefits - global economic integration raises incomes, generates jobs, and stimulates economic growth flaws - environmental impact and unequal distribution of the fruits from more trade and investment among the haves and have-nots in the world
- 6. General Agreement onTariffs and Trade (GATT) Bretton Woods Conference introduced the idea for an organization to regulate trade as part of a larger plan for economic recovery after World War II GATT's main objective was reduction of barriers to international trade through reduction of tariff barriers, quantitative restrictions and subsidies on trade through a series of agreements. GATT was a treaty, not an organization The functions of the GATT were taken over by the World Trade Organization (WTO) which was established during the final round of negotiations in the early 1990s
- 7. World Trade Organization(WTO) World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments The goal is to help producers of goods and services, exporters, and importers conduct their business
- 8. World Trade Organization (WTO) nondiscrimination- a country cannot discriminate among its trading partners Every time a country lowers a trade barrier, it has to do the same for all WTO member countries (except when giving preference to regional partners)
- 10. Trade Dispute Settlement GATTmechanisms experienced long delays, blocking by accused countries, and inadequate enforcement WTO addresses all three problems: sets time limits for a panel, consisting of three neutral countries, to reach a judgment removes the power of accused countries to block unfavorable decisions WTO recommends that losing countries change their laws or practices and authorizes winning countries to use tariff retaliation to compel offending countries’ compliance with WTO rulings
- 11. WORLD TRADE ORGANIZATION: 1995–PRESENT GeneralAgreement on Trade in Services (GATS) services currently account for over 60% of global production and employment, but represent no more than 20% of global trade GATS was stimulated by the same objectives as GATT in merchandise trade: creating a credible and reliable system of international trade rules ensuring fair and equitable treatment of all participants (nondiscrimination) stimulating economic activity through guaranteed policy bindings promoting trade and development through progressive liberalization
- 12. WORLD TRADE ORGANIZATION: 1995–PRESENT Trade-RelatedAspects of Intellectual Property Rights (TRIPS) Areas of intellectual property covered: copyright and related rights (rights of performers, producers of sound recordings and broadcasting organizations) trademarks including service marks geographical indications including appellations of origin industrial designs patents including the protection of new varieties of plants layout-designs of integrated circuits undisclosed information including trade secrets and test data
- 13. WORLD TRADE ORGANIZATION: 1995–PRESENT DohaDevelopment Agenda launched in the aftermath of the 9/11 attacks strong resolve to make free trade work around the globe to defeat the terrorist agenda to divide and terrorize the world first round in the history of GATT/WTO to specifically aim at promoting economic development in developing countries Goal: make globalization more inclusive and help the world’s poor
- 14. Types of RegionalEconomic Integration free trade area (FTA) - group of countries that remove trade barriers among themselves while each still maintains different external policies regarding nonmembers customs union - imposes common external policies on nonparticipants to combat trade diversion common market - permits the free movement of goods and people economic union - members coordinate and harmonize economic policies (in areas such as monetary, fiscal, and taxation) to blend their economies into a single economic entity
- 16. European Union European Union(EU) - set up in the aftermath of WWII to bring peace, stability and prosperity to Europe Restrictions between member countries on trade and free competition have gradually been eliminated, with the result that standards of living have increased. Some sectors of the economy (public services) are still subject to national laws Individual EU countries still largely have the responsibility for taxation and social welfare The single market is supported by a number of related policies put in place by the EU over the years which help ensure that market liberalization benefits as many businesses and consumers as possible
- 20. North American FreeTrade Agreement (NAFTA) free trade agreement between Canada, Mexico, and the United States tariffs on half of the exports and imports among members removed immediately remaining tariffs phased out by 2010
- 21. North American FreeTrade Agreement (NAFTA) – first decade trade between Canada and the United States grew twice as fast as it did before NAFTA US exports to Mexico grew threefold, from $52 billion to $161 billion US FDI in Mexico averaged $12 billion a year, three times what India took in Mexico’s US-bound exports grew threefold, and its GDP rose to become 9th in the world, up from 15th in 1992 Mexico’s GDP per capita rose 24% during 1993– 2003 to over $4,000, several times China’s
- 22. Andean Community andMercosur Customs unions in South America: Andean Community (1969) – covers western side of South America Mercosur (1981) – covers eastern side of South America Both regional initiatives have not been effective, in part because only 5% - 20% of members’ trade is within the Andean Community and Mercosur, respectively Their largest trading partner, the United States, lies outside the region
- 23. CAFTA United States-Dominican Republic- CentralAmerica Free Trade Agreement (CAFTA) 1995 Modeled after NAFTA, five Central American countries: Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica plus the Dominican Republic
- 24. FTAA as aresult of NAFTA all Latin American countries (except Cuba) launched negotiations with Canada and the United States for a possible Free Trade Area of the Americas (FTAA) in 2005, Argentina, Brazil, Paraguay, Uruguay, and Venezuela announced that they opposed FTAA, thus undermining the chances that FTAA would ever be set up
- 26. Australia-New Zealand CloserEconomic Relations Trade Agreement (CER) removed tariffs and NTBs both countries agreed not to charge exporters from the other country for “dumping” citizens from both countries can also freely work and reside in the other country
- 27. Association of SoutheastAsian Nations (ASEAN) ASEAN’s main trading partners, the United States, the European Union, Japan, and China, are outside the region In 2002, ASEAN and China signed an ASEAN-China Free Trade Agreement (ACFTA) to be launched by the early 2010s Similar FTAs are being negotiated with Japan and South Korea
- 28. Asia-Pacific Economic Cooperation (APEC) largest regional integration grouping by geographic area and by GDP 21 member economies span four continents home to 2.6 billion people contribute 46% of world trade ($7 trillion) command 57% of world GDP ($21 trillion)
- 30. REGIONAL ECONOMIC INTEGRATION INAFRICA relatively little trade within Africa (amounting to less than 10% of the continent’s total trade) protectionism often prevails frustration with a current regional deal often leads to a new deal, usually with a different set of countries virtually impossible to understand the various African regional deals
- 32. Building Blocks orStumbling Blocks In the absence of global economic integration, regional economic integration is often regarded as the next best thing to facilitate free trade—at least within a region. However, another school of thought argues that regional integration has become a stumbling block for global integration.
- 33. Does the WTOReally Matter? Frustration associated with the collapse of the Doha Round and other WTO initiatives hinges on a crucial assumption that the WTO actually matters. However, this assumption itself is now subject to debate. Academic research has failed to find any compelling evidence that the WTO (and the GATT) has a significantly positive effect on trade.