LEARNING OBJECTIVES

After studying this 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

GLOBAL ECONOMIC INTEGRATION

Regional economic integration - efforts to reduce trade and investment barriers within one region

European Union – The official title of European economic integration since 1993

Global economic integration - efforts to reduce trade and investment barriers around the globe

GLOBAL ECONOMIC INTEGRATION

General Agreement on Tariffs and Trade (GATT) – A multilateral agreement governing the international trade of goods (merchandise)

World Trade Organization (WTO) –

The official title of the multilateral trading system and the organization underpinning this system since 1995

GLOBAL ECONOMIC INTEGRATION

Multilateral trading system – The global system that governs international trade among countries—otherwise known as the GATT/WTO system

nondiscrimination – A principle that a country cannot discriminate among its trading partners (a concession given to one country needs to be made availabe to all other GATT/WTO members)

General Agreement on Tariffs 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 IIGATT's main objective was reduction of barriers to international trade through reduction of tariff barriers through a series of agreements. GATT was a treaty, not an organizationThe functions of the GATT were taken over by the World Trade Organization (WTO) which was established during the final round of of the Uruguay Round of negotiations in the early 1990s

World Trade Organization (WTO)Established January 1, 1995, headquartered in Genvea, Switzerland

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

WORLD TRADE ORGANIZATION:1995–PRESENT

General Agreement 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

WORLD TRADE ORGANIZATION:1995–PRESENT

Trade-Related Aspects 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 and industrial designs patents including the protection of new varieties of plantslayout-designs of integrated circuitsundisclosed information including trade secrets and test data

Trade Dispute Settlement

GATT mechanisms experienced long delays, blocking by accused countries, and inadequate enforcementWTO 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

WORLD TRADE ORGANIZATION:

Doha Development Agenda

A round of WTO negotiations to reduce agricultural subsidies, slash tariffs, and strengthen intellectual property protection that started in Doha, Qatar, in 2001—officially known as the “Doha Development Agenda.” It was suspended in 2006 due to disagreements.

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

Types of Regional Economic 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

Types of Regional Economic Integration

Monetary union – a group of countries that use a common currency

Political union – The integration of political and economic affairs of a region

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

North American Free TradeAgreement (NAFTA)

free trade agreement between Canada, Mexico, and the United Statestariffs on half of the exports and imports among members removed immediatelyremaining tariffs phased out by 2010

North American Free TradeAgreement (NAFTA) – first decade

trade between Canada and the United States grew twice as fast as it did before NAFTAUS exports to Mexico grew threefold, from $52 billion to $161 billionUS FDI in Mexico averaged $12 billion a year, three times what India took inMexico’s US-bound exports grew threefold, and its GDP rose to become 9th in the world, up from 15th in 1992Mexico’s GDP per capita rose 24% during 1993–2003 to over $4,000, several times China’s

Andean Community and Mercosur

Customs unions in South America:Andean Community (1969) – covers western side of South AmericaMercosur (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

CAFTA

United States-Dominican Republic-Central America Free Trade

Agreement (CAFTA) 1995Modeled after NAFTA, five Central American countries: Guatemala, Honduras, El Salvador, Nicaragua, and Costa Rica plus the Dominican Republic

Second largest US Export Market in Latin America behind Mexico

FTAA

as a result 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

Australia-New Zealand Closer Economic

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

Association of Southeast Asian 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

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)

REGIONAL ECONOMIC INTEGRATIONIN AFRICA

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

Building Blocks or Stumbling 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.

Does the WTO Really 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.