Global economics

www.euruni.edu

BCO221 GLOBAL ECONOMICS

Prof. Nelson H. S. Ferreira [email protected] orcid.org/0000-0003-2637-3211

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Economic Integrations II.

uFree Trade Agreements – USMCA (NAFTA) uMercosur uASEAN uAfrican Union

Types of economic integration

Regional vs. Multilateral Trade Liberalization: u Multilateral Trade Liberalization: GATT

(General Agreement on Tariffs and Trade) and WTO

u Regional Trade Liberalization: different models u FREE TRADE AREA: removal of tariffs and

quotas (NAFTA). u CUSTOMS UNION: Common external tariff

(EEC, 1968). u COMMON MARKET: Free movement of

factors (L,K,Tech) (EU 1993). u ECONOMIC AND MONETARY UNION:

Common monetary policy and co-ordination of economic policies (EMU, 1999).

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Source: https://www.thebalance.com/gatt-purpose-history-pros-cons-3305578

Types of economic integration in Regional Markets 4

Source: Czinkota and Ronkainen, 2007

Levels of Economic Integration

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Source: https://transportgeography.org/?page_id=4082

Preferential Trading Agreemen ts

Regional Trade Agreements are also called Preferential Trading Agreements because the involved countries lower tariffs for each other but not for the rest of the world.

Other Regional Trade Agreements:

1. MERCOSUR (https://www.mercosur.int/en/)

2. ASEAN (https://asean.org/)

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Preferential Trading Agreements

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Preferential Trading Agreements generate Static and Dynamic effects.

Static effects of economic integration

• Are preferential trading agreements always good for national welfare? ü No, it is possible that national welfare decreases under a

preferential trading agreement.

• How? ü Rather than gaining tariff revenue from less expensive

imports from world markets, a country may import expensive products from member countries but not gain any tariff revenue. (trade diversion)

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Static effects of economic integration (cont.)

• Preferential trading agreements tend to increase national welfare when new trade is created, but not when existing trade from the outside world is diverted to member countries.

• Trade creation – occurs when high-cost domestic production is replaced by low-

cost imports from other members. (e.g.: EU with some food)

• Trade deviation – occurs when low-cost imports from nonmembers are diverted to

high-cost imports from member nations. (e.g.: UK with butter from EU)

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Dynamic effects of economic

integration

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Economic integration brings about positive changes in factors’ endowment and productivity → boost to economic growth. These changes are highly significant, but difficult to quantify and uncertain.

Effects linked to market enlargement u Producing on a bigger scale improves efficiency

Effects stemming from the elimination of barriers between markets u More competitive pressure, more incentive

for innovation, relative price gap btw countries narrows.

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The Mercosur Accord

u In 1991, the governments of Argentina, Brazil, Paraguay, and Uruguay signed the Mercosur Accord, an agreement to create a customs union among themselves.

u Chile and Bolivia later joined the Mercosur as associate members.

u To date, the Mercosur nations have been a magnet for FDI. Particularly noticeable is the expansion of the area’s automotive industry.

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The Andean Pact

u The Andean Pact is a 1969 agreement to promote free trade among five South American countries—Bolivia, Chile, Colombia, Ecuador, and Peru—in order to make them more competitive with the continent’s larger countries.

u In response to the threat posed by the Mercosur Accord, in 1991 the Andean Pact members agreed to reinvigorate their agreement.

13The Australia-New Zealand Agreement

u The Australia-New Zealand Closer Economic Relations Trade Agreement, known as ANZCERTA or simply as CER, took effect on January 1, 1983.

u Although some areas have been excluded from the CER, such as broadcasting, postal services, and air traffic control, most analysts believe the CER has been one of the world’s most successful free trade agreements.

African Initiatives

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u Many African countries have also established regional trading blocs. The most important of these groups are:

u Southern African Development Community (SADC),

u Economic Community of Central African States (CEEAC),

u Economic Community of West African States (ECOWAS).

Free Trade Agreements in Africa

15Transatlantic Trade and Investment Partnership (TTIP)

Transatlantic Trade and Investment Partnership (TTIP) https://www.theguardian.com/business/video/2015/jun/09/what-is- ttip-video-explainer

Joseph Stiglitz: Transatlantic Trade and Investment Partnership (TTIP) is a particularly bad agreement https://www.youtube.com/watch?v=sIfO5HRRjQg

Trans-Pacific Partnership (TPP)

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The Trans-Pacific Partnership (TPP) Explained US abandoned in early 2017

https://www.youtube .com/watch?v=4juvj cRfChM