Capitalizing on Global and Regional Integration. Chapter 8

Transcription

1 Capitalizing on Global and Regional Integration Chapter 8

2 Objectives Importance of economic integration Global integration Regional integration Regional organizations of interest Implications for action

3 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

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5 Smoot Hawley Tariff, 1930

6 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

7 Exhibit 8.1 Benefits of Global Economic Integration Copyright 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. GLOBAL3 CH8 7

8 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 % in 2005 Not an organization Problems Merchandise, not services or IP Loopholes Didn t address non-tariff barriers

9 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

10 World Trade Organization Objectives of WTO 1.Non-discrimination 2. Freer Trade 3. Predictability don t raise tariffs 4. Fair Competition no subsidies 5. Encourage development and economic reform

11 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

12 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?

13 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

14 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

15 Regional Integration

16 Types of Regional Integration

17 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

18 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.

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21 EU Today 28 countries in EU 19 in Euro Zone (countries the use the Euro) Little more than half 50 years of peace 500 Million citizens 22% of World GDP What will happen with the exit of UK? Spend the next 15 minutes researching the implications of Brexit on the EU.

22 The Euro Benefits Reduces conversion costs Facilitates price comparison Imposes monetary discipline Boosted trade in EU by 10% Costs Loss of monetary policy at country level Limits fiscal flexibility Deficits < 3% GDP Greece, Italy, Ireland, Spain, Portugal, Cyprus

23 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?

24 Other Agreements

25 NAFTA North American Free Trade Agreement US, Canada, Mexico Successful? Up for debate Counties are neighbors and trading partners Dreamstime.com

26 NAFTA

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28 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

29 South America Andean and Mercosur not effective, major trade partners outside agreement (US) CAFTA includes US and is successful Contains US, major trading partner

30 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

31 Asia Assoc. of Southeast Asian Nations Formed 1967 AFTA in 1992 Limited by membership Expanded to include China in 2002, ASEAN- China Source: Ball 12e

32 Asia-Pacific Economic Corporation ASEAN Effective CER Effective ASEAN and CER countries joined Invited Japan US has pacific coast, Mexico and Canada Russia does too. So does Peru Not effective Discussion but no binding agreements Too big! Too diverse! Ineffective!

33 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

34 Implications for Action Political institutions matter Consider regions and regional agreements, not just global Global vs. Regional vs. Local Global company but with regional focus Understand the rules and transitions Agreement typically phased in over time Be ready