Tài chính doanh nghiệp - Chapter 8: Regional economic integration

Chapter 8Regional economic integration F T A ANAFTAEU (25) APECA F T AAustralia–New ZealandMERCOSUR1Lecture planWhy regionalism?Definition of regional economic integrationFive levels of regional economic integrationindustrial free trade area; full free trade area; customs union; common market; economic unionTrade effects of regional integrationRegional groups: EU, NAFTA, AFTA, MERCOSURBilateral free trade agreementsIs regionalism the path to globalism?2Regional economic integrationAgreements among countries in a geographic region to reduce, and ultimately remove, tariff and non-tariff barriers to the free flow of goods, services and factors of production among each other.It is estimated that currently there are about 220 regional trade arrangements! 3Regional trade arrangementsException to MFN (Most Favoured Nation) rule in GATT/WTO; allows regional agreements to provide higher preferential treatment to members than to non-members.Five levels of regional economic integrationindustrial free trade areafull free trade areacustoms unioncommon market economic union4Regional economic integration Free Trade Area (FTA)No tariffs and quotas among membersNational tariffs against non-membersPartial (industrial) FTA and full FTAAustralia’s bilateral FTAs with New Zealand, Singapore, USA, ThailandPluri-lateral FTA: EFTA, NAFTA, AFTAFree TradeArea5Regional economic integration customs unionNo tariffs and quotas among members. Common tariffs operate against non-members. Examples: European Community EC (1968) MERCOSUR (South American Union)Customs UnionFree TradeArea6Regional economic integration common marketAbolition of restrictions on factor movements Example: The European ‘Single Market’ (1992)Customs UnionFree TradeAreaCommon Market© Copyright J. Gionea RMIT 20037Regional economic integration economic unionCustoms UnionFree TradeAreaCommon MarketEconomic UnionCharacterised by harmonisation and unification of economic policies common currency  Example: European Union8Trade effects of integrationTrade creation– trade up through lower-cost goods and services (e.g. European Union: industrial sector)Trade diversion– less efficient producers inside the area replace more efficient external producers (e.g. EU: common agricultural policy)9Intra-regional trade under major regional trade agreements, 2002, $US billion, %RegionalTrade AgreementsIntra-regional trade($US billion)Share of World exports(%)EU (15)1,50924.1NAFTA (3) 62610.0AFTA (10) 97 1.6CEFTA (7) 19 0.3MERCOSUR (4) 10 0.2ANDEAN (5) 5 0.110Intra-exports as % of total merchandise exports of selected regional trading blocs11Intra-imports as % of total merchandise imports of selected regional trading blocs12European economic integration1957 European Communities (6): France, Western Germany, Italy, Belgium, Luxemburg, Netherlands1968 Customs union 1973 UK, Ireland, Denmark, Greece (1981), Spain and Portugal (1986)1992 European single market 1996 Austria, Finland, Sweden2002 European Monetary Union (currently 12 members) 2004 10 new members: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia (500 million people). 13North American Free Trade Agreement (NAFTA)US, Canada, MexicoBecame law 1/1/1994Over 15 year period– tariffs reduced (99% of goods traded)– non-tariff barriers reduced– investment opportunities increasedProtects intellectual propertyThree-side agreements– environmental protocols– labour protocols– snap-back provisionSpecial treatment for many industries14MERCOSUR (Southern Common Market)Originated in 1988 as a free trade pact between Brazil and ArgentinaExpanded in March 1990 to include Paraguay and UruguayCombined population of 200 million1995: 5-year plan to move to full customs unionObjective: South American Free Trade Area (SAFTA)15The Free Trade Area of the Americas (FTAA)Old plan of ex-US president George Bush, pursued now by his son.FTAA = 34 nations (including NAFTA and MERCOSUR members) with population of 880 million; world’s largest free trade area.The Quebec 34-country Summit of March 2001 agreed on an FTAA to be launched in 2005.President Bush obtained fast-track authority (now renamed Trade Promotion Authority). 16ASEAN (10)AFTA = ASEAN Free Trade Area; launched in 1992Members: Singapore, Indonesia, Thailand, Malaysia, Philippines, Brunei, Vietnam, Burma, Laos, Cambodia (550 million people).On the Common Effective Preferential Tariff (CEPT) of AFTA, the 6 founding members agreed (individually) to achieve a minimum of 85% of the tariff lines on their inclusion lists in the 0-5 % range by 2000, covering 90% of intra-ASEAN trade.They also brought forward from 2003 to 2002 the date of implementation of the CEPT; few extensions (e.g cars).ASEAN + 3 (China, Japan, South Korea).ASEAN–China FTA: >1.7 billion people; GDP: US$1.65 trill.17MFN simple mean tariffs 1999 vs CEP tariff rates 1999, 2003, % in selected ASEAN countriesMFN1999CEPT1999 (%)CEPT2003 (%)Indonesia10.95.853.71Malaysia7.13.172.06Philippines 10.04.452.06Thailand21.69.754.64MFN = Most Favoured Nation: non-discrimination.  (All WTO signatories have MFN status.)CEPT = Common Effective Preferential Tariff: a comprehensive timetable for gradual phase out of intra-ASEAN tariffs on nominated goods. 18Automotive MFN tariffs in selected ASEAN countries, %CountryCKD* Tariff (MFN) CBU** Tariff (MFN) Malaysia42–80140–300Thailand3380Indonesia35–5065–80Philippines1030Malaysia42–80140–300 *CKD: Completely Knocked Down car kits***CBU: Completely Built Units19Three-way balance (E. Asia, EU, US)output, trade with the ROW*, reserves * ROW = Rest of the WorldBased on Fred Bergsten’ s Economist article 20Why the push for East-Asian integration?East Asian financial crisis Failures of WTO and APEC to make headway on trade liberalisationPositive inspiration provided by European integration (especially the euro)Broad disquiet with behaviour of boththe US and EU Based on Bergsten, 2000. (See References.)21Bilateral Free Trade Agreements (FTAs)Singapore’s free trade agreements with US, Japan, Australia, New Zealand, MexicoMexico-European UnionAustralia’s FTAs withNew Zealand, Singapore, Thailand, USA (under Australian Senate approval)Australian discussions for FTAs with China and Malaysia22The share of regional trading blocs in Australia’s merchandise exports 1974, 1989, 2002Regional Bloc197419892002European Union16.514.412.4NAFTA12.412.511.5ASEAN 8.0 9.612.2MERCOSUR 0.2 0.5 0.6New Zealand 6.6 5.4 6.6SAARC 3.4 1.8 3.1Source: adapted from DFAT, Direction of Trade Time Series, 1974 to 1994 and Composition of Trade, 2003 23Is regionalism a path to globalism?Two key questions: 1. Does regional integration increase or decrease global economic welfare? 2. Will regional trading blocs lead to global trade more quickly than the multilateral process?Two views regional trading blocs = ‘stumbling’ blocsregional trading blocs = building blocsHopefully, the latter view will prevail.24ReferencesBergsten, F. 2000, ‘Towards a tripartite world’, The Economist,15 July.Gionea, J. 2003, International Trade and Investment, McGraw-Hill, Sydney. Hill, C. 2003, International Business, Competing in the Global Marketplace, McGraw-Hill, New York. 25Australia’s trade with ASEAN in passenger motor vehicles, A$ million, 1999–2003Source: adapted from DFAT, Composition of Trade, 200326Australia’s trade with NAFTA in passenger motor vehicles (PMV), A$ million, 1999–200327Australia’s trade with NAFTA in motor vehicle parts (MVP), $A million, 1999–200328Australia’s cumulative trade (PMV + MVP) with NAFTA, A$ million, 1999–2003Source: adapted from DFAT, Composition of Trade, 2003 29