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Chapter 8 - Regional economic integration. The main goals of this chapter are to: Explain the process and the levels of regional economic integration; review the progress towards regional integration in Europe, the Americas, Asia and elsewhere; outline the basic costs and benefits of economic integration (such as trade creation and trade diversion);...
Chapter Regional economic integration NAFTA EU (25) MERCOSUR F T A A Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea APEC A F T A Australia– New Zealand 8–1 Lecture plan • Why regionalism? • Definition of regional economic integration • Five levels of regional economic integration – industrial free trade area; full free trade area; customs union; common market; economic union • Trade effects of regional integration • Regional groups: EU, NAFTA, AFTA, MERCOSUR • Bilateral free trade agreements • Is regionalism the path to globalism? Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–2 Regional economic integration • Agreements 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! Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–3 Regional trade arrangements • • Exception to MFN (Most Favoured Nation) rule in GATT/WTO; allows regional agreements to provide higher preferential treatment to members than to nonmembers Five levels of regional economic integration – industrial free trade area – full free trade area – customs union – common market – economic union Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–4 Regional economic integration Free Trade Area (FTA) • No tariffs and quotas among members • National tariffs against non-members • Partial (industrial) FTA and full FTA Free Trade Area • Australia’s bilateral FTAs with New Zealand, Singapore, USA, Thailand • Pluri-lateral FTA: EFTA, NAFTA, AFTA Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–5 Regional economic integration customs union No tariffs and quotas among members Common tariffs operate against non-members Customs Union Free Trade Area Examples: European Community EC (1968) MERCOSUR (South American Union) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–6 Regional economic integration common market Abolition of restrictions on factor movements Common Market Customs Union Free Trade Area Example: The European ‘Single Market’ (1992) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: Perspective 2e by Gionea Slides prepared by John Gionea © CopyrightAn J Asia-Pacific Gionea RMIT 2003 8–7 Regional economic integration economic union Economic Union Common Market Customs Union Free Trade Area Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea Characterised by • harmonisation and unification of economic policies • common currency Example: European Union 8–8 Trade effects of integration • Trade 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) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–9 Intra-regional trade under major regional trade agreements, 2002, $US billion, % Regional Trade Agreements Intra-regional trade ($US billion) Share of World exports (%) EU (15) NAFTA (3) AFTA (10) CEFTA (7) MERCOSUR (4) ANDEAN (5) 1,509 626 97 19 10 24.1 10.0 1.6 0.3 0.2 0.1 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–10 MERCOSUR (Southern Common Market) • Originated in 1988 as a free trade pact between Brazil and Argentina • Expanded in March 1990 to include Paraguay and Uruguay • Combined population of 200 million • 1995: 5-year plan to move to full customs union • Objective: South American Free Trade Area (SAFTA) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–15 The 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) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–16 ASEAN (10) • • • • • • AFTA = ASEAN Free Trade Area; launched in 1992 Members: Singapore, Indonesia, Thailand, Malaysia, Philippines, Brunei, Vietnam, Burma, Laos, Cambodia (550 million people) On the Common Effective Preferential Tariff (CEPT) of AFTA, the 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 + (China, Japan, South Korea) ASEAN–China FTA: >1.7 billion people; GDP: US$1.65 trill Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–17 MFN simple mean tariffs 1999 vs CEP tariff rates 1999, 2003, % in selected ASEAN countries MFN 1999 CEPT 1999 (%) CEPT 2003 (%) Indonesia 10.9 5.85 3.71 Malaysia 7.1 3.17 2.06 Philippines 10.0 4.45 2.06 Thailand 21.6 9.75 4.64 MFN = Most Favoured Nation: non-discrimination (All WTO signatories have MFN status.) CEPT = Common Effective Preferential Tariff: a comprehensive timetable for gradual phase out of intra-ASEAN tariffs on nominated goods Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–18 Automotive MFN tariffs in selected ASEAN countries, % Country CKD* Tariff (MFN) CBU** Tariff (MFN) Malaysia 42–80 140–300 Thailand 33 80 35–50 65–80 10 30 42–80 140–300 Indonesia Philippines Malaysia *CKD: Completely Knocked Down car kits **CBU: Completely Built Units * Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–19 Three-way balance (E Asia, EU, US) output, trade with the ROW*, reserves 10,000 * ROW = Rest of the World 9,000 8,000 US$ Bln 7,000 6,000 East Asia EU US 5,000 4,000 3,000 2,000 1,000 Output(WBA) Output(PPP) Trade Reserves Based on Fred Bergsten’ s Economist article Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–20 Why the push for East-Asian integration? • East Asian financial crisis • Failures of WTO and APEC to make headway on trade liberalisation • Positive inspiration provided by European integration (especially the euro) • Broad disquiet with behaviour of both the US and EU Based on Bergsten, 2000 (See References.) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–21 Bilateral Free Trade Agreements (FTAs) • Singapore’s free trade agreements with – US, Japan, Australia, New Zealand, Mexico • Mexico-European Union • Australia’s FTAs with – New Zealand, Singapore, Thailand, USA (under Australian Senate approval) • Australian discussions for FTAs with China and Malaysia Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–22 The share of regional trading blocs in Australia’s merchandise exports 1974, 1989, 2002 Regional Bloc 1974 1989 2002 European Union 16.5 14.4 12.4 NAFTA 12.4 12.5 11.5 ASEAN 8.0 9.6 12.2 MERCOSUR 0.2 0.5 0.6 New Zealand 6.6 5.4 6.6 SAARC 3.4 1.8 3.1 Source: adapted from DFAT, Direction of Trade Time Series, 1974 to 1994 and Composition of Trade, 2003 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–23 Is regionalism a path to globalism? Two key questions: Does regional integration increase or decrease global economic welfare? Will regional trading blocs lead to global trade more quickly than the multilateral process? Two views • regional trading blocs = ‘stumbling’ blocs • regional trading blocs = building blocs Hopefully, the latter view will prevail Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–24 References • Bergsten, 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 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–25 Australia’s trade with ASEAN in passenger motor vehicles, A$ million, 1999–2003 200 150 A$ million 100 50 1999 2000 2001 2002 2003 PMV Exports 84 158 120 87 52 PMV Imports 105 76 100 125 143 Source: adapted from DFAT, Composition of Trade, 2003 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–26 Australia’s trade with NAFTA in passenger motor vehicles (PMV), A$ million, 1999–2003 516 256 2003 593 491 395 539 2002 2001 270 250 1999 374 371 2000 200 400 600 800 1000 1200 A$ million PMV exports PMV imports Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–27 Australia’s trade with NAFTA in motor vehicle parts (MVP), $A million, 1999–2003 200 514 1999 644 2000 592 2001 643 2002 604 309 338 310 341 298 2003 400 600 800 1000 1200 A$ million MVP exports MVP imports Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–28 Australia’s cumulative trade (PMV + MVP) with NAFTA, A$ million, 1999–2003 1200 1000 800 A$ million 600 400 200 1999 2000 2001 2002 2003 Exports 548 712 903 877 565 Imports 784 1018 987 1134 1120 Source: adapted from DFAT, Composition of Trade, 2003 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8–29 ... McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8 9 Intra-regional trade under major regional trade. .. McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8 10 Intra-exports as % of total merchandise... 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 8 28 Australia’s cumulative trade (PMV