International Trade Policy Economic Integration and Regionalism

Major Trade/Economic Agreements NAFTA: The North American Free Trade Area (1994) EU: The European Union (1957) Mercosur: Argentina, Brazil, Paraguay, Uruguay (1991) ASEAN: Association of Southeast Asian Nations (1967) Andean Community: Bolivia, Colombia, Ecuador, Peru, Venezuela (1973)

What is a trade agreement? A special agreed upon preferential arrangement among a group of nations governing their trade/economic relationship Trade/economic agreement cover matters related to some or all of the following: Tariffs and other trade barriers Trade with other countries Factor movements Economic policies »Banking and Monetary policies »Fiscal policies Economic institutions: laws and regulations governing economic activities and property rights Foreign policy

Types of Agreements Preferential trade arrangements Free trade area Customs Union Common Market Economic Union Regional agreement

Measuring Trade International trade is commonly measured in terms of the value of the goods (and services than cross borders: Value of exports plus values of imports About two-third of international trade take place among industrial countries. Countries that belong to established (functioning) trade blocks (treaties) tend to do significant shares of their trade within their blocks—e.g., EU, NAFTA, ASEAN

Measuring Trade Flows A relative measure: World Trade Share Regional share of trade relative to the total share Share of a trade block relative to the world trade Trade concentration ratio of the trade block

Impacts of Trade Pacts on Trade Trade creation: Increases in trade among members of the pack as a result of the lowering of removal of tariffs and other trade barriers Trade diversion: Diversion of trade (imports) from more efficient nonmembers (whose products are subject to higher tariffs) to less efficient members (whose products) are subject to lower tariffs or no tariffs)

AB C D SBSB SCSC Po S C +t oo o Trade Diversion t q1 q2 P1 q1q2 SBSB Sc

Trade Creation Sa Da DiaDia SxbSxb Sb +t Sw Po Po+t t Country A Country B oo PfPf qo q1 q2 q3

Multilateralism Most Favored Nation (MNF) GATT (General Agreement on Tariffs and Trade) (From Tokyo to Uruguay1993) WTO (World Trade Organization) 1995 GATS (General Agreement in Trade in Services); the e-commerce dilemma Countervailing Measures to correct unfair practices Overlapping agreements: APEC (Asia and Pacific Economic Cooperation