Trends and Issues in Global and Regional Integration

A few trends

Rise of world trade: Merchandise

Rising Merchandise Exports

Rise of World Trade: North and South

The Asian Century? ““ Source: Baldwin 2006

More than Asia: Emergence of BRICs… IMF, World Economic Outlook 2007

Emergence of BRICs… IMF, World Economic Outlook 2007

Source: Eurostat, IMF, all products in value, excluding intra-EU trade trends Rising China: Market shares trends in world trade (%)

Shares of global trade, by regions

Intra vs extra-regional trade

Growth of developing countries trade How impressive is the South-South growth? Exporters from the South are capturing the Southern markets that used to be served by exporters from the North.

The rise of financial flows

Issue 3: Is Regionalism a solution?

Types of «regional» economic arrangement:is there a logic of integration?  Bilateral Agreements  Free Trade Area  Customs Union  Common Market  Economic and Monetary Union (e.g. EU) ?

Trade liberalization strategies (Ravenhill 2005)

Waves of regionalism after WWII

The number of PTAs exploded since the 1990s Source: World Bank Global Economic Prospects (GEP) 2005 Cumulative number of agreements (EU-15 counted as single country Cumulative number of agreements (EU- 25 counted as single country Agreements not notified to the WTO Agreements notified to the WTO

The new wave?  Changed context End of the Cold War Global interdependence Neo-liberal ideas in OECD countries (and GEMs) –Signaling openness, market access –Frustration with WTO/GATT –Change of US, Japanese and EU attitudes

Current patterns and trends on regionalism/bilateralism  Many South-South agreements  Beyond the region (the R is losing significance!)  Shallow and deep integration  WTO+ in North-South  Open regionalism and strategic forum-shopping?

StandardsTransport Customs cooperationServices Intellectual PropertyInvestment Dispute SettlementLaborCompetition U.S.-Led US-JordanNo Yes No US-ChileYesNoYes US-SingaporeYesNoYes US-AustraliaYesNoYes US-CAFTAYesNoYes No US-MoroccoYesNoYes No NAFTAYesNoYes E.U.-Led EU-South AfricaYes EU-MexicoYes NoYes EU-ChileYes NoYes South-South MERCOSURNo Yes NoYes NoYes Andean CommunityNo Yes NoYes NoYes CARICOMYes NoYes AFTAYes NoYesNo SADCYes NoYes COMESAYes NoYes Other Japan-SingaporeYesNoYes Canada-ChileNo Yes NoYes Chile-MexicoYes RTAs go far beyond trade Source: GEP 2005

South-South RTAs predominate in number, but not in trade covered South- South European Union US South- South European Union Percent of World Trade Covered Number of RTAs US Source: GEP 2005

Source: WTO, Crawford and Fiorentino, 2005 Cross-regional RTAs

The Political-Economy of Regionalism: Economic Debates Trade Diversion vs. Trade Creation Stumbling Bloc vs. Stepping Stone New rent-seeking (e.g. preference erosion) Domino Theory (Baldwin) / Export Discrimination (Dür)

Potential Effects Economic consequences  More trade among members, but limited  So far small drivers for trade reforms  Not significant trade diversion (depends on tariff levels)  Increased FDI  Little overall effect on economic welfare (Ravenhill 2007, GEP 2005) But, Spaghetti-Bowl „transaction“ costs:  Rules of Origin  Political exemptions: labor mobility, specific sector protection (e.g. agriculture, services)  Not well defined dispute resolution mechanisms  Not much pressure to negotiate multilaterally

… regional agreements are a relatively small driver of trade reform Decomposing 20% pt. decline Source: Martin and Ng, 2004 Av. Tariffs, 1983 and Decomposing tariff reductions in response to multilateral, regional and own initiatives Decomposing tariff reductions in response to multilateral, regional and own initiatives Source: GEP 2005

Agreements with high external tariffs risk trade diversion Note: Tariffs are import-weighted at the country level to arrive at PTA averages Source: UN TRAINS, accessed through WITS Average weighted tariffs Source: GEP 2005

Varieties of Regionalism: Europe Source: WTO, Crawford and Fiorentino, 2005

Americas Source: WTO, Crawford and Fiorentino, 2005

Asia-Pacific

Issue 4: Financial and Economic Crises and now what?

Contangion Effect

G20 country responses

Economic Outlook

Questions abound  The future role of international cooperation:  The emergence of the G20  The role of the IMF  How to tackle protectionism  How to address national and global imbalances  Currency alignments  Balance of payments deficits  Budget deficits  State policies, foreign aid and development