Global and Regional Integration

1. Chapter 8
Global and Regional Integration

2. LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. make the case for global economic integration
2. understand the evolution of the GATT and the WTO, including current
challenges
3. describe the advantages and disadvantages of regional economic
integration
4. understand regional economic integration efforts in Europe, the
Americas, Asia Pacific, and Africa
5. participate in two debates on global and regional economic
integration
6. draw implications for action

3. GLOBAL 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
benefits - global economic integration raises incomes,
generates jobs, and stimulates economic growth
flaws - environmental impact and unequal distribution
of the fruits from more trade and investment among the
haves and have-nots in the world

6. General Agreement on Tariffs and Trade
(GATT)
Bretton Woods Conference introduced the idea for an
organization to regulate trade as part of a larger plan for
economic recovery after World War II
GATT's main objective was reduction of barriers to
international trade through reduction of tariff barriers,
quantitative restrictions and subsidies on trade through a
series of agreements.
GATT was a treaty, not an organization
The functions of the GATT were taken over by the World
Trade Organization (WTO) which was established during the
final round of negotiations in the early 1990s

7. World Trade Organization (WTO)
World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations
At its heart are the WTO agreements, negotiated and
signed by the bulk of the world’s trading nations and ratified
in their parliaments
The goal is to help producers of goods and services,
exporters, and importers conduct their business

8. World Trade Organization
(WTO)
nondiscrimination - a country cannot discriminate
among its trading partners
Every time a country lowers a trade barrier, it has to do
the same for all WTO member countries (except when
giving preference to regional partners)

10. Trade Dispute Settlement
GATT mechanisms experienced long delays, blocking by
accused countries, and inadequate enforcement
WTO addresses all three problems:
 sets time limits for a panel, consisting of three
neutral countries, to reach a judgment
 removes the power of accused countries to block
unfavorable decisions
 WTO recommends that losing countries change
their laws or practices and authorizes winning
countries to use tariff retaliation to compel
offending countries’ compliance with WTO
rulings

11. WORLD TRADE ORGANIZATION:
1995–PRESENT
General Agreement on Trade in Services (GATS)
services currently account for over 60% of global
production and employment, but represent no more than
20% of global trade
GATS was stimulated by the same objectives as GATT in
merchandise trade:
 creating a credible and reliable system of international
trade rules
 ensuring fair and equitable treatment of all participants
(nondiscrimination)
 stimulating economic activity through guaranteed policy
bindings
 promoting trade and development through progressive
liberalization

12. WORLD TRADE ORGANIZATION:
1995–PRESENT
Trade-Related Aspects of Intellectual
Property Rights (TRIPS)
Areas of intellectual property covered:
 copyright and related rights (rights of performers, producers
of sound recordings and broadcasting organizations)
 trademarks including service marks
 geographical indications including appellations of origin
industrial designs
 patents including the protection of new varieties of plants
layout-designs of integrated circuits
undisclosed information including trade secrets and test data

13. WORLD TRADE ORGANIZATION:
1995–PRESENT
Doha Development Agenda
launched in the aftermath of the 9/11 attacks
strong resolve to make free trade work around the globe to
defeat the terrorist agenda to divide and terrorize the world
first round in the history of GATT/WTO to specifically aim at
promoting economic development in developing countries
Goal: make globalization more inclusive and help the world’s
poor

14. Types of Regional Economic Integration
free trade area (FTA) - group of countries that remove
trade barriers among themselves while each still maintains
different external policies regarding nonmembers
customs union - imposes common external policies on
nonparticipants to combat trade diversion
common market - permits the free movement of goods
and people
economic union - members coordinate and harmonize
economic policies (in areas such as monetary, fiscal, and
taxation) to blend their economies into a single economic
entity

16. European Union
European Union (EU) - set up in the aftermath of WWII to bring peace,
stability and prosperity to Europe
Restrictions between member countries on trade and free competition have
gradually been eliminated, with the result that standards of living have
increased.
Some sectors of the economy (public services) are still subject to national laws
Individual EU countries still largely have the responsibility for taxation and social
welfare
The single market is supported by a number of related policies put in place by
the EU over the years which help ensure that market liberalization benefits as
many businesses and consumers as possible

20. North American Free Trade
Agreement (NAFTA)
free trade agreement between Canada,
Mexico, and the United States
tariffs on half of the exports and imports
among members removed immediately
remaining tariffs phased out by 2010

21. North American Free Trade
Agreement (NAFTA) – first decade
trade between Canada and the United States
grew twice as fast as it did before NAFTA
US exports to Mexico grew threefold, from $52
billion to $161 billion
US FDI in Mexico averaged $12 billion a year,
three times what India took in
Mexico’s US-bound exports grew threefold, and
its GDP rose to become 9th in the world, up from
15th in 1992
Mexico’s GDP per capita rose 24% during 1993–
2003 to over $4,000, several times China’s

22. Andean Community and Mercosur
Customs unions in South America:
Andean Community (1969) – covers western side of
South America
Mercosur (1981) – covers eastern side of South
America
 Both regional initiatives have not been effective, in
part because only 5% - 20% of members’ trade is
within the Andean Community and Mercosur,
respectively
 Their largest trading partner, the United States,
lies outside the region

23. CAFTA
United States-Dominican Republic-
Central America Free Trade
Agreement (CAFTA) 1995
Modeled after NAFTA, five Central American
countries: Guatemala, Honduras, El Salvador,
Nicaragua, and Costa Rica plus the Dominican
Republic

24. FTAA
 as a result of NAFTA all Latin American
countries (except Cuba) launched
negotiations with Canada and the United
States for a possible Free Trade Area
of the Americas (FTAA)
 in 2005, Argentina, Brazil, Paraguay,
Uruguay, and Venezuela announced that
they opposed FTAA, thus undermining
the chances that FTAA would ever be set
up

26. Australia-New Zealand Closer Economic
Relations Trade Agreement (CER)
 removed tariffs and NTBs
 both countries agreed not to charge
exporters from the other country for
“dumping”
 citizens from both countries can also
freely work and reside in the other
country

27. Association of Southeast Asian
Nations (ASEAN)
 ASEAN’s main trading partners, the
United States, the European Union,
Japan, and China, are outside the region
 In 2002, ASEAN and China signed an
ASEAN-China Free Trade Agreement
(ACFTA) to be launched by the early
2010s
 Similar FTAs are being negotiated with
Japan and South Korea

28. Asia-Pacific Economic Cooperation
(APEC)
 largest regional integration grouping by
geographic area and by GDP
 21 member economies span four
continents
 home to 2.6 billion people
 contribute 46% of world trade ($7 trillion)
 command 57% of world GDP ($21 trillion)

30. REGIONAL ECONOMIC INTEGRATION
IN AFRICA
 relatively little trade within Africa
(amounting to less than 10% of the
continent’s total trade)
 protectionism often prevails
 frustration with a current regional deal
often leads to a new deal, usually with a
different set of countries
 virtually impossible to understand the
various African regional deals

32. Building Blocks or Stumbling Blocks
In the absence of global economic integration,
regional economic integration is often
regarded as the next best thing to facilitate
free trade—at least within a region.
However, another school of thought argues
that regional integration has become a
stumbling block for global integration.

33. Does the WTO Really Matter?
Frustration associated with the collapse of the
Doha Round and other WTO initiatives hinges on a
crucial assumption that the WTO actually matters.
However, this assumption itself is now subject to
debate.
Academic research has failed to find any
compelling evidence that the WTO (and the GATT)
has a significantly positive effect on trade.