Global Trade and Finance 3

8/18/2019 Global Trade and Finance 3

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Global TradeGlobal Tradeand Financeand Finance

M.Com. Part I,

BusinessEconomicsDr Ranga Sai


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Module II Economics o!Integration• Types of integration• Achievements and Future prospects of EU,• Achievements and Future prospects of NAFTA,•

Achievements and Future prospects of APEC,• Achievements and Future prospects of ASEAN• SAARC, Achievements and Future prospects,•

Regionalism s! "ultilateralism


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Bene"ts o! EconomicIntegration• #t stimulates economic gro$th in

countries• #t increases F%# and $orld production• The countries speciali&e in production

of those goods and services $hich theycould produce most e'ciently, and

• Finally, achieves additional gains fromfree trade (eyond the internationalagreements such as )T*


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T#$es o! EconomicIntegration• Free Trade Area• Customs Union• Common "ar+et• Economic Union• Political Union


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T#$es o! EconomicIntegrationFree Trade Area

– All (arriers to the trade among mem(ersare removed

–

Each mem(er country can determine itso$n trade policies $ith regard to nonmem(er countries

Customs Union – Eliminates trade (arriers (et$een mem(ers – Adopts a common e-ternal trade policy


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T#$es o! EconomicIntegrationCommon "ar+et

– .as no (arriers to trade (et$een mem(ers – .as common e-ternal trade policy – Allo$s factors of production to move freely among

mem(ersEconomic Union

– Allo$s free /o$ of products and factors ofproduction (et$een mem(ers

– .as common e-ternal trade policy – .as common currency – .armoni&ation of mem(ers0 ta- rates – .as common 1scal and monetary policy


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T#$es o! EconomicIntegrationPolitical Union• Political Union coordinates the

economic, social and foreign policy ofthe mem(er states

• Evolution of "ultilateral Agreementsand Free Trade 2ones


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Reci$rocal tradeagreements• po$er to negotiate reductions up to 34 percent

if the trading partner also reduced its tari5s!• 6most favored nation7 clauses in agreements

so other nations also (ene1t $hen negotiationssucceeded $ith one particular country!

– Case if the U!S! negotiated a reduction in tari5s$ith France, to lo$er American tari5s on Frenchimports, the imports of other nations havingmost8favored8nation status, say, S$eden $ould also(e reduced!


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T%e General &greemento! Tari's and Trade• 9:; nations uotas on te-tiles and apparel imports $ill (e

replaced (y tari5s and these, too, $ill (eeliminated gradually!

• Agriculture $ill also (e a5ected $ith mem(ersagreeing to cut su(sidies to agriculture and?uotas on agricultural imports!

• #ntellectual property $ill (e protected (yinternational patent, trademar+, and copyrightagreements!


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(orld Trade)rgani ation *(T)+• The Uruguay Round of the


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Euro$ean nion• single mar+et $hich see+s to guarantee the

freedom of movement of people, goods,services and capital (et$een mem(er states

•

t$enty seven mem(er states :44;• =9 percent share of the $orld0s


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E-olution• Eligi(ilityB sta(le democracy $hich respects

human rights and the rule of la$ a functioningmar+et economy

• 9 3D Rome Treaty created the EuropeanEconomic Community

• 9 3D the European Economic CommunityEEC $as esta(lished as a Customs Union!

•

the "erger Treaty created the EuropeanCommunity EC ! #n 9 D= the EuropeanCommunities enlarged to include %enmar+,#reland, and the United Gingdom


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Treat# o! Maastric%t*Goals+• To strengthen the democratic governing

of participating nations• To improve the e'ciency of the nations!• To esta(lish an economic and 1nancial

uni1cation!• To develop Community social dimension!• To esta(lish a security policy for involved

nations!


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E and India• Agreements on Trade, Transport, Environment,

Energy, Science and Technology, Space Technology, #nformation and Communication Technologies, Pharma and Hiotechnology,#ndustrial Policy, Customs Co operation

• EU is #ndia0s largest trading partneraccounting for 9 percent of trade

•

F%# into #ndia amounts still only 9 percent ofEU• EU imports from #ndia I9 (illion


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ort% &merican FreeTrade &greement* &FT&+/• esta(lished in 9 = among Canada, U!S! and

"e-ico $ith a(out the same com(ined output asEU, (ut a larger geographical area!

• Free trade $ith "e-ico $as controversial

(ecause critics fear a loss of American Jo(s as1rms can move to "e-ico more easily! Also, theyfear Kapanese and South Gorean 1rms $ill (uildplants there and import goods duty free to U!S!

•

The increased trade has increased domesticemployment, reduced unemployment, andincreased the standard of living in all threecountries!


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&FT& Polic#• Tari5s are either eliminated or phased out overperiods of up to 1fteen years!• 34L of U!S! e-ports to "e-ico and D4L of "e-ican

e-ports to the U!S! (ecame tari5M?uota free!• imits on investments are removed!• Trade in services is li(erali&ed and e?ual treatment

is e-pected for service• to eliminate citi&enship and permanent residency

re?uirements for professionals!•

Transportation regulations are li(erali&ed unlimited access to the NAFTA countries!• Protection of intellectual properties is

strengthened!


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&FT& and em$lo#mentissues• Worker Displacement O $or+ers need

di5erent, enhanced, or ne$ s+ills• Loss of Job - when Industry is unable to

compete in the internationalmarketplace

• Loss of Industry 1rms are una(le tocompete $ith foreign competitors


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&ssociation o! Sout%East &sian ations• To accelerate the economic gro$th, social progress

and cultural development in the region• To promote regional peace and sta(ility• To provide assistance to each other in the form of

training and research facilities in the educational,professional, technical and administrative spheres

• To colla(orate more e5ectively• To promote Southeast Asian studies• To maintain close and (ene1cial cooperation $ith

e-isting international and regional organi&ations


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Treat# o! &mit# andCoo$eration inSout%east &sia *T&C+ o!1234• Esta(lished ; August 9 D in Hang+o+• "utual respect for the independence, sovereignty,

e?uality, territorial integrity, and national identity ofall nations

•

The right of every State to lead its national e-istencefree from e-ternal interference, su(version orcoercion

• Non interference in the internal a5airs of oneanother

• Settlement of di5erences or disputes (y peacefulmanner

• Renunciation of the threat or use of force and• E5ective cooperation among themselves!


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&SE& Communit# 5Vision 6767• ASEAN Community (y :493 Ce(u

declarationComponents of ASEAN Community• ASEAN Political Security Community,• ASEAN Economic Community, and• ASEAN Socio Cultural Community!


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&sia Paci"c EconomicCoo$eration *&PEC+• 9 ; to promote economic cooperation

and integration in the Paci1c region!• APEC has gro$n to :9 mem(ers•

United States interest in APECQs creationO reach Paci1c region• The Hogor


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&sia Paci"c EconomicCoo$eration 8 Pro9ects• Regional economic integration•


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Multilateral andRegional Trade/• Shanghai :449 capacity (uilding assistance• 9 #nformation Technology Agreement• 9 *pen S+ies Agreement, the 1rst

multilateral air services li(erali&ationagreement in the $orld• reduce trade transaction costs in the Asia

Paci1c region (y 3 percent over 3 years• ProJects to assist mem(er in (uilding a

dynamic Asia Paci1c region (y free and opentrade and investment


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S&&RC origin• SAARC $as esta(lished on %ecem(er ;, 9 ;3• an economic and political organi&ation• 9 =, SAARC countries signed an agreement

to gradually lo$er tari5s $ithin the region!• #n terms of population, largest of any regional

organi&ation $ith more than 9!3 (illionpeople!

•

:44 , the United States of America and SouthGorea granted o(server status!• The European Union given o(server status


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Sout% &sian &ssociation!or Regional

Coo$erationFive areas of cooeration• Agriculture and Rural %evelopment• Telecommunications, Science,

Technology and "eteorology• .ealth and Population Activities• Transport• .uman Resource %evelopment


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S&&RC De-elo$ments• 9:th SAARC Summit at #slama(ad, SAARC

countries agreed on the South Asia Free Trade Agreement

•

:44: SAARC countries agreed for regionaleconomic cooperation• :44 B SAARCF#NANCE $as mooted• reali&ation of a South Asian Economic

Union SAEU !• Concept of a South Asian %evelopment

Han+!


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Sout% &sian FreeTrade &rea• SAFTA as transition to a South Asian Free Trade

Area SAFTA• SAFTA, esta(lished on Kanuary :44• &ero customs duty on the trade of practically all

products in the region (y end :49• (ring their duties do$n to :4 percent in the 1rst

phase of the t$o year!•

#n the 1nal 1ve year phase ending :49:, the :4percent• duty $ill (e reduced to &ero in a series of annual

cuts


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Sout% &sianProtectionism• lo$ered productivity in di5erent sectors of

the economy• lo$ered trade tari5s in the year :443•

L of the imports (y South Asian countriesare (eing sourced from outside the region• non east %eveloped Contracting States

$ill (ring do$n tari5s to :4L, $hile %CS$ill them do$n to =4L!

• %C Hangladesh, demandingcompensation for revenue loss


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Regionalism andMultilateralism• Regionalism countries Joining $ith one another to

promote their national and mutual economicinterests

• regional trading (locs a5ected the multilateraltrading system

• Fragmentation into trading (locs EuropeanUnion, the North American Free Trade Agreement

NAFTA , the common mar+et of the SouthAmerican Southern Cone "ERC*SUR , the ASEANFree Trade Area AFTA , the Asia Paci1c EconomicCooperation APEC , the South Asian Free TradeAgreement SAFTA ,


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Regionalism

• # StageB European Union, US supported"ultilateral trade policy to push its trade

• ## Stage B NAFTA, the common mar+et ofthe South American Southern Cone

"ERC*SUR , the ASEAN Free Trade Area

AFTA , the Asia Paci1c EconomicCooperation APEC , the South Asian Free Trade Agreement SAFTA ,


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Multilateral trade• "ultilateral trade agreements are

(et$een many nations at one time!• open mar+ets, non discrimination, and

glo(al competition in international trade• nondiscriminationQ, as inUnconditional "ost Favored NationQ"FN clause and National Treatment

• "ultilateral trade Uruguay Round of"ultilateral Trade Negotiations in 9and the esta(lishment of the )T*


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e: Regional tradeagreements *RT&s+• (et$een neigh(oring countries to

reduce trade (arriers li+e custom dutieson imports

• the concerned countries of theagreement have no internal trade(arrier, (ut against non mem(er

countries, they set their o$n tari5s!• Agreements are (oth South South, and

North South


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e: RT&s 8&d-antages• #ncreased geographical dispersion of production• Advantages of local economies of scale• E-ternalities leading to a $ide increase in

productivity• Technology and +no$ledge transfers, and

technology di5usion• Pro competitive gains from increasing import

competition• Schumpeterian innovation and 6creative

destruction7 induced (y increased competition• Reallocation e5ects among heterogeneous 1rms

Global Trade and Finance 3

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