EU, NAFTA, ASEAN, Mercosur, Andean Community, EFTA - does this mean anything to anyone?

More than 130 bilateral and regional trade agreements in the world.

The importance of trade

Trade shares - A country's trade (X & M) expressed as a percentage of the region's or world's trade

The US & the EC account for more than half of the world's trade (>50% trade share)

Developed countries account for more that three fourths of all trade (>75% trade share)

The top five regional trading blocks account for more than 64% of all trade.

Calculating a trade share:

Trade between three countries

E13Ch5TblShares1

Country A's trade:

E13Ch5TblSharesAA

Country B's trade:

E13Ch5TblSharesBB

Country C's trade:

E13Ch5TblSharesCC

The trade shares:

E13Ch5TradeShares

Trade concentrations: the amount of trade between countries in a bloc (%) / the amount of trade by the bloc countries with the outside world (%)

If this ratio = 1, members of the bloc trade in exactly the same proportions outside the block as inside

If > 1, members trade more within the block than outside the block.

If < 1, members trade more outside the block than inside the block

Example:

E13Ch5TradeConcen

Types of regional trade agreements

Preferential trade agreements

One country gives partial trade preferences to one or several countries

Weakest form. Often, not always unilateral. Easiest to negotiate.

Examples: Tito in Yugoslavia - a wedge. US & Sub Saharan Africa, eliminating nearly all restrictions, Caribbean Basin Initiative.

Free trade agreements - Mutual and more organized

Removes all trade restrictions among the group but allows independent trade policies with other countries

NAFTA, ASEAN (Assn. of SE Asian Nations), Efta (Iceland, Liechtenstein, Norway & Switz)

Did NAFTA cause "that great sucking sound?"

US-Mexico share of trade increased

US employment did not decrease

The big change was the Canada-Mexico trade.

Customs union - Engaged?

FTA but with harmonized trade policies outside the union.

1957 Treaty of Rome - Bel, Fr, WGer Italy, Luxem, Netherlands. Customs union from '57 to '68

Common market - Marriage?

Customs union but with free movement of resources between countries.

In '69 the EEC - European Economic Community becomes a common market

Mercosur (formed in 1991) with hopes of becoming a common market but; problems

Corruption

Poverty

Poor monetary and fiscal policies

The 1999 Brazilian devaluation

Economic Union - The Mother-In-Law moves in?

Common market but with harmonized economic (and political?) policies.

The Freedom Index (I don't know why) www.heritage.org—countries.cfm

Trade creation occurs if regional agreements increase trade overall.

Trade diversion

Occurs if regional agreements simply shift trade from outsiders to trade with insiders.

Beggar thy neighbor - the bloc becomes a mechanism for keeping out others

Does the EC have this effect?

Computer restrictions in Mercosur

Trade deflection

Locates some part of the value chain inside the region to circumvent the trade walls

Examples

Nissan, Toyota & Honda - cars in the US?

Rules, rules, rules of origin

Issues - The EU and its tariffs - Fortress Europe?

It has high duties on some goods and antidumping duties on "unfairly cheap" goods

The list:

E13Ch5EUTariffs

The cost is estimated (Messerlin) at about $43b per year, saving 200,000 jobs; $215,000 per job.

Multilateralism involves trade rules and agreements over a large number of countries.

MFN - the most common instance

Any reduced trade restriction to one country with MFN status will apply to all countries with MFN status.

Increased trade benefits for a large number of countries.

Conditions necessary to achieve MFN status - must show a commitment to "acceptable" behavior (to join the club).

China 2001

Multilateral trade is regulated by the WTO (previously GATT)

GATT trade rounds
Year
Place/name
Subjects covered
Countries
1947
Geneva
Tariffs
23
1949
Annecy
Tariffs
13
1951
Torquay
Tariffs
38
1956
Geneva
Tariffs
26
1960-1961
Geneva
Dillon Round
Tariffs
26
1964-1967
Geneva
Kennedy Round
Tariffs and anti-dumping measures
62
1973-1979
Geneva
Tokyo Round
Tariffs, non-tariff measures, “framework”
agreements
102
1986-1994
Geneva
Uruguay Round
Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO, etc
123

After the Uruguay Round - the Doha Agenda (the current round)

> 85% of world trade has been covered by GATT

GATT morphed into WTO in 1995

See the history for yourself: www.wto.org—fact5_e.htm

Functions of WTO

Oversee trade negotiations (currently the Doha Round)

Reviews trade policies

Monitors compliance with trade agreements

Adjudicates disputes

Subsidies

Dumping and countervailing duties

What about the future? Will the clumps just get bigger?

Does regionalism lead to multilateralism (is regionalism complementary to multinationalism)?

Does regionalism, on balance lead to more trade (does trade creation outweigh trade diversion)?

Is regionalism just a first step? Does it just grease the skids?

Have regional trade agreements begun to overlap?

What do gravity equations have to do with international trade? Common currency?