COMM211 Chapter 8: Regional Economic Integration PDF

CHAPTER 8 REGIONAL ECONOMIC INTEGRATION Lecture 5 REVIEW … Free trade – many benefits Prior to WWII countries tended to resort to protectionism in the form of trade barriers (tariffs, quotas, subsidies, etc.) due to conflict and lack of trust REVIEW … Establishment of GATT (1947)...

CHAPTER 8 REGIONAL ECONOMIC INTEGRATION Lecture 5 REVIEW … Free trade – many benefits Prior to WWII countries tended to resort to protectionism in the form of trade barriers (tariffs, quotas, subsidies, etc.) due to conflict and lack of trust REVIEW … Establishment of GATT (1947) and WTO (1995) to regulate international trade and help resolve conflicts. World trade volume today is roughly 45 times the level recorded in the early days of the GATT (4500% growth from 1950 to 2022). WTO consists of 164 members, 1995: establishment of WTO and therefore reaching trade agreements has become increasingly difficult Source: WTO REVIEW … Growing recognition of the need for reform of the WTO and its trade rules, particularly in the face of rising protectionism and the challenges posed by new technologies and changing global economic dynamics. However, there is little consensus among member countries on the shape and scope of such reforms. The Doha Round of World Trade Organization (WTO) negotiations were launched in November 2001. However, the Doha Round has faced a number of challenges, many disagreements, and setbacks –causing negotiations to stall for several years. Today: the future of the WTO and the Doha Round remains uncertain. In the last 20 years, the world has seen an increase in regional trade agreements. AGENDA What are Regional Trade Agreements? Explain levels of Economic Integration REGIONAL TRADE AGREEMENTS Regional Trade Agreements: an agreement between 2+ countries in a geographic region that aims to reduce or eliminate trade barriers and establish common rules and regulations for trade between the participating countries. REGIONAL TRADE AGREEMENTS Regional Trade Agreements are often established as a way to promote cooperation among neighboring countries. – Promote trade (by reducing trade barriers and resolving disputes) – Market access (providing easier access to each other's markets) – Harmonizing regulations (to create a more uniform business environment) – Intellectual property rights (protect and enforce intellectual property within the member countries) – Promote sustainable development, environmental protection and labour rights * WTO needs to be notified about the regional trade agreements, but is not directly involved in creating them. REGIONAL TRADE AGREEMENTS Is Canada part of a Regional Trade Agreement? REGIONAL TRADE AGREEMENTS North American Free Trade Agreement (1994): was implemented to promote trade between the U.S., Canada, and Mexico NAFTA reduced or eliminated tariffs on imports and exports – particularly for agricultural products, textile and automobiles, between the three participating countries, creating a huge free-trade zone. While NAFTA had an overall positive effect on the Canadian economy (i.e., trade growth and investment), it had a negative impact on Canadian employment (as many corporations moved production to Mexico). Example: 29% drop in manufacturing jobs between 1994 and 2018  REGIONAL TRADE AGREEMENTS When Trump got elected, he initiated the renegotiations between the three countries, and in 2018, the three countries agreed on a new set of rules and trade regulations = USMCA/CUSMA was CUSMA (Canada-United States-Mexico): Canadian name for the USMCA established REGIONAL TRADE AGREEMENTS Automotive Industry:  Regional Content Requirements: The USMCA introduced new rules for the automotive industry, requiring a higher percentage of a vehicle's components to be manufactured within North America.  Labor Provisions: The USMCA includes stronger labor provisions, such as requiring a higher proportion of auto content to be made by workers earning a minimum wage of at least $16/hr. Agriculture and Dairy:  Tariff Reductions: The agreement eliminates or reduces tariffs on various agricultural products, such as poultry, eggs, and wheat, facilitating trade and creating export opportunities for farmers and agricultural producers. REGIONAL TRADE AGREEMENTS Labour provisions:  Strengthen Labor Standards: encourages the enforcement of labor laws, promotes workplace safety, and supports collective bargaining (especially in Mexico) Environmental Protection:  Provisions were added related to air quality and marine waste management regulations. REGIONAL TRADE AGREEMENTS Is Canada involved in other Regional Trade Agreement? Canada is currently part of 15 active trade agreements Examples: - Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam (since 2018) - Canada-European Union Comprehensive Economic and Trade Agreement (CETA): Canada, European Union (27 member countries) (since 2017) - Canada-Peru Free Trade Agreement (CPFTA) (since 2009) - Canada-South Korea Free Trade Agreement (CKFTA) (since 2015) -... Canda has agreements with Panama, Ukraine, Costa Rica, Columbia, Jordan, Chile, Honduras.. REGIONAL TRADE AGREEMENTS In 2024, there are about 350 Regional Trade Agreements in force Level of economic integration: extent to which countries or regions have integrated their economies through trade agreements and cooperation (varies from shallow integration to deep integration) = degree of economic interconnectedness and coordination REGIONAL TRADE AGREEMENTS Levels of economic integration Examples Political Union: establishes a central authority - NA that governs economic and political matters for the entire union - EU (Eurozone) - EU - MERCOSUR, CAN - USMCA, CPTPP, EFTA, AFTA, etc. - ISFTA, PSA, Peru-Chile, Colombia-Mexico, etc REGIONAL TRADE AGREEMENTS Levels of economic integration Examples Political Union: establishes a central authority - NA that governs economic and political matters for the entire union - EU (Eurozone) - EU - MERCOSUR, CAN - USMCA, CPTPP, EFTA, AFTA, etc. - ISFTA, PSA, Peru-Chile, Colombia-Mexico, etc REGIONAL TRADE AGREEMENTS Levels of economic integration Examples Political Union: establishes a central authority - NA that governs economic and political matters for the entire union - EU (Eurozone) - EU - MERCOSUR, CAN - USMCA, CPTPP, EFTA, AFTA, etc. - ISFTA, PSA, Peru-Chile, Colombia-Mexico, etc REGIONAL TRADE AGREEMENTS Levels of economic integration Examples Political Union: establishes a central authority - NA that governs economic and political matters for the entire union - EU (Eurozone) - EU - MERCOSUR, CAN - USMCA, CPTPP, EFTA, AFTA, etc. - ISFTA, PSA, Peru-Chile, Colombia-Mexico, etc REGIONAL TRADE AGREEMENTS Levels of economic integration Examples Political Union: establishes a central authority - NA that governs economic and political matters for the entire union - EU (Eurozone) - EU - MERCOSUR, CAN - USMCA, CPTPP, EFTA, AFTA, etc. - ISFTA, PSA, Peru-Chile, Colombia-Mexico, etc REGIONAL TRADE AGREEMENTS Levels of economic integration Examples Political Union: establishes a central authority - NA that governs economic and political matters for the entire union - EU (Eurozone) - EU - MERCOSUR, CAN - USMCA, CPTPP, EFTA, AFTA, etc. - ISFTA, PSA, Peru-Chile, Colombia-Mexico, etc REGIONAL TRADE AGREEMENTS Levels of economic integration Economic Integration Political Union: establishes a central authority that governs economic and political matters for the entire union National Sovereignty REGIONAL TRADE AGREEMENTS European Union – 27 countries in EU – 20 countries in Eurozone REGIONAL TRADE AGREEMENTS Backstory of Euro: Introduced for following benefits: – Elimination of exchange rate volatility and associated costs – Price transparency (no need for currency conversion) – Easy access to a large and monetarily unified European capital market – i.e., liquid capital (easier to borrow at lower rates) REGIONAL TRADE AGREEMENTS Backstory of Euro: Why some countries did not adopt the Euro: – No independence for an individual state to craft fiscal / monetary policies tailored for its own conditions e.g., Control over interest rates (one reason for Greece’s defaulting on their debt in 2015) *READ about benefits and drawbacks of Euro in textbook REGIONAL TRADE AGREEMENTS How does European Union benefit from Common Market / Economic Union trade agreements? Increased trade and Economic growth via the establishment of a Single Market:  Reduction of elimination of trade barriers  Better utilization of endowed resources  Standardized policies and regulations  One large financial system, one large labour pool, and one large customer market. REGIONAL TRADE AGREEMENTS How does European Union benefit from Common Market / Economic Union trade agreements?  Increased trust, predictability, dependence and presence of common goals (which leads to less conflict and retaliation) REGIONAL TRADE AGREEMENTS How does European Union benefit from Common Market / Economic Union trade agreements? Job creation  Enhanced trade creates opportunities for business expansion and employment generation  Bigger pool of factor endowments results in improved efficiencies = more $ = more job creation  Workers have more choices and mobility across member countries, increasing labor market efficiency. REGIONAL TRADE AGREEMENTS How does European Union benefit from Common Market / Economic Union trade agreements? Foreign direct investment (FDI)  The EU attracts higher levels of FDI due to the larger market size, harmonized regulations, and political stability.  This results in increased capital flow, which is used to reinvest into its key industries, in technology, infrastructure, labour.. .. which makes the EU that much more attractive to foreign investors.. And the cycle starts again. REGIONAL TRADE AGREEMENTS How does European Union benefit from Common Market / Economic Union trade agreements? Innovation and knowledge sharing  The common market and economic union foster collaboration and exchange of ideas among member countries (wider pool of expertise and resources), which promotes R&D and innovation  Achievement of synergy without redundancy REGIONAL TRADE AGREEMENTS How does European Union benefit from Common Market / Economic Union trade agreements? Consumer benefits  Free movement of goods and services = greater variety of product  More knowledge sharing and synergies = higher quality goods  Increases competition = improved product/service quality, lower prices, and greater consumer choice.  Also, both businesses and customers are saving money on avoiding currency exchange REGIONAL TRADE AGREEMENTS What are some of the drawbacks from participating in a Common Market / Economic Union trade agreement? Loss of independence and control over trade, fiscal, environmental, labour and consumer protection policies.  Loss of national sovereignty: Many policy-decisions are made at the EU level, limiting a country's ability to independently implement policies tailored to its specific economic needs and circumstances. * Does not apply to policies related to healthcare, education, social security  Loss of control over trade negotiations: As a collective entity, the EU negotiates trade agreements on behalf of its member states. While this can enhance the EU's bargaining power, individual countries may lose some control over their own trade negotiations, potentially leading to compromises that may not fully align with their national interests. REGIONAL TRADE AGREEMENTS What are some of the drawbacks from participating in a Common Market / Economic Union trade agreement? (cont’d)  Trade diversion: shift in trade patterns, diverting trade from more efficient or lower-cost sources outside the agreement (i.e., from non- member countries) to less efficient or higher-cost sources within the agreement.  Example: Common Agricultural Policy (CAP) - EU policy that provides support and protection to farmers and agricultural producers within the EU.  Unequal distribution of benefits: Some countries, particularly those with stronger economies, may experience greater advantages, such as increased trade opportunities and foreign investment, while other less developed countries might struggle to compete and catch up.  Different capability to understand and operate within the network of resources  Different capability to deal within new competitive landscape REGIONAL TRADE AGREEMENTS What are some of the drawbacks from participating in a Common Market / Economic Union trade agreement? (cont’d)  Potential for regulatory burden: Compliance with common standards and regulations may impose additional administrative burdens on businesses and require additional resources, which can be more challenging for smaller businesses, potentially impacting their competitiveness.  Immigration and Freedom of Movement: The increased movement of people may result in a strain on public services and job opportunities for local citizens.  “Euro-consumer” is a myth: Products need to be adapted to each nation-state to reflect important cultural, language, lifestyle and preference differences. REGIONAL TRADE AGREEMENTS Some RTAs have experienced little progress and/or failure. Why? Diverse economic and developmental profiles of member states: Disparities in economic structures, levels of development, productivity, income, infrastructure (also lack of infrastructure connectivity), and regulatory frameworks make it difficult to reach consensus on various issues, and to harmonize trade policies and establish common rules. Geopolitical tensions and rivalries Mistrust and deep suspicion of free trade: hesitant to reduce trade barriers because afraid of non-conforming partners, and unfair competition Public Opposition: Public concerns about job losses, environmental impacts, or perceived threats to national sovereignty can lead to public resistance and protests. REGIONAL TRADE AGREEMENTS Make sure to read section L04  Describe establishment and evolution of European Union  Pros and cons of single Euro currency  Describe establishment and evolution of NAFTA / CUSMA (the “New NAFTA”)  Describe other established free trade agreements around the world