Agenda

 Overview
– Economic Integration : overview,
International Economic Course theory
– Examples of PTAs: NAFTA, European Union
– WTO
Day 5: Economic Integration - EU – AEC – ASEAN, AEC,
– Recent topics: TPP, BREXIT
– NAFTA – APEC - WTO
Presented by:

Anh Duy Nguyen, PhD. International Economics  Case study: Brexit ?

Duyna@uef.edu.vn
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Gain from Trade Assignment:

 Things you already know!! 
– All countries can benefit if each country specializes
in production those goods it can produce best and
satisfy their other wants and needs by trading for
them
– Static Gains from trade are gains in world
output that result from specialization and trade
– Dynamic gains from trade are gains from
trade over time that occur because trade induces
greater efficiency in the use of existing resources
AD @ UEF 2018
1/ Describe the opportunities and economic benefits of
Vietnam in the ASEAN Economic Community
(AEC). (tự chọn)
2/ Present the different level of Economic
Integration? What is the advantage and benefits of
FTA, and Custom Union for one country?
3/ Why Vietnam actively participates in many Free
trade agreements - FTAs? What are the benefits
and costs (limits) of these FTAs ? (bắt buộc)
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Economic Integration Economic Integration

 Regional Integration vs. Multilateralism  Economic Integration

 WTO – Process of eliminating restrictions on
– Promote trade liberalization through worldwide agreements international trade, payments, and
– Trade liberalization by any one nation
 Extended to all WTO members, 153 nations
factor mobility
– Nondiscriminatory – Results in the uniting of two or more
 Regional trading arrangements national economies in a regional trading
– Nations reduce trade barriers only for a small group of arrangement
partner nations
Thus boosting the free movement of trade,
– Discriminating against the rest of the world
investment, and services across national boundaries
© AD at UEF 5 AD @ UEF 2018 6

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 Some Types of International Economic
Economic Integration
Institutions… with Examples …
Integration creates high levels of globalization and
regionalization
 … economic & political agreements that give preference to
members within the agreement

– Global (Multi-lateral)

– Regional … (or Bilateral)

© AD at UEF 7 © AD at UEF

More …. Types of International Economic What is Economic Integration ?

Institutions… with Examples

 Economic integration, also referred to as regional

integration, describes different ways how economies
can integrate. The degree of economic
integration can be classified into six stages:
1. Preferential Trade Agreement (PTA)
2. Free Trade Agreement (FTA)
3. Customs Union (CU)
4. Common Market
5. Economic Union
6. Political Union

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Economic Integration Trading blocs

 Economic What are PTAs? A trading bloc is an agreement among countries to work
toward eliminating trade barriers. Trading blocs may be
 A Preferential Trading Arrangement (PTA) is a trade regional (e.g., NAFTA, EU), yet there are different degrees of
policy that favors one country over another integration possible.
– Most obvious cases: Charge a lower, or zero, tariff on • Coordination of economic
Economic union
policies among members
imports from one country while charging a higher tariff on
imports from another Common market
• Allows free movement of
factors of production
– Also called a Regional Trade Agreement (RTA – the
• Common trade policy regarding
term used by the Gerber textbook and by the WTO, Customs union
nonmembers
or FTAs) when a group of countries in a region do this • Trading block with no trade
Free trade area (FTA)
with each other barriers

 Term is used even when the countries are not near each other

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 Economic Integration Economic Integration
+ Unification of + Political
+ Form a monetary and unification,
common + Free fiscal policies, formation of a
+ Eliminate tariff on movement harmonisation single nation
tariffs & other imports of factors of tax rates
restrictions against
amongst non-
Political
member Common
Economic Union
members
countries Market Union

Customs
Free Union MERCOSUR East & West
Trade
Area
AEC Germany

NAFTA BENELUX
CARICOM
AFTA EU
14

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Economic Integration: Types of Regional

Economic Integration: Benefits
Trading Agreements

1. Increased competition  Free – Trade Area

 Lowers prices and increases quantity
– Association of trading nations
2. Cost of production declines
 Easier access to natural resources and technology – Members agree to remove all tariff and
3. Increased access to technology and knowledge nontariff barriers among themselves
4. Increased specialization – Each member maintains its own set of trade
5. Greater opportunity for economies of scale restrictions against outsiders
6. Increased employment
– North American Free Trade Agreement
7. Increased income
(NAFTA)
8. Increased interdependence among members
 Less chance of conflicts Canada, Mexico, and the United States
© AD at UEF 15 © AD at UEF 16

Thị trường chung Nam Mỹ Mercosur: 6 thành viên

Canada

United States

 Mercosur (tiếng Tây Ban

Nha: Mercado Común
del Sur) hiệp định thương
Mexico

Venezuela
mại tự do từ 1991gồm
Colombia
Brasil,Argentina,
Peru
Uruguay, Paraguay.
Brazil

RTAs in America Bolivia  6/2012: Venezuela.

NAFTA (3)
CARICOM (13)  12/2012: Bolivia,
CACM (5)
Argentina
ANDEAN (5)
MERCOSUR (4) 10/4/2020 AD @ UEF 2018 18

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3
 South-Africa Development Community

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Economic Integration: Types of Regional Economic Integration: Types of Regional

Trading Agreements Trading Agreements

 Custom Union  Common Market

– Agreement among two or more trading partners
– To remove all tariff and nontariff trade
barriers between themselves
– Each member nation imposes identical trade
restrictions against nonparticipants
– Benelux
– Belgium, the Netherlands, and Luxembourg
– Group of trading nations
– Free movement of goods and services among
member nations
– Initiation of common external trade restrictions
against nonmembers
– Free movement of factors of production across
national borders within the economic bloc
– European Union (EU), 1992

© AD at UEF 21 © AD at UEF 22

Economic Integration: Types of Regional Economic Integration: Types of Regional

Trading Agreements Trading Agreements

 Economic Union:  Monetary Union:

– Ultimate degree of economic union
– National, social, taxation, and fiscal – Unification of national monetary policies
policies are harmonized and – Acceptance of a common currency administered by a
supranational monetary authority
administered by a supranational
 The United States - Monetary union
institution – Fifty states with a common currency
–Requires an agreement to transfer – Federal Reserve
 Single central bank for the nation
economic sovereignty to a – Free trade among the states
supranational authority – Labor and capital move freely
© AD at UEF 23 © AD at UEF 24

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 Economic Integration: Types of Regional Regional Economic Integration (review)
Trading Agreements
 Partial Trade
 Monetary Union: The United States - Monetary union – Free trade in “select “industries
– Fifty states with a common currency  Free Trade Area (FTA):
– Federal Reserve – No internal tariffs at all
 Single central bank for the nation
 Customs union:
– Free trade among the states – … & … common external tariffs
– Labor and capital move freely
 Common market:
– Federal government – … & … Factor (labor, capital, technology) mobility
 Nation’s fiscal policy
 National defense
 Economic union:
 Retirement and health programs – … & … Common currency
 International affairs  Political union:
– States can keep their identity within the union – … & … Political integration
 Police protection and education
© AD at UEF 25 AD @ UEF 2018

Effects of a Regional Trading

Impetus for Regionalism Arrangement
 Motivations for regional trading arrangements Static effects of economic integration
– Prospect of enhanced economic growth
– On productive efficiency
Economies of large-scale production
– And consumer welfare
Foster specialization and learning-by-doing
Attract foreign investment Dynamic effects of economic integration
– Foster a variety of noneconomic objectives – Relate to long-term rates of growth
Managing immigration flows
Promoting regional security
– Enhance & solidify domestic economic reforms

© AD at UEF 27 © AD at UEF 28

Effects of a Regional Trading Static Effects of Economic Integration

Arrangement
 Trade creation: Domestic products are replaced by more
 Static effects competitive regional products.
– Trade-creation effect  Effects: a) displacement of non-competitive domestic producers by regional
 Welfaregain competitors; b) positive consumer effects.
 Some domestic production of one customs-union member  Trade diversion: Products which were formerly imported from the
– Replaced by another member’s lower-cost imports RoW are now imported from regional producers as their production
costs are lower than those of the rest of the world plus customs duty.
 Consumption effect
 Effects: a) increased producer surplus of the regional suppliers; b) negative
 Production effect consumer effects.
– Trade-diversion effect
 Trade creation shifts production towards the more competitive
 Welfare loss
regional producers, resulting in an optimal factor allocation within
 Imports from a low-cost supplier outside the union the region;
– Are replaced by purchases from a higher-cost supplier within the  Trade diversion is ‘welfare decreasing’ as it promotes inefficient
union production.
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 Dynamic effects of economic integration Dynamic effects of regional integration
schemes (cont.)
Lock-in reforms: use of an RTA to send a signal to private and
Economic effects: public agents that there will be no recidivism (=helps to lock in
 Increased specialisation due to concentration on comparative reforms as in the case of WTO accession).
advantages; This MAY  uncertainty and  investment, in particular foreign
 Economies of scale due to enlarged market; direct investment, as in the case of Mexico:
 Enhanced efficiency of resource allocation due to increased 12.000
competition; consumer benefits; Launch of
NAFTA 10.000
 Technology transfer, innovation and learning effects; negotiations 8.000
6.000
 Option to reap higher levels of FDI. NAFTA put 4.000
into force
 Political motivations: Advanced relevance in bi- and multilateral 2.000
trade negotiations, increased economic and political reputation since 0
trade reforms are “locked-in”; increased security and stability in the 1985 1987 1989 1991 1993 1995
region
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APEC (FTAAP)
Hong Kong, PNG, Russia,
Chinese Taipei

RCEP
TPP
China,
Korea Chile
India Australia
Japan, NZ Peru
ASEAN NAFTA
Canada
Brunei Mexico
Cambodia Indonesia Malaysia U.S.
Laos Philippines Singapore
Myanmar Thailand Vietnam

© AD at UEF
Note: Countries in red are those with which Korea has signed an FTA.

Coca Cola Case Study:

Coca-Cola is sold in all but 2 countries on Earth. Here's what
their ads look like around the world.

• Once a US trade
embargo lifted in 1994,
Vietnamese citizens saw
the return of the soda
brand within the year,
around three decades
after it had been pulled
from the market due to
the Vietnam War.

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 Examples of PTAs

 North American Free Trade Area

(NAFTA)
– US, Canada, Mexico
– Started in 1994
– More on this later

• Mercosur
– Customs union in South America
– Includes Brazil, Argentina, Paraguay,
Uruguay, Venezuela

© AD at UEF 38

NAFTA - History Economic Integration: NAFTA

 After Clinton won election  NorthAmerican Free Trade Agreement,

– Clinton negotiated Side Agreements on Labor and 1994 (NAFTA).
Environment – Mexico, Canada, and the United States
– NAFTA was approved (very narrowly) by Congress – Provide each member nation better access to the
Nov 1993 others’ markets, technology, labor, and expertise
– Economies of scale

© AD at UEF 39 © AD at UEF 40

Economic Integration: NAFTA Economic Integration: NAFTA

 NAFTA & Mexico  NAFTA & Canada

– Benefits – Benefits / safeguards
 Increase in the production of goods and services – – Maintenance of its status in international trade
comparative advantage – No loss of its current free-trade preferences in
 Rising investment spending U.S.
– Increase wage incomes and employment, national – Equal access to Mexico’s market
output, and foreign-exchange earnings – Costs
– Facilitated the transfer of technology Concerns about Canada’s European-style social
– Costs welfare model
 Agriculture – 25% of population
– Uncompetitive practices and policies
– Devastated by US competition – Downward pressure on the country’s base of
personal and corporate taxes
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 Economic Integration: NAFTA Economic Integration: NAFTA

 NAFTA & USA:  NAFTA & USA:

– Benefits – Costs
 Expanding trade opportunities  Industriesthat rely on trade barriers to limit imports of
 Reducing prices low-priced Mexican goods
 Increasing competition – Citrus and sugar
 Economies of large-scale production  Unskilled workers

 More reliable source of petroleum  Fear that U.S. companies will move to Mexico

 Less illegal Mexican immigration – NO because of different worker productivity

 Enhanced Mexican political stability  Concern: Mexico’s environmental regulations
– Greater trade creation than trade diversion

© AD at UEF 43 © AD at UEF 44

Economic Integration: NAFTA Economic Integration: Effects of PTAs

 NAFTA: Trade diversion Two main effects of a PTA

– Trade Creation
– Benefited Mexico’s textile industry
= Importing from the partner what
– Increased market share by late 1990s
– The gains could not be sustained you previously produced at home
China – low-cost textiles – Trade Diversion
= Importing from the partner what you
previously imported from another
(“third”) country
© AD at UEF 45 © AD at UEF 46

Economic Integration: Effects of PTAs Economic Integration: Effects of PTAs

Welfare effects of one country reducing its  Reasons

tariff on a good from a partner country:
– Importing country
Gains from trade creation
Loses from trade diversion (we’ll see why
shortly)
– Partner country gains regardless
– Rest of world
Loses from trade diversion
Not much affected by trade creation
© AD at UEF
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– Trade creation is much like true free trade
At zero tariff, import from partner only if
its cost is lower
Thus resources are used more efficiently
– Trade diversion is not like true free trade
What was imported from 3rd country, not
partner, when both paid the same tariff, must
have cost more in the partner than in the 3rd
country
Switching to the partner is a switch to a higher
cost source for the good
© AD at UEF
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 Question & Answer: Take aways
Economic Integration:
European Union
Reflective Questions:
 What are the benefits of FTAs in the context of 1/ What are the benefits of FTAs in the context of
Economic Integration ? Economic Integration ?
 Give some examples of static and dynamic effects of
economic integration ? 2/ Why Vietnam actively participates in many FTAs?
What are the benefits and costs of these FTAs ?
 Is the US – South Korea free trade agreement good for
Americans ? Give your explanations in terms of benefits 3/ What are the economic costs and
vs. cost , jobs benefits of a common currency: the
EURO?

© AD at UEF 49 © AD at UEF 50

The European Union (EU) The European Union (EU)

EU = European Union
 Initially began with the 1958
Treaty of Rome
 Objective is to harmonize
national laws and regulations so
that goods, services, people,
and money could flow freely
across national boundaries
 1991 Maastricht Treaty set
stage for transition to an
Lithuania joined the euro zone
On January 1, 2015.
economic union with a central
bank and single currency (the
Euro)
Copyright © 2017 Pearson Education, Inc. 3-51
Group of 28 countries, among which there is free
flow of
– Goods
– Capital
– Labor (but not yet including those who joined most recently)
– Harmonization of laws and regulations
– Price transparency
– No customs at national borders
 Added 10 countries Jan 1, 2004
 Added Romania and Bulgaria on Jan 1, 2007
 Added Croatia July 1, 2013
 UK voted to leave June 23, 2016 (Brexit)
© AD at UEF 52
– Plans to initiate the process by end of March, 2017

The European Union: Timeline

Year Initiative/Treaty Members Added

1951 European Coal and Steel France, Germany, Italy, Luxembourg, Netherlands
Community/Treaty of Paris
1958 European Economic
Community/Treaty of Rome
1973 Enlargement Denmark, Ireland, United Kingdom
1981 Enlargement Greece
1986 Enlargement Portugal, Spain
1992 European Union/Maastricht Treaty
1995 Enlargement Austria, Finland, Sweden
1999 European Monetary Union United Kingdom, Sweden and Denmark not included
2002 Common EMU currency: the euro United Kingdom, Sweden and Denmark not included
2004 Enlargement Cyprus, Czech Republic, Estonia, Hungary Croatia 2013
Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia
2007 Enlargement Bulgaria, Romania
2007 EU Constitution/Lisbon Treaty
2013 Enlargement Croatia
6 Economic Integration - 6.1 Institutions Of International Finance 54

9
9
 Organization of EU
 European Council
– Heads of State & President of European Commission
– Resolves major policy issues & sets direction – 2x year
 European Commission – Brussels, Belgium
– Proposing, implementing & monitoring compliance - EU laws
– Commissioners appointed by each country – 5 year renewable
terms
– Competition Commissioner regulator of competition and M&A
 Council of the European Union
– Ultimate controlling authority – approves proposed laws
– 1 representative from each state – varies with topic
– Use majority voting rules rather than unanimous agreement
 European Parliament – Strasbourg, France
– Directly elected by population – 732 members
– Debates legislation – Consultative body
 Court of Justice
– Supreme appeals court for EU law
– 1 judge from each state – required to act as independent officials
55

Economic Integration: European Union

 European Union - monetary union

– The Maastricht Treaty, 1991
 Full-fledged European Monetary Union (EMU) by 2003
 Single currency, the euro
– The euro - official currency of 16 of the 27 member states of the
European Union
European – The eurozone:
Union  Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia,
and Spain
– Also used in another five European countries
– Used daily by some 327 million Europeans
– Over 175 million people worldwide
 Use currencies that are pegged to the euro
– The second largest reserve currency
– The second most traded currency in the world
Copyright © 2017 Pearson Education, Inc. 3-57 © AD at UEF 58

The single market: freedom of choice Free to move

Four freedoms of
movement:
‘Schengen’
• goods • No police or customs checks at borders
• services between most EU countries
• people
• capital • Controls strengthened at the EU’s
external borders
The single market has led to:

• significant reductions in the price of many • More cooperation between police from
products and services, including airfares and different EU countries
phone calls

• more choice for consumers

• 2.8 million new jobs • Buy and bring back any goods for
personal use when you travel between
EU countries

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 Going abroad to learn

Erasmus+ Europe vs European Union

Every year, more than 400
000 young people study or
pursue personal development
in other European countries
with the support of the EU’s
Erasmus+ programme for
education, training, Europe
• Size: 10.180.000 km² European Union
youth and sport. • Inhabitants: 742,452,000 • Size:
• 50 officially recognized 4,324,782 km2
countries, 5 countries • Inhabitants:
with limited recognition 508,191,116

EU - Institutions, Bodies and Agencies EU - Three Key players

European Council
(summit)
The European Parliament
- voice of the people

Council of Ministers
European Parliament (The Council) European Commission
The European Commission The European Council and the
- promoting the common Council
Court of Court of Economic and Social Committee of the interest - voice of the Member States
Justice Auditors Committee Regions

https://www.youtube.com/watch?v=j9MjHN-lU1I
European Investment
Agencies European Central Bank
Bank

EU Legislature Common EU trade policy

• Treaties: Two core functional treaties, the Treaty on European Union Free Trade Area: no customs tariffs and quantity restrictions in
(originally signed in Maastricht in 1992) and the Treaty on the Functioning mutual trade
of the European Union  ASEAN

• Regulation: is a legal act of the EU that becomes immediately enforceable Customs union: Free trade area plus common external customs
as law in all MS simultaneously. tariff
 EU customs Union with Turkey, Mercosur

• Directive: is a legal act of the EU, which requires MS to achieve a Common Market: Customs Union plus some common policy
particular result without dictating the means of achieving that result. areas plus free internal movement of goods , services, capital
and people
• Decision: is binding on those to whom it is addressed (e.g. an EU country  EU
or an individual company) and is directly applicable.
Economic and Monetary Union: Common market plus common
monetary policy plus single currency
• Recommendation: is an act without legal force. Though without  Euro zone
binding effect, they do have a political weight.
Political Union: the full integration process

11
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 Common EU trade policy Euro zone: 19 countries
Title I of Part I of the consolidated Treaty on the Functioning of the European
Union: • 4 countries use the euro
an basis of an monetary
"The Union has exclusive competence to make directives and conclude agreement
international agreements when provided for in a Union legislative act."
• 2 countries adopted the
• the customs union Euro unilaterally
• the establishing of the competition rules necessary for the functioning of
the internal market
• monetary policy for the Member States whose currency is the euro
• the conservation of marine biological resources under the common fisheries
policy
• common commercial policy
• conclusion of certain international agreements
EU countries using the euro
EU countries not using the euro

 The EU policy is integrated in international trade agreements

 The EU policy applies also on bilateral or regional levels

The Schengen Area Do we have a common European heritage?

• No police or customs checks at borders
633

between most EU countries

506

439

357

338

313

302

249

238

132

111

93

92

88

84

79

70

65

65

49

45

43

42

31

20

2.6

0.3
9
Italy

Slovakia
Romania
Finland
Poland

Hungary
Portugal

Lithuania
Latvia

Denmark
Czech Republic
Sweden

Greece

Austria
Spain

Croatia

Ireland

Netherlands

Cyprus

Malta
France

Germany

Bulgaria
United Kingdom

Estonia

Belgium
Slovenia

Luxembourg
• Schengen Visa for the participating countries
Surface area (x 1000 km²)

Do we have a European common heritage? Do we have a common European heritage?

Type:

• 21 republics
• 7 constitutional monarchies Population in millions (2015)
508 million in total
Governmental systems:

• 1 presidential System
• 3 semi-presidential systems
• 24 parliamentary
representative democracies

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Do we have a common European heritage? Do we have a common European heritage?

GDP: 13.9 trillion € (1st)

GDP per inhabitant (2014)
GDP per capita: 27.400 €
Index where the average of the 28 EU countries is 100
Inflation: 1,5 %

500 Mio. Consumers

135 Fortune 500 companies
(1st)

 Services: 73%
 Industry: 25%
 Agriculture: 2%

Getting in touch with the EU

Questions about the EU? Europe Direct can help

Do we have a common European heritage?
• By phone, email or webchat
24 official languages
• Over 500 regional information
centres
More then 35 recognised regional minority-languages
As many CULTURAL differences… europa.eu/europedirect

ALL KIND OF CONSUMERS WITH DIFFERENT TASTES &

HABITS
ALL KIND OF PARTNERS WITH DIFFERENT STYLE &
MENTALITY

EU Free Trade Agreements

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 Các nhóm thị trường ở Tây Âu
Pros and Cons of Unification:EU
 Proponents expected
– Complete the internal market
– Improved competition & efficiency
– Arbitrage across national borders
– New era of prosperity
– Stable prices
– Fiscal discipline
– Lower interest rate
 thus higher investment
Source: Source: Welford and Prescott, 1996. European Business: An issue-based approach, 3rd Edition. Reprinted by permission of Pearson Education Ltd.
 Stronger growth
– More jobs
8-79 80
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Pros and Cons of Unification: EU Pros and Cons of Unification: EU

 Why adjustment is hard
Opponents expected: – Like states in the US, countries in Eurozone have
 No exchange-rate tool
– Division of the EU  No separate monetary policies

– Loss of sovereignty  Very limited fiscal policies (due to SGP)

– Unlike US states, however, in Eurozone
– Little popular support  Labor is less mobile across countries
 Wages are less flexible, due to social policies
– Regulatory & other costs  No mechanism for fiscal transfers among countries

– Difficulties of adjustment to asymmetric shocks  Without adjustment

(As had happened before, e.g., with German – When one country is hit with a shock that others are not
unification and discovery of North Sea Oil) (i.e., an “asymmetric shock”),
 Its
markets don’t adjust (rigid wages)
 Its
people don’t move
 It has fewer policies to deal with this
81  Other countries don’t help 82
© AD at UEF © AD at UEF

EU Free Trade Agreements

World Institution:
World Trade Organization

83 © AD at UEF 84

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 World Trade Organization

Interactive:
https://www.wto.org/english/res_e/statis_e/statis_maps_e.htm
Lecture 9: WTO 85

World Trade Organization World Trade Organization Rouds

 160 members as of 2014 Rounds of GATT

Multilateral Trade Negotiations
No. Years Name Accomplishments
1-5 1947-61 Reduced tariffs
6 1964-67 Kennedy Tariffs + anti-dumping
7 1973-79 Tokyo Tariffs + NTBs
8 1986-94 Uruguay Tariffs, NTBs, Services, Intellectual Property,
Textiles, Ag., Dispute Settlement, Created
WTO
9 2001-15 Doha FAILED: Doha Development Agenda

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What the WTO Stands for….

 Non-discrimination
 More “open”- ness
 Predictability and transparency
 More competitiveness

 Benefits for less developed countries (>75% are

“developing” or LDCs)
 Protection for the environment***

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 WTO: Primary Functions WTO Functions
 Administering WTO trade agreements
Communication Ministerials
 Forum for trade negotiations … (goods…+)
Negotiating Rounds
 Handling trade disputes
Working Groups
 Monitoring national trade policies
Trade Policy Review
 Technical assistance and training for developing
Mechanism
countries
Councils and Committees
 Cooperation with other international organizations

© AD at UEF Lecture 9: WTO 92

WTO Functions WTO Functions

Constraints Tariff Bindings Exceptions Anti-Dumping
Customs Valuation Countervailing Duties
Product Regulations Safeguards
Quantitative Restrictions Balance of Payments Protection
Subsidies Preferential Trade Agreements
Foreign Direct Investment (TRIMS)
Services (GATS)
Intellectual Property (TRIPs)

Lecture 9: WTO 93 Lecture 9: WTO 94

WTO Functions World Trade Organization: Today

 WTO’s Two Basic Principles
Dispute Settlement Consultation
1. MFN = Most Favored Nation
Panel Recommendation  Each member country should treat all members as well as it
Appellate Body treats its “most favored nation” (i.e., the member that it
Remedy Implementation treats the best)

Compensation 2. National Treatment

Once a product or seller has entered a country, it
Retaliation
should be treated the same as products or sellers that
originated inside that country
(There are many permitted exceptions to both of these principles)

Lecture 9: WTO 95 Lecture 9: WTO 96

16
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 World Trade Organization: Today World Trade Organization: Today
 The Doha Round/Doha Development Agenda (2001-
 WTO Decision Making )
– Decisions by consensus: all countries present at
– Focused on trade issues of importance to developing countries
ministerial meetings must agree,
– Key issues of Doha Development Agenda:
– In practice, large and rich countries dominate this
-Farm subsidies in high income countries of Europe, US, and Japan
process
 They first agree among themselves -Greater market access by developing countries and strong farm
(This originally done in “Green Room”, hence “Green Room Group”)
sector high income countries
-Trade in services
 Then seek consensus based on that
-Problems poor countries face in implementation
– Is this “democratic”? – Talks collapsed in July 2008.
 Yes: Every country has one vote
– The main point of contention is trade in agriculture with major
 No: Rich countries dominate decisions in practice industrialized nations such as the U.S., EU and Japan maintaining
production subsidies and import barriers

Lecture 9: WTO 97 98

Do Agricultural Subsidies Hurt Do Agricultural Subsidies Hurt

developing countries? developing countries?

 The US cotton subsidy depresses world cotton  China, which exports manufactured goods and imports
prices and hurts cotton growers in West Africa food and other agricultural products, would be hurt by
the removal of agricultural subsidies.
 But we learned that an export subsidy raises the welfare
of the importing country, which gets to buy goods more
cheaply.
 So shouldn’t export subsidies by rich countries actually
help poorer countries?

ASEAN Vision

ASEAN
“A concert of Southeast Asian
nations, outward looking, living
in peace, stability and
prosperity, bonded together in
partnership in dynamic
development and in a
community of caring societies.”

101 3-102
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 có thể trở thành một trạm Phú Quốc – hòn đảo lớn nhất
Tạo ra một kênh đào dừng chân quốc tế, một trong vùng cực nam Biển Đông
nhân tạo lớn qua miền Singapore thứ hai tại châu giáp Vịnh Thái Lan
nam Thái Lan nối Ấn Á
vùng biển
Độ Dương với các
từ Cà Mau
vùng biển Đông Á,
tới Kiên
thay đổi diện mạo
Đông Nam Á Giang
Giảm chi phí vận chuyển, giải
quyết tình trạng ùn tắc ở eo đường hải lưu quốc tế
biển Malacca – tuyến hàng hải
đông đúc nhất thế giới với
Singapore là trung tâm trung Tạo nên một
chuyển
hành lang sầm
uất
EO KRA Nâng cao giá trị của
biển Đông
Dải đất hẹp chạy dài theo hướng Bắc-Nam
Nối bán đảo Malay với lục địa châu Á
Phần phía Đông của eo đất Kra thuộc
Thái Lan và trông ra vịnh Thái Lan.
Phần phía Tây thuộc Myanma và trông
ra biển Andaman

ASEAN Economic Integration

1992: Establishment of ASEAN FTA (AFTA) with Common Effective ASEAN

Preferential Tariff (CEPT) to enter into force Association of Southeast Asian
2003: Decision to establish ASEAN Community by 31 December 2015:
1. ASEAN Political-Security Community Nations
2. ASEAN Economic Community (AEC) 10 Member States:
3. ASEAN Socio-Cultural Community  Brunei Darussalam  Myanmar
(7 January 1984) (23 July 1997)
2007: Adoption of Economic Blueprint; defining four pillars of AEC and 176  Cambodia  Philippines
priority actions to serve as a guide towards AEC implementation (30 April 1999) (8 August 1967)
2009: Asean Trade in Goods Agreement (ATIGA): consolidated all exiting  Indonesia  Singapore
ASEAN initiatives and agreemens towards an effective ASEAN FTA; incl. (8 August 1967) (8 August 1967)

removal of non-tariff barriers (NTBs), customs procedures, rules of origin,  Lao PDR  Thailand
(23 July 1997) (8 August 1967)
and transparent trade rules and regulations.
2009: ASEAN Framework Agreement on Services (AFTAS): gradually
 Malaysia  Viet Nam
(8 August 1967) (28 July 1995)
liberalises intra-regional trade in services
2012: ASEAN Comprehensive Investment Agreement (ACIA): aims to
gradually establish an integrated ASEAN investment framework 105 © AD at UEF 106

Gross Domestic Product 2014

COUNTRIES GDP
1. United States 17,419,000
2. China 10,360,105
3. Japan 4,601,461
4. Germany 3,852,556
5. United Kingdom 2,941,886
ASEAN 6. France 2,829,192 USD 2.48
7. Brazil 2,346,118 trillion
8. Italy 2,144,338
9. India 2,066,902
If ASEAN were a single country, it would already be the seventh- 10. Russia Federation 1,860,598
largest economy in the world, with a combined GDP of $2.4
trillion in 2013. Indonesia (16) 888,538
It is projected to rank as the fourth-largest economy by 2050.
World 77,868,768
McKinsey & Co. – May 2014
107 Source: World Development Indicators, The World Bank (As of 1 July 108
AD @ UEF 2018
2015)

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 ASEAN Economic Size (in billion USD) ASEAN Economies’ Development Indexes:
Global Ranks’ Comparison
Doing Business
HDI Infrastructure Indicator
(2013) (2013) (2013)
Singapore 18 2 1
Brunei 30 58 79
Malaysia 64 29 12
Thailand 103 47 18
Philippines 114 96 138
Indonesia 121 61 128
Vietnam 127 82 99
Laos 138 84 163
Cambodia 138 101 133
Myanmar 149 141 n/a

Source: IMFas quoted in Charting Vietnam 1 H 2016 Report.

109 110

ASEAN ASEAN: A Community of Opportunities

 Highly connected:
Physically,
Institutionally and GDP:
Huge Market:
among the Peoples 625 million+ people
USD 2.4
trillion
 Free trade agreements
Courtesy of ASEAN National Tourism
with major regional Organisations

economies
 Young, educated FDI: Steady
labour force USD 122.4 economic
billion growth rate

Courtesy of ASEAN National Tourism

Organisations

© AD at UEF 111 ROBUST AD @ UEF 2018 112

ASEAN: A Community of Opportunities ASEAN: A Community of Opportunities

Home to major Rich culture

Young,
Highly Connected religions
educated labour
Region
force
Courtesy of ASEAN National Tourism Organisations

Free Trade Courtesy of ASEAN National Tourism Organisations

Agreements with
major regional
Vast natural
economies
resources
Courtesy of ASEAN National Tourism Organisations
Image source: Flickr.com/RussellGilbert Courtesy of ASEAN National Tourism Organisations Courtesy of ASEAN National Tourism Organisations

DYNAMIC AD @ UEF 2018 113

DIVERSE AD @ UEF 2018 114

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 ASEAN Community Building
AEC Blueprint: Adopted Nov 2007

ASEAN ECONOMIC
ASEAN: COMMUNITY
A people-oriented community STRATEGIC SCHEDULE OF THE AEC BLUEPRINT (2008-2015)
1. Single Market 2. Competitive 3. Equitable 4. Integration into
& Production Base Economic Region Economic Global Economy
Development
• Free flow of goods • Competition policy • Coherent approach
• Free flow of • Consumer • SME development towards external
services protection Initiative for ASEAN economic relations
• Free flow of • Intellectual property Integration • Enhanced
ASEAN ASEAN ASEAN investment rights participation in
Political-Security Economic Socio-Cultural • Freer flow of capital • Infrastructure global supply
Community Community Community • Free flow of skilled development networks
labour • Taxation
(APSC) (AEC) (ASCC)
• Priority Integration • E-Commerce
Sectors
• Food, agriculture
and forestry

HUMAN RESOURCE RESEARCH & DEVELOPMENT

Narrowing the Development Gap (NDG) 115 DEVELOPMENT 116

AEC Milestones AEC 2025

ASEAN ASEAN Bali Concord II Vientiane

Birth of Free Trade Vision (ASEAN Plan of ASEAN Bali Concord III
ASEAN Area 2020 Community) Action Charter (RCEP/AFEED)
Integrated and Competitive, Enhanced sectoral
highly cohesive innovative and integration and
economy dynamic ASEAN cooperation
1967 1977 1992 1995 1997 1998 2003 2004 2007 2008 2009 2011 2015

Resilient, inclusive,
ASEAN ASEAN
AEC people-oriented and
Preferential Framework ASEAN Hanoi Roadmap for Global ASEAN
Trading Agreement Investment Plan of AEC an ASEAN
people-centered
Agreement on Services Agreement Action Blueprint Community ASEAN

117 118

Post-2015 Vision for AEC The ASEAN Plus Agreements

An ASEAN Economic Community for 2016-2025 (AEC
2025) that includes an integrated and highly cohesive
economy, a competitive, innovative and dynamic ASEAN, a
resilient, inclusive and people-oriented, people-centred
ASEAN, enhanced sectoral integration and cooperation,
and a global ASEAN.
ASEAN has established FTAs with some of the world’s major economies
as part of its broader trade liberalisation agenda. The ASEAN Plus FTAs
are as follows:
 ASEAN-China Free Trade Area (ACFTA)
 ASEAN-Japan Comprehensive Economic Partnership (AJCEP)
 ASEAN-Korea Free Trade Area (AKFTA)
 ASEAN-Australia-New Zealand Free Trade Area (AANZFTA)
 ASEAN-India Free Trade Area (AIFTA)
 Plus multiple bilateral FTAs of single ASEAN members
 Today: more than 90 bilateral, plurilateral and multilateral FTA
treaties concluded and under negotiations (ADB, 2015).

119 120

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 Vietnam: International
Economic Integration
 http://mutrap.org.vn/index.php/vi/explore/tai-lieu-hoi-thao

Source: ADB (2014).

121 122
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Vietnam: International Vietnam: International

Economic Integration Economic Integration
 http://mutrap.org.vn/index.php/vi/explore/tai-lieu-hoi-thao

123 124
AD @ UEF 2018 AD @ UEF 2018

Vietnam: International Economic Vietnam: International Economic

Integration Integration
http://mutrap.org.vn/index.php/vi/explore/a
n-pham-mutrap?start=30

125 126
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Vietnam: International Economic
Integration

127 128
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Vietnam: International Economic

Integration

129 130
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Vietnam: International Economic Vietnam: International Economic

Integration Integration

131 132
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 Vietnam: International Economic
Integration

APEC

133
AD @ UEF 2018 134

What is APEC? APEC Member Economies

• Established in 1989.
• Forum for facilitating economic growth,
cooperation, trade and investment in the Asia-
Pacific region.
• Intergovernmental grouping that operates on the
basis of non-binding commitments, open dialogue,
and equal respect for the views of all participants.
• Composed of 21 Member Economies.

APEC Official Observers

• Association of South East Asian Nations (ASEAN) Secretariat
• Pacific Economic Cooperation Council (PECC)
Copyright © 2013 APEC Secretariat • Pacific Islands Forum (PIF) Copyright © 2013 APEC Secretariat

APEC’s Significance Trade and economic growth

• Economies trade because it is mutually beneficial

• Classical trade theory: specialise in goods you can make
efficiently (comparatively) and trade for goods you cannot make
efficiently (comparatively)
• New trade theories: global value chains, horizontal integration,
economic geography and networks, etc.

• Empirical data show synergies between trade and

economic growth
• More open economies grow faster than less open economies
• Economies that trade more get richer more quickly (e.g., East
Asian miracles)

Source: StatsAPEC, Key Indicators Database. Copyright © 2015 APEC Secretariat

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Trade and economic growth Thank You

Elasticity
Period Observations Overall R2 www.apec.org
(in %)
APEC Economies APEC PSU:
1960-1988 0.428 376 0.687 www.apec.org/About-Us/Policy-Support-Unit.aspx
1989-2013 0.565 453 0.783
Rest of the World www.facebook.com/APECnews
1960-1988 0.305 1,914 0.737
1989-2013 0.389 2,878 0.886
@APEC and @Bollard_APEC
• Elasticities: impact on GDP growth of 1% growth in trade
• Positive for all economies; more positive in APEC
www.linkedin.com/company/asia-pacific-
economic-cooperation-apec-secretariat
• More synergistic in recent decades
• But what about inclusive growth?

What is the TPP? Geographic Scope

The pact aims to deepen economic ties between these nations, slashing tariffs
and fostering trade to boost growth.
Member countries are also hoping to foster a closer relationship on economic
policies and regulation.
 Shift away from the complexity of many bilateral FTAs with
different terms into a single trade zone with more consistent
rules
 30 chapters long and covers many topics including:
– Financial services
– Telecommunications
– Intellectual property
– Investor-state dispute settlement mechanism

Guest Lecture: TPP

Cyrus Mohammadian

What is the TPP? Aims to…

• Update existing FTAs in force b/w participating

states
• Increase trade by reducing tariffs and other trade
barriers (phases out 18,000 tariffs)
• Establish new trade rules on
– labor
– environment
– competition policy
– investment
– state-owned enterprises
– regulatory coherence
Guest Lecture: TPP
143
Cyrus Mohammadian

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 History of the TPP Economic Scale

 Began w/ P4 trade agreement b/w Chile, • 800 million people will be covered!
Singapore, New Zealand, and Brunei 11 years • 40% of world GDP (US $28.5 trillion)
ago (TPSEP) • 28% of world trade
– Removed tariffs on most goods and encouraged, • Structured with future signatories in mind
cooperation on wider issues such as common  More countries expected to join down the line if
employment practices, intellectual property rights, current countries ratify
and competition policies  Colombia, Philippines, Thailand, Taiwan, South
 US took lead on it in 2008 Korea, Indonesia
 China?

Guest Lecture: TPP Guest Lecture: TPP

Cyrus Mohammadian Cyrus Mohammadian

US Trade with current TPP

members US Trade with current TPP members
 In 2014, the US exported $726 billion in goods and $178
billion in services to the current TPP countries
 45% percent of U.S. goods exports went to TPP countries in
2014
 In 2014, trade – exports and imports of goods and services –
with TPP countries supported an estimated 15.6 million
American jobs
 The TPP will open new markets for the United States with five
countries that are not current FTA partners – Brunei, Japan
($216 billion), Malaysia, New Zealand and Vietnam
 Companies headquartered in TPP countries have invested more
than $720 billion in the United States and employ nearly 1.6
million Americans

Guest Lecture: TPP Guest Lecture: TPP

Cyrus Mohammadian Cyrus Mohammadian

Benefits -Trade Benefits -Jobs

 Gains from trade  New opportunities

– Comparative advantage –all economies involved can better
allocate resources toward their specialties
 Increases world exports by $305 billion per year by
2025
 US exports would increase by $123.5 billion
– More efficient production of goods and services
 Better opportunities
– Greater choice and lower prices for consumers
 Increases disposal income of workers in US for example
– New jobs created by broader access to international markets
– More lower skilled jobs in developing states (textile,
manufacturing)
– More high skilled jobs in developed states (tech, pharma,
entertainment, etc.)
– 650,000 new jobs in US projected
– Adds $223 billion a year to incomes of workers in all the
countries
– $77 billion of that going to U.S. workers

Guest Lecture: TPP Guest Lecture: TPP

Cyrus Mohammadian Cyrus Mohammadian

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