Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

PTAs and Economic Integration

Outline
1

International trade agreements and the WTO
GATT
WTO

2

PTAs and economic integration
Types of integration
Trade creation
Trade diversion
Overall eects of integration
Dynamic considerations

3

Summary
Main conclusions

Outline
1

International trade agreements and the WTO
GATT
WTO

2

PTAs and economic integration
Types of integration
Trade creation
Trade diversion
Overall eects of integration
Dynamic considerations

3

Summary
Main conclusions

Origin of international trade agreements

In 1930, the United States passed the Smoot-Hawley Act
...


In 1947 23 countries agreed General Agreement on Taris and Trade
(GATT)
covered taris on merchandise

GATT

Outline
1

International trade agreements and the WTO
GATT
WTO

2

PTAs and economic integration
Types of integration
Trade creation
Trade diversion
Overall eects of integration
Dynamic considerations

3

Summary
Main conclusions

World Trade Organisation
Formed in 1995 after Uruguay Round to implementing multilateral
trade negotiations (and enforce them)
The World Trade Organization is based on a number of agreements:
1
...

2
...
Agreement on Trade-Related Aspects of Intellectual Property (TRIPS)

covers international property rights (not patents and copyrights)
AND dispute settlement procedure
disputes heard and decided by panel
if decision not respected punished by other countries imposing trade
restrictions

World Trade Organisation
Formed in 1995 after Uruguay Round to implementing multilateral
trade negotiations (and enforce them)
The World Trade Organization is based on a number of agreements:
1
...

2
...
Agreement on Trade-Related Aspects of Intellectual Property (TRIPS)

covers international property rights (not patents and copyrights)
AND dispute settlement procedure
disputes heard and decided by panel
if decision not respected punished by other countries imposing trade
restrictions

World Trade Organisation
Formed in 1995 after Uruguay Round to implementing multilateral
trade negotiations (and enforce them)
The World Trade Organization is based on a number of agreements:
1
...

2
...
Agreement on Trade-Related Aspects of Intellectual Property (TRIPS)

covers international property rights (not patents and copyrights)
AND dispute settlement procedure
disputes heard and decided by panel
if decision not respected punished by other countries imposing trade
restrictions

World Trade Organisation
Formed in 1995 after Uruguay Round to implementing multilateral
trade negotiations (and enforce them)
The World Trade Organization is based on a number of agreements:
1
...

2
...
Agreement on Trade-Related Aspects of Intellectual Property (TRIPS)

covers international property rights (not patents and copyrights)
AND dispute settlement procedure
disputes heard and decided by panel
if decision not respected punished by other countries imposing trade
restrictions

World Trade Organisation
Formed in 1995 after Uruguay Round to implementing multilateral
trade negotiations (and enforce them)
The World Trade Organization is based on a number of agreements:
1
...

2
...
Agreement on Trade-Related Aspects of Intellectual Property (TRIPS)

covers international property rights (not patents and copyrights)
AND dispute settlement procedure
disputes heard and decided by panel
if decision not respected punished by other countries imposing trade
restrictions

WTO (cont
...
Reducing tari rates through multilateral negotiations
2
...
National treatment - treating foreign and local goods equally
4
...
Eliminating nontari barriers
quotas and export subsidies are changed to taris

more transparent
easier to negotiate

WTO (cont
...
Reducing tari rates through multilateral negotiations
2
...
National treatment - treating foreign and local goods equally
4
...
Eliminating nontari barriers
quotas and export subsidies are changed to taris

more transparent
easier to negotiate

WTO (cont
...
Reducing tari rates through multilateral negotiations
2
...
National treatment - treating foreign and local goods equally
4
...
Eliminating nontari barriers
quotas and export subsidies are changed to taris

more transparent
easier to negotiate

WTO (cont
...
Reducing tari rates through multilateral negotiations
2
...
National treatment - treating foreign and local goods equally
4
...
Eliminating nontari barriers
quotas and export subsidies are changed to taris

more transparent
easier to negotiate

WTO (cont
...
Reducing tari rates through multilateral negotiations
2
...
National treatment - treating foreign and local goods equally
4
...
Eliminating nontari barriers
quotas and export subsidies are changed to taris

more transparent
easier to negotiate

WTO (cont
...
Reducing tari rates through multilateral negotiations
2
...
National treatment - treating foreign and local goods equally
4
...
Eliminating nontari barriers
quotas and export subsidies are changed to taris

more transparent
easier to negotiate

WTO (cont
...
g
...
g
...
g
...
g
...
g
...
g
...
g
...
g
...
g
...
)

Economic union, e
...
Eurozone?
Harmonisation of economic policies (generally monetary or scal policy)
Members give up powers
Strong central institutions which dictate common economic policy

Complete economic integration, e
...
USA
All economic policy areas are harmonised
The capacity of states to implement independent policies disappears
Central institutions become the centres of economic decision-making

Types of PTA (cont
...
g
...
g
...
Trade creation
arises when domestic production is replaced by cheaper imports from a
partner country as taris reduced

fuller exploitation of compatative advantage and specialisation
increases welfare
2
...
Trade creation
arises when domestic production is replaced by cheaper imports from a
partner country as taris reduced

fuller exploitation of compatative advantage and specialisation
increases welfare
2
...
Trade creation
arises when domestic production is replaced by cheaper imports from a
partner country as taris reduced

fuller exploitation of compatative advantage and specialisation
increases welfare
2
...
Trade creation
arises when domestic production is replaced by cheaper imports from a
partner country as taris reduced

fuller exploitation of compatative advantage and specialisation
increases welfare
2
...
)
Imports only from France

P

D

S

PF+T
PF
Q
Imports from
France with
tariff

Trade creation (cont
...


Welfare eects of trade creation (cont
...
)
Decrease in producer surplus

P

D

S

PF+T
PF
Q

Welfare eects of trade creation (cont
...
)
Inport from ROW - none from France

P

D

S

PROW+T
PF
PROW

Imports from ROW with tariff

Q

Trade diversion (cont
...


Welfare eects of trade diversion (cont
...
)
Reduction in producer surplus

P

D

S

PROW+T
PF
PROW

Q

Welfare eects of trade diversion (cont
...

Empirical evidence mixed - possibly small net gains
Static estimates of net gain from formation of EC
CUSFTA small trade creating
NAFTA small trade diverting
MERCOSUR mixed
see WTO (2011)

1 − 2%

Overall eect of free trade area/customs union
The net eect of forming FTA/customs union on the welfare of the
home countrydepends on relative importance of trade creation and
diversion
may be positive, negative or zero

`Viner's ambiguity'
Ex ante predictions of the welfare eects of introducing customs
unions cannot be given as they will depend on the case in question
...
The greater the trade between the countries before forming the FTA
lower share of goods from non-members reduces trade diversion
higher domestic production increases trade creation

2
...
The higher the tari before forming the FTA
increases chance of trade between members when removed

Factors inuencing welfare eects
Welfare eects more likely to be positive if:
1
...
The more competitive (overlapping) economies of the member states
are
scope to replace domestic production with FTA imports

3
...
The greater the trade between the countries before forming the FTA
lower share of goods from non-members reduces trade diversion
higher domestic production increases trade creation

2
...
The higher the tari before forming the FTA
increases chance of trade between members when removed

Factors inuencing welfare eects
Welfare eects more likely to be positive if:
1
...
The more competitive (overlapping) economies of the member states
are
scope to replace domestic production with FTA imports

3
...
The lower the common external tari
reduces trade diversion and costs
suggests ecient producers within FTA

5
...
The closer the countries are geographically
reduced transport costs

Factors inuencing welfare eects

4
...
The higher the number of countries joining the FTA, and the greater
their size
raises probability that lowest cost producer member

6
...
The lower the common external tari
reduces trade diversion and costs
suggests ecient producers within FTA

5
...
The closer the countries are geographically
reduced transport costs

Outline
1

International trade agreements and the WTO
GATT
WTO

2

PTAs and economic integration
Types of integration
Trade creation
Trade diversion
Overall eects of integration
Dynamic considerations

3

Summary
Main conclusions

Dynamic considerations
Empirical evidence for static trade creation/diversion suggest eects weak
Dynamic eects of integration may be 5/6 times larger:
Increased competition
remove national monopoly/oligopoly
increased R&D

Economies of scale
increased market size (internal economies)

variety
average cost reductions - trade creation
allows concentration (external economies)

Dynamic considerations
Empirical evidence for static trade creation/diversion suggest eects weak
Dynamic eects of integration may be 5/6 times larger:
Increased competition
remove national monopoly/oligopoly
increased R&D

Economies of scale
increased market size (internal economies)

variety
average cost reductions - trade creation
allows concentration (external economies)

Dynamic considerations
Empirical evidence for static trade creation/diversion suggest eects weak
Dynamic eects of integration may be 5/6 times larger:
Increased competition
remove national monopoly/oligopoly
increased R&D

Economies of scale
increased market size (internal economies)

variety
average cost reductions - trade creation
allows concentration (external economies)

Outline
1

International trade agreements and the WTO
GATT
WTO

2

PTAs and economic integration
Types of integration
Trade creation
Trade diversion
Overall eects of integration
Dynamic considerations

3

Summary
Main conclusions

Summary
PTAs may fall into various degrees of economic integration
Welfare eects of FTAs/customs union ambigious
trade creation
trade diversion

Trade creation higher when:
members at similar levels of development
low transport costs
existing intra-regional trade high
low external protection

Dynamic arguments may outweigh static
competition
economies of scale

Reading

Dicken (2011) pp
...

Chapter 5 of Senior Nello, S
...


3rd ed
...


Chapter 14 of Caves, R
...
Frankel and R
...


10th ed
...
Library catalogue number: 382CAV

---