Regionalism v. Multilateralism

1
Regionalism v. Multilateralism

• Management School

2
The theory and practices of economic integration

• Explain types of Integration
• Free Trade Areas
• Customs Unions
• Common Market
• Economic Union

3
Characteristics and Definitions

• Free Trade Area (FTA)
• Remove internal trade bariers
• Maintain existing external trade barriers
• Complication Dealing with imports re-exported to
  another member
• Examples EFTA and NAFTA

4
Customs Union (CU)

• Abolish internal tariffs
• Adopt Common External Tariff
• Example The European Common Market in 1957

5
Common Market

• All the above plus free movement of Capital and
  Labour and harmonisation of trading standards and
  practices
• This involves complex negotiations on such
  matters as mutual recognition of professional
  qualifications
• The European Union moved towards this stage in
  1993

6
Economic Union

• An EU adds further harmonisation of policies up
  to and including harmonisation of monetary and
  fiscal policies, adoption of a common currency
  etc.
• The European Union has progressed further in its
  economic and political integration than any other
  large group of nations.

7
Serious problems

• The European Union struggled to Complete the
  market i.e. remove all barriers to free movement
  of goods and services.
• It failed to secure agreement by all members to
  adoption of the Euro for a number of reasons. It
  is struggling to maintain the rules.

8
Reasons for adoption of Regional Integration

• One reason is fear of competition from the most
  efficient
• Desire to build political relations
• Version of the Infant Industry Argument
  influences transitional and developing nations

9
Economic Welfare and RIAs

• Static effects on consumers and producers
• Trade Creation See Fig. 1
• Trade Diversion See Fig. 2
• These effects can be roughly quantified.
• Examples CM
• .

10
Other Effects

• These are harder to measure but may be more
  important
• 1. Economies of scale
• 2.Competition stimulus to efficiency
• 3.Stimulus to adopt new technologies

11
But Multilateral Trade could achieve these

• Free international trade means widest choice for
  consumers
• Lowest costs
• Economies of scale
• Stimulus to efficiency etc.

12
What is unique?

• If a large region, regional integration gains
  could stem from
• Terms of trade gains
• Infant industry argument
• Strategic argument
• Economies of scale and agglomeration
• But some of these at cost of RoW.

13
Other arguments

• If followed through to EU
• Increased factor mobility within
• Coordination of policies
• Faster growth due to above plus increased
  attraction to foreign and domestic investors.

14
Empirical Estimates

• EU Cecchini Report
• Mexico and NAFTA
• Britain and the CAP

15
WTO rules and Economic Integration

• Suspension of the MFA rule if they meet rules
• Why did Gatt/WTO agree to this exception to basic
  rule?

16
Do they or dont they improve welfare?

• Do they increase moves to freer world trade?
• What are the risks?
• How are they likely to affect the world
  distribution of income?