Regional Trading Arrangements

1
Regional Trading Arrangements
2
Types of Regional Trading Arrangements

• Free Trade Area NAFTA
• Customs Union Benelux (Belgium, Netherlands,
  Luxembourg
• Common Market
• Economic Union
• Monetary Union U.S.

3
The Impetus for Regionalism

• Reasons
• Enhanced economic growth
• Managing immigration Flows
• Promoting regional Security

4
Effects of a Regional Trading Arrangement

• Static Effects
• Trade-Creation Effect welfare increase
• Consumption Effect lower import price due to
  customs unions
• Production Effect higher production due to
  elimination of tariff barriers
• Trade Diversion Effect welfare loss
• Dynamic Effects
• Economies of scale
• Greater competition
• Stimulus of investment

5
European Union

• Created in 1957
• Dismantled tariffs and established free-trade by
  1968
• Common external tariff in 1970
• 1991, signed treaty for common currency (Euro) on
  January 1, 1999

6
European Monetary Union (EMU)

• Economic tests
• Price stability
• Low long-term interest rates
• Stable exchange rates
• Sound public finances

7
Agricultural Policy

• Variable Levies applies tariffs to agricultural
  imports entering the EU
• Export Subsidies exports of surplus quantities
  of EU produce

8
Government Procurement Policies

• Public contracts opened up to all bidders, not
  just government firms

9
Economic Costs and Benefits of a Common Currency
The European Monetary Union

• Transition period from 1/1/99 to 12/31/01
• National currency withdrawn from circulation by
  7/1/02

10
The European Monetary Union and The U.S.

• Strong interests in a stable Europe
• If good for Europe, good for U.S.

11
U.S. CANADA FREE-TRADE AGREEMENT

•  U.S Israel Free Trade Agreement (1985)
• U.S Canada Free Trade Agreement
• NAFTA (North American Free Trade Agreement)

12
1980 U.S. pursued bilateral trade negotiation
with Canada

• The two countries relied heavily on each other
  but more so Canada was more reliant.
•  
• 1987
• Canada exported more than 25 of its national
  output
• More than 73 of its export was destined to the
  US
• 1989
• U.S Canada Free Trade Agreement became
  effective

13
NAFTA

• North American Free Trade Agreement
• 1980s, increasing debt and other economic issues
  in Mexico forced the government to change its
  economic policy
•  
• 1990s, the U.S. and Mexico endorsed a bilateral
  free-trade agreement
•  
• NAFTA went into effect 1994

14
Benefits for Mexico

• Mexicos benefits much greater than for US and
  Canada
• Integrating with economies much greater than its
  own
• Increase investments and technology
• Increase production of goods
• Increase in employment and wage incomes

15
Benefits for The United States

•  U.S. companies would have access to cheaper
  labor and parts
• U.S. Insurers benefit from fewer restrictions to
  operate in Mexico
• Less illegal immigration

16
U.S. CONCERNS ABOUT NAFTA

•  Threat to some industries in the U.S. that rely
  on trade barriers to limit imports of low prices
  Mexican goods
• Job loss of unskilled workers in the U.S.

17
As a result of NAFTA

• 240,000 jobs were created
• 110,000 jobs were lost

18
Free Trade Area of the Americas

• Membership of 34 countries throughout the
  Americas and the West Indies
• This provided the debt ridden Latin American
  Countries into a new perspective
• Reduced roles for Government managing the
  economies, greater reliance on markets private
  ownership and deregulation
• Use of conventional and generally restrictive
  macroeconomic policies to promote economic growth
  and stability
• The movement away from protectionism often by way
  of unilateral reductions in tariffs and trade
  barriers

19
Asia Pacific Economic Cooperation

• This group or APEC deals with the Asia Pacific
  economy and the trade barriers that exist and
  investment in the area would be eliminated by
  2020 in that region
• Taking into account that there are differing
  levels of economic development among the APEC
  Members

20
Regional Integration VS. Multilateralism

• Regional Trading Nations reduce trade barriers
  only for a small group of nations this is
  discriminatory against the rest of the world

21
The Transition Economies

• Market Economy the commercial decisions of
  independent buyers and sellers acting in their
  own interest govern both domestic and
  international trade
• Non-market Economy one that is centrally
  planned less regard for market consideration
• Controls the prices and the output of goods

22
Transition Economies

• Financing Limitations
• Eastern European Nations have significant trade
  deficits with the west
• Eastern European countries deal with U.S. banks
  instead of the government
• East West trade is limited by legal lending
  restrictions

23
Transition Economies

• Industrial Cooperation
• Countertrade refers to all international trade
  in which goods are exchanged for goods a kind
  of barter
• This alleviated credit problems that interfered
  with East- West trade
• Council for Mutual Economic Assistance
• The communist countries attempt to over come
  their trade problems
• Transition Toward a Market Oriented Economy