Lecture 4 Multilateralism and Regionalism HyunHoon Lee Professor

Lecture 4 Multilateralism and Regionalism Hyun-Hoon Lee Professor Kangwon National University 1

The World Trade Organization (WTO) • General Agreement on Tariffs and Trade (GATT) – A multilateral agreement whose purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis. " – Signed by 23 nations in 1947 and took effect in 1948. – There were eight rounds of multilateral negotiations, focusing mostly on tariff rate cuts, except the last round (Uruguay Round) – Lasted until 1994 and was replaced by the World Trade Organization (WTO) on January 1, 1995. – The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

The World Trade Organization (WTO) • The Uruguay Round – GATT’s eighth round of negotiations, with 123 countries participating. – Began in September 1986 with completion scheduled for December 1990. – Disagreements between United States and European Union, on reducing agricultural subsidies, delayed conclusion for three years. – Concluded with the signature by 123 nations in Marrakesh on April 14, 1994. – Agreement took effect in July, 1995. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

The World Trade Organization (WTO) • Aims of the Uruguay Round: – Establish rules for monitoring protectionism and reversing the trend. – Bring services, agriculture and foreign investments into negotiations. – Negotiate international rules for protection of intellectual property rights. – Ensure more timely decision and compliance with GATT rulings on dispute settlements. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

The World Trade Organization (WTO) • A Major Provision of Uruguay Accord: – World Trade Organization (WTO) • Established the WTO in place of the GATT Secretariat, with authority in industrial and agricultural products and services. • Trade disputes to be settled by vote of two-thirds or three-quarters of nations rather than unanimously. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

The World Trade Organization (WTO) • Doha Round – Launched in November, 2001, in Doha, Qatar. – Agenda included: • Further liberalization of production and trade in agriculture, industrial products, and services. • Further tightening of antidumping regulations, investment and competition policies. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

The World Trade Organization (WTO) • Doha Round – Developing nations reluctant to make concessions because of feeling that Uruguay Round failed to deliver on promises. – Developing nations insisted on making Doha Round a true “development round”. – Intended to conclude by end of 2004, all but collapsed in 2006 over disagreements over agricultural subsidies between developed and developing nations. – Still not concluded. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Rising Regionalism • In the period 1948 -1994, the GATT received 124 notifications of RTAs (relating to trade in goods), and since the creation of the WTO in 1995, over 400 additional arrangements covering trade in goods or services have been notified. Source: WTO Secretariat (https: //www. wto. org/english/tratop_e/region_e/regfac_e. htm)

Economic Integration • Economic integration refers to the commercial policy of discriminatively reducing or eliminating barriers only among the nations joining together. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Economic Integration n Free trade areas n Removes all barriers to trade among members, but each nation retains its own barriers to trade with non-members. n Examples: n n European Free Trade Association (EFTA), 1960, between United Kingdom, Austria, Denmark, Norway, Portugal, Sweden and Switzerland North American Free Trade Agreement (NAFTA), 1993, between the United States, Canada and Mexico Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Economic Integration n Customs union n Removes all barriers to trade among members and harmonizes trade policies toward the rest of the world. n Example: n European Community (EC), 1957, between West Germany, France, Italy, Belgium, the Netherlands, and Luxembourg. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Economic Integration n Common market n Removes all barriers to trade among members, harmonizes trade policies toward the rest of the world, and allows free movement of labor and capital among member nations. n Example: n European Community (EC) achieved common market status in 1993. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Economic Integration n Economic union n Removes all barriers to trade among members, harmonizes trade policies towards the rest of the world, allows free movement of labor and capital among member nations, and unifies monetary and fiscal policies of members. n Most advanced type of economic integration. n Examples: n n Benelux, formed after World War II between Belgium, the Netherlands and Luxembourg European Union (EC) Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Static Effects of Economic Integration 1. Trade creation effects vs. trade diversion effects. 2. Spaghetti bowl effects. 3. Administration savings from elimination of customs officers, border patrols, and others. 4. Reduction in demand for imports from rest of the world will likely lead to improvement in collective terms of trade of member nations. 5. By acting as a single unit, customs union will likely have more bargaining power than members separately. Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Dynamic Benefits of Economic Integration 1. Increased competition, leading to greater efficiencies and technological improvements. 2. Economies of scale from the enlarged market. 3. Stimulus of investment to take advantage of enlarged market, and to meet increased competition. 4. Better utilization of community resources as labor and capital move freely (assumes common market). Salvatore: International Economics, 10 th Edition © 2010 John Wiley & Sons, Inc.

Major Trading Blocks EU (European Union) NAFTA (North American Free Trade Agreement) ASEAN (Association of South East Asian Nations) MERCOSUR (Mercado Comun del Condo Sur, South Common Markets) • TPP (Trans-Pacific Partnership) • RCEP (Regional Closer Economic Partnership)? • TTIP (Transatlantic Trade and Investment Partnership)? • •

Major Trading Blocks • The European Union (EU) – 1958 – established common external tariff (Customs Union) – 1968 – Achieved free trade in industrial goods within EU, and common price for agricultural goods – 1970 – Reduced restrictions on movement of labor and capital – 1993 – Removed all remaining restrictions on flow of goods, services and resources, becoming largest trade bloc in the world (Common market) – 1999 –Began to use the common currency, Euro among 19 members out of 28 EU member states (Monetary union) – 2016 – Brexit: UK will leave EU (Leave won by 52% to 42% in a referendum on June 23, 2016)

Major Trading Blocks • The North American Free Trade Agreement (NAFTA) – 1994 – formed by United States, Canada and Mexico, to eventually lead to free trade in goods and services over entire North American area. • Also phased out many other barriers to trade and reduced barriers to cross-border investments among the three member nations. Salvatore: International Economics, 11 th Edition © 2013 John Wiley & Sons, Inc.

Major Trading Blocks • The Southern Common Market (Mercosur) – Argentina, Paraguay, Brazil, and Uruguay in 1991, and Venezuela (2012). – Associate members are Bolivia and Chile (1996), Peru (2003), Columbia, and Ecuador – It is now a customs union. Salvatore: International Economics, 11 th Edition © 2013 John Wiley & Sons, Inc.

Major Trading Blocks • Association of South East Asian Nations (ASEAN) – Brunei, Darussalam, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam – Primarily a political association, but began in 1977 to move toward a common market, with a little success. – ASEAN Free Trade Area (AFTA) agreement was signed in 1992. Salvatore: International Economics, 11 th Edition © 2013 John Wiley & Sons, Inc.

Major Trading Blocks • Trans-Pacific Partnership (TPP) – 12 countries among 21 APEC members. – Largest trading block in terms of GDP (40% of world GDP). – US, Japan, Australia, New Zealand, Canada, Mexico, Malaysia, Vietnam, Singapore, Brunei, Chile, and Peru. – http: //www. economist. com/news/finance-economics/21671151 -tpp-now-faceshard-road-passage-national-legislatures-twelve-countries-strike-ambitious - Numura’s view on TPP: http: //nomuraconnects. com/? gclid=COH 8 st. Pbu 8 g. CFUosv. Qod. Ux. YEFQ#spotlight Salvatore: International Economics, 11 th Edition © 2013 John Wiley & Sons, Inc.

https: //ustr. gov/tpp/

APEC (FTAAP) Hong Kong, PNG, Russia, Chinese Taipei RCEP India China, Korea ASEAN Cambodia Laos Myanmar Indonesia Philippines Thailand TPP Australia Japan, NZ Brunei Malaysia Singapore Vietnam Note: Countries in red are those with which Korea has signed an FTA. Chile Peru NAFTA Canada Mexico U. S.