Transcript International Trade Policy Economic Integration and Regionalism Major Trade/Economic Agreements • NAFTA: The North American Free Trade Area (1994) • EU: The European Union (1957) • Mercosur: Argentina,

International Trade Policy
Economic
Integration and
Regionalism
Major Trade/Economic
Agreements
• NAFTA: The North American Free Trade Area
(1994)
• EU: The European Union (1957)
• Mercosur: Argentina, Brazil, Paraguay, Uruguay
(1991)
• ASEAN: Association of Southeast Asian Nations
(1967)
• Andean Community: Bolivia, Colombia, Ecuador,
Peru, Venezuela (1973)
What is a trade agreement?
• A special agreed upon preferential arrangement
among a group of nations governing their
trade/economic relationship:
•
•
•
•
Trade: Tariffs and other trade barriers
Trade Policies: Trade with other countries
Factor movements: Labor and capital mobility
Economic policies: Monetary and fiscal policies
Types/Levels of Agreements
• Preferential trade arrangements: Reduction of
intra-group tariffs
• Free trade area: Removal of intra-group tariffs
• Customs Union: Common external tariffs
• Common Market: Free factor mobility and and
service trade, fixed exchange rate
• Economic Union: Common/coordinated
economic policies and common currency
• Regional agreement
Measuring Trade Flows
• A relative measure: World Trade Share
• Regional share of trade relative to the total share
• Share of the trade block relative to the world
trade
• Trade Concentration ratio
• Of the trade block
The welfare implications of trade/economic pacts:
Trade creation and trade diversion
• Trade creation: The lowering or removal of
tariffs within a group of nations could result
in an increase in the mount of trade among
members.
• Trade diversion: The lowering or removal
of tariffs and other barriers within a group
of nations could divert trade from (more
efficient) non-members to (less efficient)
members.
Welfare Effects
S
g
Sm+t
h
Po
p1
a
i
Snm+t
c
b
Sm
d
e
j
Snm
D
o
q3
q1
qo
q2
Q
Other Implications
• Economies of Scale
• The possibility of more competition within
the group
• Monopoly power
• More market power: Optimal tariff
• Incentives for freer trade globally