INR 3933r Lecture Notes - Mercosur, World Trade Organization, North American Free Trade Agreement

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19 Mar 2014
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World Trade Report, 2011: Section B 02/17/2014
Terms in Readings
RIA: Regional Integration Agreements
Not limited to trade, it could be people, goods, etc.
PTA: Preferential Trade Agreements
Limited to trade
FTA: Free Trade Association
CU: Customs Union A common external tariff + an FTA
All these things are RIAs, but not all are CU or PTAs
CM: Common Market
Common Four Steps:
FTA
CU
CM—None have reached this, except EU
EMU
PTAs: Historical Background
3 waves of regionalism (modern era)
1st Wave: late 1950s through the 1960s
Exemplar: ECSC EEC
EFTA: European Free Trade Association (Countries who were not sure they wanted to be part of EEC)
Spreads to Africa, Caribbean, South/Central America
Europe prospers and develops, most others die out
East African Common Market was the most promising but they ended up going to war against each other
**From 70s to early 80s is stagnation & dead era
** U.S felt like regionalism was not the way to go, more into multilateralism during 1st era (GATT & WTO
dealt w/ multilateralism)
** 2 = Bilateral & All = Multilateralism, in between = Regionalism. 1st best strategy ^^
2nd Wave: mid-1980s into the 1990s
Re-launch of Europe (Single European Act)
Participation of USA now w/ NAFTA & many bilateral trade agreements
NAFTA in the 60s (North Atlantic Free Trade Association—attempt at US, Canada, & Europeans)
1) First ever bilateral trade agreement signed by the U.S was with Israel (1985)
2) Canada (1988)
Google: USTR.gov (lots of information on U.S agreements—maybe for paper?)
Collapse of the Soviet Union, COMECON/CMEA
Developing-developing country PTAs (e.g. MERCOSUR)
3rd Wave: since~2000
Expansion in Asia most dramatic
Frustration with stagnation at multilateral level
Covering a broader network of participants
3 different configurations when it comes to participants
Developed-Developed: EU
Developed-Developing: NAFTA, APEC
Developing-Developing: MERCOSUR
More PTAs with “deep integration”  contain rules on tariffs and conventional non-tariff trade restrictions,
but also regulate the business environment in a more general sense
Growth of PTAs
According to the World Trade Report, there are 300 PTAs on the books
From 70 in 1990 to 300 today
But where has the growth been?
Why has the South moved to PTAs?
Developing countries adopted outward-oriented economic policies
Helps industrialization by including the Least Developed in regional production networks
Strengthens bargaining power in multilateral negotiations
Types of PTAs
Cross-regional PTAs more likely to be bilateral
Plurilateral PTAs more common within a region (more than 20)
FTAs are the dominant type. Custom Unions < 10%
New PTAs going beyond trade to include services
Broader range of issues covered
Trade and PTAs
% of world trade that is intra-PTA
1990: 20%
2008: 51%
NAFTA (1994) contributed greatly to this big jump ^
How Preferential is Trade?
Lots of trade among PTA members, but how much is actually preferential?
Only 23% of US imports gets assistance from PTAs
75% of US imports are not getting much assistance from being in preferential group
Enormous amount of Japans MFN is 0
52% of world merchandise imports are MFN duty free
^^ what organization produced this result?
WTO
It’s 52% of merchandise imports (manufactured), doesn’t include raw materials
19% subject to low (<5%) MFN tariffs
Therefore, not much room for PTAs to offer preferential rates
PTAs have product exemptions and so in these products trade takes place at MFN rates
The total trade flows within a PTA overstates the amount of trade that occurs on a preferential basis
Given the number of 0 duty MFN rates and widespread product exclusions, only 16% of world trade is
eligible for preferential tariffs and <2% is eligible to receive preferences with margins > 10%
Overall, preferential rates reduce global tariffs by ~one-third (from 3% to 2%)