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Article - International Economic Integration.doc

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Wilfrid Laurier University
Pat Lemieux

Article – “International Economic Integration” • Economic integration is concerned with o The removal of trade barriers or impediments between at least two participating nationals and o The establishment of cooperation and coordination between them • Globalization refers to the growing economic interdependencies of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows; rapid and widespread diffusion of technology and information • Forms of Economic Integration: o Free Trade Area – involves country combination, where the member nations remove all trade impediments among themselves but retain their freedom concerning policy making with non-member countries o Customs Union – similar to free trade area, except member nations must conduct and pursue common external commercial relations such as common tariff polices on imports from non-member nations o Common Market – particular customs union that allows not only free trade of products and services, but also free mobility of production factors (capital labour, technology) across national member borders o Economic Union – particular common market that involves unification of monetary and fiscal policies o Political Union – requires the participating unions to become literally one nation in both an economic and political sense • Also occurs through multilateral cooperation in which participation nations are bound by rules, principles, or responsibilities stipulated in commonly agreed agreements • All forms of economic integration are derived from various trade agreements or political unification which create a particular economic market by which member states can derive trade benefits from • Economic integration has the potential to generate economic grains for participating nations • Efficiency in production may be enhanced by increased specialization in accordance with the law of competitive advantage • Collective bargaining power may lead to better terms of trade, lowering prices in imports from non-participating countries and higher prices on products exported to those countries • Unification of monetary and fiscal policies may exert a different impact on participating countries that experience different macroeconomic conditions and varying levels of economic growth • Free mobility of production factors such as labour and capital may create different pressures on employment levels, inflation rates, income distribution, or trade balance for nations that are in different economic stages or have a varying dependence on the goods and services of other nations  would create pressures on macroeconomic factors within a regional economy • Three levels of cooperation: o Global – occurs mainly through international economic agreements or organizations o Regional – proceeds through common markets or unions o Commodity – proceeds through multilateral commodity cartels or agreements Global Level Cooperation Among Nations World Trade Organization (WTO) • Multilateral trade organization aimed at international trade liberation • Evolved from GATT, which evolved through periodic rounds of multilateral negotiations on tariff cuts and non-tariff reductions • GATT formed through various multinational negotiations, known as “rounds”: o Early negotiations dealt primarily with reducing tariffs, postwar trade liberalization o The scope of the GATT was later brought up, reintroduced the notion of a comprehensive international trade organization to coordinate international economic activities including those involving a large number of developed countries 1 o Key liberalization measures included the slashing of domestic agricultural price supports by 20% and export subsidies by 36% • Main objective is the establishment of trade policy rules that help international trade expand and raise living standards; done through: o Administering trade agreements o Acting as a forum for trade negotiations o Settling trade disputes o Reviewing national trade policies o Assisting developing countries on trade policy issues, through technical assistance and training programs o Cooperating with other international organizations • 144 members as of January 2002, 95% of world trade; recent entry was China after 15 years of negotiations – forced import tariffs to be reduced to 8% from 21% • Top-level decision making body is the Ministerial Conference, meets once every two years • Main function is to eliminate discrimination  main principles are the most-favored-nation treatment and the national treatment o Most favored nation treatment means that any advantage, favor, or privilege granted to one country must be extended to all other member countries o National treatment means that once they have cleared customers, foreign goods in a member country should be treated the same as domestic goods • Exceptions to the Most Favored National Principle o WTO allows members to establish bilateral or regional customers unions or free trade areas o WTO allows members to lower tariffs in developing countries without lowering them to developing countries o Escape clauses permitted by the WTO  special allowances permitted by the WTO to safeguard infant industries or nourish economic growth for newly admitted developing countries  Countries may withdraw or modify concessions on customs duties if this is required for a new industry to be established, or restrict imports in order to keep the balance of payments in equilibrium and grand governmental assistance to promote enterprise development • Second function is to combat various forms of protection and trade barriers o Devoted to elimination of quantitative restrictions o Dumping is the sale of imported goods either at prices below what a company charges in its home market or at prices below cost • Third function is to provide a forum for dealing with various emerging issues concerning the world trade system such as intellectual property, the environment, economic development, regional agreements, unfair trade practices, government procurement • Fourth function is to act as a united dispute settlement system for members through its Dispute Settlement Body (DSB) consisting of representatives from every WTO member o Has the sole authority to establish dispute settlement panels for cases, to adopt panel reports, to monitor the implementation of its ruling, and to authorize suspension of rights if its rulings are not acted upon by the member(s) in a timely fashion • Issues with the WTO are that developing countries are victims of unfair trade policies and practices adopted by rich nations International Monetary Fund (IMF) • Overall objectives of the IMF are to promote international monetary cooperation and expansion of international trade and to reduce the disequilibrium in members’ balances of payments • IMF seeks to promote exchange stability, maintain orderly exchange arrangements, avoid competitive exchange depreciation, and provide confidence to member states by placing the general resources of the Fund at the disposal of nationals in economic instability • Assists countries having structural trade problems if they take adequate steps to correct problems • Headed by a Board of Governors, composed of representatives from all member countries 2 • Requires that all members to collaborate with the fund in promoting a stable system of exchange rates • Developing countries hold sizable stake in the fund’s process – major countries’ policies are likely to be coordinated in a manner that accords due weight to the impact and implications of the policies on the rest of the world community • Growing integration of the world’s money and capital markets and the inevitable increased role of private capital can at times greatly complicate the task orderly economic management, particularly in developing countries with limited policy instruments at their disposal • Special Drawing Right (SDR) – serves as a unit account for the IMF and other international and regional organizations, and is the base by which some countries peg exchange rates for currencies • Individual countries hold SDRs in the form of deposits in the IMF, part of each country’s international monetary reserves, along with each country’s holdings of gold, foreign change, and reserve position at the IMF The World Bank Group • Refers to the International Bank for Reconstruction and Development (IBRD) • Combined with three affiliates (International Development Association, International Finance Corporation and Multilateral Investment Guarantee Agency) are referred to as the World Bank Group • Common objective of these three institutions is to help raise standards of living in developing countries by channeling financial resources to them from developed countries • Owned by the government of 160 countries, capital funded from subscription of its member countries • Finances its lending operations primarily through its own borrowing in the world capital markets • Loans generally have a grace period of five years and are repayable over 15 to 20 years • Loans are geared towards developing countries that are in relatively more advanced stages of economic and social growth • World Bank’s charter spells out basic rules that govern its operations o Must lend only for productive purposes and must stimulate economic growth in the recipient developing countries o Must pay due regard to the prospects of repayment o Use of loans cannot be restricted to purchases in any particular member country • Emphasizes investment that can directly affect the well-being of the masses of impoverished people in developing countries by making them more productive and by integrating them as active partners in the development process • Cooperation between the WTO, the IMF, and the World Bank has increased significantly • Includes participation at meetings, information sharing, contacts at staff level, and the creation of a High Level Working Group on Coherence that oversees the process and prepares an annual joint statement on coherence Other International Economic Organizations • Organization for Economic Cooperation and Development (OECD) o Established in December 1960, aids in the achievement of the highest and soundest possible growth in economies of member countries and also of non-member states o Emphases are placed on economic development, employment expansion, living standard improvement, financial stability, and extension of world trade on a multilateral and non-discriminatory basis o OECD has made efforts to lower trade barriers and stabilize financial fluctuations that may endanger economies of members or those of other countries • United Nations Conference on Trade and Development (UNCTAD) o Forum for an examination of economic problems plaguing developing countries as well as for formulating, negotiating and implementing measures to improve the development process for these countries 3 o Essential to achieve the demand for “a new international economic order” involving more trade and capital concessions on the part of developed countries o Developing countries hope to solve three problems:  Their share in world trade is decreasing and their terms of trade with developed countries are deteriorating  Markets of developed countries are not sufficiently open to manufactured products of developing countries  Aid has increased, but remains inadequate. Many developing countries are still struggling with huge burden of foreign debts Regional Level Cooperation Among Nations • Postwar Regi
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