Trading blocs and economic integration

Trading blocs and economic integration

1. The World Trade Organisation

   • Multi lateral organisation
   • Promote free trade
     • Import licences
     • Export subsidies
   • Accounts for 98% of free trade
   • Challenges
     • Complexity of production
     • Shifting global economic power
     • Fragmentation of global trading system

2. Preferential trading area

   • example would be trade agreements between the EU and less economically developed countries
   • WTO allows this as long as they lower tariffs for outside countries
   • There is a reduction in tariffs and imports on some goods but not all goods

3. Free trade areas

   • There are no tariffs or quotas on any goods and services
   • Break down trade barriers within groups of countries
   • No common external tariff
   • North American Free Trade Agreement (NAFTA)
     • US trades more with NAFTA than anyone else
     • It was suggested that NAFTA would cause a deeper economic integration but this has not happened
     • Donald Trump hates NAFTA
     • Between US, Mexico and Canada

4. Customs union

   • Made of countries that agree to
     • Abolish tariffs and quotas
     • Encourage free movement of goods and services
     • Adopt a common external tariff on outside goods
   • How is it different to a single market?
     • Shares revenue from CET in customs union
       • In EU (single market) the income is given to those countries with a lower GNI per capita
     • Single market includes harmonisation
     • Single market is deeper

5. Single market (the EU)

   • A single market is a customs union and has a deeper form of harmonisation
   • Characteristics
     • Free trade in goods
     • Mobility of labour
     • Free movement of capital
     • Free trade in services
   • 28 member states
   • Advantages of the EU
     • Tariff free access to a single market with 500 million people
     • Easier to access FDI
     • EU structural funds
     • EU capital markets
     • Discipline of competition
     • Lower economies of scale
     • Investment in infrastructure
     • Intra EU trade is already high

6. Monetary unions (the euro)

   • a common currency, one policy rate and central bank
   • became official in 2002
   • Convergence criteria
     • Stable prices
     • Stable ER
     • Sound government finances
       • Debt no more than 60% of GDP
       • Debt no more than 3% of yearly GDP
     • Convergence criteria are not very good. It actually depends on
       • Real GDP
       • Labour market flexibility
       • Patterns of international trade
       • Housing market structure
       • Policy response
   • Reasons to join
     • Boost to trade and investment
     • Financial support and political stability
     • Reduced risk of shocks
   • Reasons to not join
     • Exposure to EU problems
       • Contributing to fiscal bailouts to countries such as Greece
       • Weak growth in Eurozone
         • Caused by
           • Fallout from 2008
           • Contractions in lending
             • Bailouts
             • Nationalisation
           • low business investment
           • decline in property prices
           • labour market failures
             • unemployment
             • no labour mobility
           • Policy inertia
         • Effects
           • Lack of spending
           • Increase in debts
           • Lower profit margins
           • Lack of confidence and more saving
       • Risk that new member states will import deflation
     • Trade patterns / trade diversion effects
     • Structural reforms and jobs