AEM2300 Lecture12 Spring 2009 - Lecture 12 Economic...

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Lecture 12 1 of Professor David Lee AEM-ECON 2300 Economic Integration: Regional and Preferential Trade Agreements Trade agreements – among geographical country groups – in which countries agree to lower, or no, tariff or NTB restrictions amongst member countries. Generally acknowledged that multilateral liberalization is preferable: it is “first best” (gains from freer trade are greater), global and not partial, and avoids many complications that arise in regional agreements. RTAs/PTAs are inherently discriminatory (counter to GATT- WTO principles) but permitted under Article 24 of GATT. Why?
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Lecture 12 2 of Professor David Lee AEM-ECON 2300 Regional and Preferential Trade Agreements Why permitted under Article 24? May demonstrate “quasi-national” characteristics Consistent with broad objective of multilateralism Supplemental route to ultimate free trade objectives of GATT and WTO – gets to same final result.
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Lecture 12 3 of Professor David Lee AEM-ECON 2300 Types of Preferential Trade Arrangements 1. Free Trade Area : reduced trade barriers among member countries, but each member maintains its own tariffs and other trade barriers with respect to other countries: Ex: U.S.-Canada Free Trade Agreement (1989) North American Free Trade Agreement (1993) 1. Customs Union : no trade barriers among member countries, and common external tariffs and non-tariff barriers w.r.t. other nations Ex: “Benelux” – precursor of European Union MERCOSUR – Argentina, Brazil, Uruguay, Paraguay
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Lecture 12 4 of Professor David Lee AEM-ECON 2300 Types of Preferential Trade Arrangements 3. Common Market : customs union, plus harmonization of national tax systems, social insurance, agricultural policies, labor and capital migration, and fixed exchange rates (w.r.t. each other) Ex: European Community and European Monetary System (EMS) 4. Economic Union : common market, plus harmonization of all economic policies, common currency, common foreign policy Ex: European Union
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Lecture 12 5 of Professor David Lee AEM-ECON 2300 Types of Preferential Trade Arrangements Free Harmon- trade Common Free ization of among external factor all members tariff movement policies Type of PTA Free Trade Area Customs Union Common Market Economic Union
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Lecture 12 6 of Professor David Lee AEM-ECON 2300 Major PTAs/RTAs Established Since 1989 (year effective) Canada-U.S. Free Trade Agreement, 1989 MERCOSUR (Common Market of the Southern Cone), 1991 (became customs union in 1995) Asia-Pacific Economic Cooperation (APEC) Agreement, 1993 (full liberalization by 2020) North American Free Trade Agreement (NAFTA), 1994 Free Trade Agreement of the Americas (FTAA), 1994 (full liberalization by 2005, but implementation delayed) Central America-Dominican Republic-U.S. Free Trade Agreement (CAFTA-DR), 2006 (full liberalization by 2016) Many others……. .
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Lecture 12 7 of Professor David Lee AEM-ECON 2300
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Lecture 12 8 of Professor David Lee AEM-ECON 2300
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AEM2300 Lecture12 Spring 2009 - Lecture 12 Economic...

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