Trends and Issues in Global and Regional Integration

A few trends

Rise of world trade: Merchandise

Rising Merchandise Exports

Rise of World Trade: North and South

The Asian Century?

“

Source: Baldwin 2006

More than Asia: Emergence of BRICs…

IMF, World Economic Outlook 2007

Emergence of BRICs…

IMF, World Economic Outlook 2007

Source: Eurostat, IMF, all products in value, excluding intra-EU trade

0

2

4

6

8

10

12

14

16

18

20

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

EU25

USA

Japan

China

Rising China: Market shares trends trends in world trade (%)

Shares of global trade, by regions

Intra vs extra-regional trade

Growth of developing countries tradeHow impressive is the South-South growth?

Exporters from the South are capturing the Southern markets that used to be served by exporters from the North.

The rise of financial flows

• Issue 3: Is Regionalism a solution?

Types of «regional» economic arrangement:is there a logic of integration?

Bilateral Agreements Free Trade Area Customs Union Common Market Economic and Monetary Union (e.g. EU)

?

Trade liberalization strategies (Ravenhill 2005)

Waves of regionalism after WWII

The number of PTAs exploded since the 1990s

0

5

10

15

20

25

30

1958 1969 1976 1984 1989 1994 1999 2004

0

50

100

150

200

250

300

Source: World Bank Global Economic Prospects (GEP) 2005

Cumulative number of agreements (EU-15 counted as single country

Cumulative number of agreements (EU- 25 counted as single country

Agreements not notified to the WTO

Agreements notified to the WTO

The new wave?

Changed context• End of the Cold War• Global interdependence • Neo-liberal ideas in OECD countries (and GEMs)

– Signaling openness, market access– Frustration with WTO/GATT– Change of US, Japanese and EU attitudes

Current patterns and trends on regionalism/bilateralism

Many South-South agreements Beyond the region (the R is losing significance!) Shallow and deep integration WTO+ in North-South Open regionalism and strategic forum-shopping?

Standards Transport

Customs

cooperation Services

Intellectual

Property Investment

Dispute

Settlement Labor Competition

U.S.-Led

US-Jordan No No Yes Yes Yes Yes Yes Yes No

US-Chile Yes No Yes Yes Yes Yes Yes Yes Yes

US-Singapore Yes No Yes Yes Yes Yes Yes Yes Yes

US-Australia Yes No Yes Yes Yes Yes Yes Yes Yes

US-CAFTA Yes No Yes Yes Yes Yes Yes Yes No

US-Morocco Yes No Yes Yes Yes Yes Yes Yes No

NAFTA Yes No Yes Yes Yes Yes Yes Yes Yes

E.U.-Led

EU-South Africa Yes Yes

EU-Mexico Yes Yes Yes Yes Yes Yes Yes No Yes

EU-Chile Yes Yes Yes Yes Yes Yes Yes No Yes

South-South

MERCOSUR No No Yes Yes No Yes Yes No Yes

Andean Community No No Yes Yes No Yes Yes No Yes

CARICOM Yes Yes Yes Yes No Yes Yes Yes Yes

AFTA Yes Yes Yes Yes No Yes No No No

SADC Yes Yes Yes No Yes

COMESA Yes Yes Yes Yes No Yes Yes Yes Yes

Other

Japan-Singapore Yes No Yes Yes Yes Yes Yes Yes Yes

Canada-Chile No No Yes Yes No Yes Yes Yes Yes

Chile-Mexico Yes Yes Yes Yes Yes Yes Yes Yes

RTAs go far beyond trade

Source: GEP 2005

0

5

10

15

20

25

30

35

1990 1996 2002

0

50

100

150

200

250

1990 1996 2002

South-South RTAs predominate in number, but not in trade covered

South-South-SouthSouth

European European UnionUnion

USUS

South-South

European European UnionUnion

Percent of World Trade CoveredPercent of World Trade CoveredNumber of RTAsNumber of RTAs

USUS

Source: GEP 2005

Source: WTO, Crawford and Fiorentino, 2005

Cross-regional RTAs

The Political-Economy of Regionalism:Economic Debates

• Trade Diversion vs. Trade Creation• Stumbling Bloc vs. Stepping Stone

• New rent-seeking (e.g. preference erosion)• Domino Theory (Baldwin) / Export Discrimination

(Dür)

Potential EffectsEconomic consequences More trade among members, but limited So far small drivers for trade reforms Not significant trade diversion (depends on tariff levels) Increased FDI Little overall effect on economic welfare (Ravenhill 2007, GEP 2005)

But, Spaghetti-Bowl „transaction“ costs: Rules of Origin Political exemptions: labor mobility, specific sector protection (e.g.

agriculture, services) Not well defined dispute resolution mechanisms Not much pressure to negotiate multilaterally

…regional agreements are a relatively small driver of trade reform

Multilateral Agreements

25%

Regional Agreements

10%

Autonomous Liberalization

65%

Decomposing 20% pt. declineDecomposing 20% pt. decline

Source: Martin and Ng, 2004

0

5

10

15

20

25

30

1983 2003

Av. Tariffs, 1983 and 2003Av. Tariffs, 1983 and 2003

29.9

9.3

Decomposing tariff reductions in response to multilateral, regional and own initiatives Decomposing tariff reductions in response to multilateral, regional and own initiatives

Source: GEP 2005

Agreements with high external tariffs risk trade diversion

0 5 10 15 20 25

SAPTA

ECOWAS

COMESA

MERCOSUR

EAC

SADC

AFTA

NAFTA

Note: Tariffs are import-weighted at the country level to arrive at PTA averagesSource: UN TRAINS, accessed through WITS

Average weighted tariffs

Source: GEP 2005

Varieties of Regionalism: Europe

Source: WTO, Crawford and Fiorentino, 2005

Americas

Source: WTO, Crawford and Fiorentino, 2005

Source: WTO, Crawford and Fiorentino, 2005

Asia-Pacific

• Issue 4: Financial and Economic Crises and now what?

Contangion Effect

G20 country responses

G20 country responses

Economic Outlook

Questions abound

The future role of international cooperation: The emergence of the G20 The role of the IMF

How to tackle protectionism How to address national and global

imbalances Currency alignments Balance of payments deficits Budget deficits State policies, foreign aid and development