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Chapter Eight
Chapter Objectives
To profile the World Trade Organization To discuss the pros and cons of global, bilateral, and regional integration To describe the static and dynamic effects and the trade creation and diversion effects of bilateral and regional economic integration To define different forms of regional economic integration To present different regional trading groups, such as the European Union (EU), the North American Free Trade Agreement (NAFTA), and Asia-Pacific Economic Cooperation (APEC) To describe the rationale for and success of commodity agreements
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Economic Integration
Economic integration: an agreement between or amongst nations within an economic bloc to reduce and ultimately remove tariff and nontariff barriers to the free flow of products, capital, and labor across the bloc
Approaches to economic integration include: global integration via the World Trade Organization bilateral integration between two countries regional integration via an economic bloc
Neighboring countries tend to ally with one another because of their proximity, their somewhat similar tastes, the relative ease of establishing channels of distribution, and a willingness to cooperate with one another for the greater benefit of all parties.
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dispute resolution: a clearly defined mechanism for the settlement of disputes [continued]
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GATT/WTO Milestones
1947 Havana, Cuba: 23 countries negotiated major reductions in trade barriers that are codified as the General Agreement on Tariffs and Trade 1947 Geneva, Switz.: 23 members held first official meeting of the founding nations 1949 Annecy, France: 13 members negotiated tariff concessions 1951 Torquay, UK: 38 members negotiated tariff reductions and concessions 1956 Geneva, Switz.: 26 members negotiated tariff reductions and concessions 1960-61 Dillon Round (Geneva, Switz): 26 members negotiated tariff reductions and concessions
[continued]
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1964-67 Kennedy Round (Geneva, Switz): 62 members reviewed new trade rules and passed an anti-dumping agreement 1973-79 Tokyo Round: 102 members reduced customs duties and nontariff barriers 1986-94 Uruguay Round: 123 members expanded negotiations to include trade rules, services, intellectual property, dispute resolution, textiles, and agriculture; World Trade Organization was created 1995: World Trade Organization was formally institutionalized 2001 Doha Development Agenda: 148+ members continue to meet to resolve contentious issues between developed and developing nations
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dynamic effects: the gains from overall market growth, the expansion of production, the realization of greater economies of scale and scope, and the increasingly competitive nature of the market
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These governance bodies set the parameters under which MNEs must operate within the EU.
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1972: The currency snake was established. 1979: The European Monetary System came into effect; the first European Parliament was elected by universal suffrage. 1990: The first phase of European Monetary Union came into effect; Germany was unified. 1993: The Single European Market came into force. 1999: The single European currency [EURO] came into effect. 2002: EURO coins and notes entered circulation; all IS member states ratified the Kyoto Protocol.
Source: http://europe.eu.int/abc/history.
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______________________________________________________________________________________________________________________________________________
[+2004 ADMITS]
MERCOSUR
Source: 2005 World Bank Development Report.
224.0
638
$ 2,848
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NAFTA specifies:
market access via the elimination of tariff and nontariff barriers the harmonization of trade rules the liberalization of restrictions on services and foreign investment the enforcement of intellectual property rights a dispute settlement process regional labor laws and standards strengthened environmental standards
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The 12-member Latin American Integration Association (LAIA) encompasses the countries of MERCOSUR and the Andean Community plus Mexico and Cuba.
Regional integration in Latin America has not been particularly successful because many countries rely more on the U.S. for trade than on members of their own groups.
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Commodity Agreements
commodity agreement: a form of economic cooperation designed to stabilize the price and supply of primary commodities through the use of buffer stocks and/or quota systems
producers alliances: exclusive membership agreements between or amongst producing countries (a cartel)
- Organization of Oil Exporting Countries (OPEC): a producer
cartel whose members include Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela
international commodity control agreements (ICCAs): agreements between or amongst producing and consuming countries
- International Cocoa Organization (ICO)
Implications/Conclusions
The effects of regional economic integration can be economic, cultural, and/or political in nature. Regional (as opposed to global) economic integration occurs because of the greater ease of promoting cooperation on a smaller scale. Member states must determine the degree of national sovereignty they are willing to surrender in order to capture the benefits of economic integration.
[continued]
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A common market goes further than free trade areas and customs unions by permitting the free flow of capital and labor and possibly harmonizing commercial, monetary, and fiscal policies and establishing a common currency plus a supranational political structure dedicated to dealing with common economic issues. Commodity agreements exist to help developing countries stabilize prices, supplies, and hence their export earnings.
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