Integration in the Americas & Beyond I. Economic Integration Terminology

Integration in the Americas & Beyond

I. Economic Integration Terminology

II. Issues in Regional Integration

III. The Evolution of European Integration

IV. Regional Integration in Africa & Asia

V. Past & Current Integration in the Americas

I. Economic Integration Terminology

Regional integration agreements are often called Preferential Trade Agreements (PTAs). PTAs come in various forms:

• A. FREE TRADE ASSOCIATION

• eliminate tariffs & reduce NTBs

• B. CUSTOMS UNION

• FTA + common external tariff with non-members

• C. COMMON MARKET:

• customs union + further reduction of NTBs via coordination of economic & social policy

• often said to involve common currency while some refer to CM + single currency as an economic union

• D. POLITICAL & ECONOMIC UNION:

• common market + coordination on non-economic policy-making

II. Issues in Regional Integration

• a MERCANTILIST question:

• Will any gains from free trade be sufficient to compensate for lost sovereignty?

• sovereignty potentially useful to develop comparative advantage via strategic trade policies

• regional accords sometimes proposed to pursue this regionwide

• sovereignty desired for other policy goals

• a LIBERAL question:

• Do regional accords stimulate new economic activity or simply divert existing activity?

• trade creation v. trade diversion

• a STRUCTURALIST question:

• Will free trade between rich & poor states tend to exploit the poorer nations over time?

• terms of trade argument

• an INSTITUTIONALIST question:

• Under what conditions are different governments, firms, and individuals likely to favor regional accords?

• more on this in unit IV of this course…

III. The Evolution of European Integration

• A. The Idea of a United Europe

• EU-15 together comprise world's largest economy

• Economic Motive of Greater Unity:

• harness collective economic potential in a single market

• Political Motives of Greater Unity

• ensure regional peace

• harness potential world political influence via concerted action

III. B. A Brief EU Chronology

• 1952: European Coal & Steel Community (ECSC) formed by Germany, France, Italy, Belgium, Luxembourg, & the Netherlands

• 1957: Treaty of Rome establishes EEC

• 1960: EFTA formed (by non-EEC states)

• 1963: British entry blocked by France

• 1966: Luxembourg Compromise: unanimity rule used for major EEC decisions until 1993

• 1970: EEC becomes self-financing

• 1973: Denmark, Ireland, & the U.K. join EEC

• 1979: 1st direct elections to the European Parliament

• 1979: European Monetary System established

• 1981: Greece joins

• 1985: Single European Act signed

• 1986: Spain & Portugal join

• 1991: Maastricht Treaty signed

• A. calls for common currency by 1999

• Euro launched electronically by 11 states on 1/1/99 & physically on 1/1/02

• B. 3 “Pillars” of European Union:

• foreign policy

• public policy coordination

• greater political union

• 1993: EU formally established

• 1995: Austria, Finland, & Sweden join

• {n.b. Norway voters rejected membership}

• 2000: Nice Council paves way for eastward expansion

• 10 states approved for entry in April 2003

IV. Regional Integration in Africa & Asia

• A. African Integration Efforts

• Several enduring subregional monetary unions (countries w/ linked currencies)

• No major examples of tariff elimination via FTAs, customs unions, or common markets

• the West African Economic & Monetary Union launched in 2000 aims at converting a long-running monetary union into an economic union

• B. Asian Integration Efforts

• While major shares of many Asian countries’ trade is focused regionally, there has been minimal use of formal integration accords

• The members of the long-running ASEAN security pact agreed in 1992 to form a FTA with all tariffs to be eliminated by 2008

• minimal progress has taken place so far

• The members of the large Asia-Pacific Economic Cooperation group made a non-binding agreement in 1994

• to zero out tariffs among wealthy members by 2010

• to zero out tariffs among all members by 2020

V. Past & Current Integration in the Americas

• A. Subregional

• 1. CENTRAL AMERICAN COMMON MARKET (CACM) [1960]

• Costa Rica (1962); El Salvador; Guatemala; Honduras; Nicaragua

• no firm timetable

• progress in 1990s toward FTA & customs union (esp. in “Northern ”)

• inclusion of Panama in talks beginning in 1993

• signed FTA w/ the U.S. in May 2004

• the pact reopened talk of “hub & spoke” EAI

• 2. ANDEAN PACT [1969]

• Bolivia; Colombia; Chile {out '76}; Ecuador; Peru (suspended '92 & then in}; Venezuela {in '73}

• FTA by 1982 not met

• reinvigorated by 1990 Act of La Paz

• est. Andean Community

• many tariffs eliminated by 1992

• 1/1/95: customs union est. w/ exceptions

• 6/00: agree to common market by 12/31/05

• trade growing at 30%/year among members

• 3. CARICOM [1973]
  (Caribbean Community and Common Market)

• Barbados, Guyana, Jamaica, Trinidad & Tobago

• Antigua & Barbuda, Belize, Dominica, Grenada, Montserrat, St.Kitts-Nevis, St. Lucia, St.Vincent & the Grenadines all joined in 1974; the Bahamas (1983), Suriname (1995), & Haiti (pending) joined later

• roots in smaller CARIFTA formed in 1968

• goal of Customs Union by 1983 not met

• reinvigorated by 1989 summit meeting

• est. working groups in several single market initiatives

• most tariffs eliminated by 1991

• remaining tariffs for poorer states largely phased out by 2001

• 1992: customs union to be phased in by 1998

• to date, only 7 members have fully implemented the CET

• 4. SOUTHERN CONE COMMON MARKET (MERCOSUR) [1991]

• Argentina; Brazil; Paraguay; Uruguay

• goal of Common Market by 12/31/95

• customs union on 12/31/95 w/ several exceptions

• trade expanded rapidly among members until late ’90s

• 6/25/96: Chile agrees to FTA w/ Mercosur

• FTA in 10 years

• 2/28/97: Bolivia agrees to FTA w/ Mercosur

• FTA in 10 years

• 4/16/98: Andean Community accord

• FTA accord by 1/1/2000 [deadline not met]

• framework accords w/o deadlines w/ US, Canada, EU, Mexico, & CACM

• recently in turmoil over Argentine & Brazilian exchange rate policies

• 5. NORTH AMERICAN FREE TRADE AGREEMENT [1992]

• Canada; Mexico; U.S.

• expanded 1988 CUFTA

• FTA by 2009

• 6. G-3 PACT [1994]

• Colombia; Mexico; Venezuela

• FTA by 2005

• 7. MEXICO & the NORTHERN [2000]

• El Salvador, Guatemala, Mexico, Nicaragua

• FTA by 2012

• 8. CHILE-U.S. FTA [2003]

• FTA by 2015

V. (cont.)

• B. Regional

• 1. LATIN AMERICAN FREE TRADE ASSOCIATION (LAFTA) [1960]

• Argentina; Brazil; Chile; Mexico; Paraguay; Peru; Uruguay

+ Colombia & Ecuador {‘61}; Venezuela {‘66}; Bolivia {‘67}

• FTA by 1973; in '69 extended to 1980...

• 2. LATIN AMERICAN INTEGRATION ASSOCIATION (LAIA) [1980] ALADI

• replaced LAFTA w/ new flexibility:

• new FTAs need not involve all members and may involve non-members

• 3. The Free Trade Agreement of the Americas (FTAA) [2005?]

• idea of a hemispheric FTA of “new generation” format

• in addition to tariff elimination & NTB reduction, its agenda includes a wide range of other issues (many treated in class materials for 9/8/04)