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International Trade Policy

International Trade Policy. Economic Integration and Regionalism. Major Trade/Economic Agreements. NAFTA: The North American Free Trade Area (1994) EU: The European Union (1957) Mercosur: Argentina, Brazil, Paraguay, Uruguay (1991) ASEAN: Association of Southeast Asian Nations

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International Trade Policy

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  1. International Trade Policy Economic Integration and Regionalism

  2. Major Trade/Economic Agreements • NAFTA: The North American Free Trade Area (1994) • EU: The European Union (1957) • Mercosur: Argentina, Brazil, Paraguay, Uruguay (1991) • ASEAN: Association of Southeast Asian Nations (1967) • Andean Community: Bolivia, Colombia, Ecuador, Peru, Venezuela (1973)

  3. What is a trade agreement? • A special agreed upon preferential arrangement among a group of nations governing their trade/economic relationship: • Trade: Tariffs and other trade barriers • Trade Policies: Trade with other countries • Factor movements: Labor and capital mobility • Economic policies: Monetary and fiscal policies

  4. Types/Levels of Agreements • Preferential trade arrangements: Reduction of intra-group tariffs • Free trade area: Removal of intra-group tariffs • Customs Union: Common external tariffs • Common Market: Free factor mobility and and service trade, fixed exchange rate • Economic Union: Common/coordinated economic policies and common currency • Regional agreement

  5. Measuring Trade Flows • A relative measure: World Trade Share • Regional share of trade relative to the total share • Share of the trade block relative to the world trade • Trade Concentration ratio • Of the trade block

  6. The welfare implications of trade/economic pacts: Trade creation and trade diversion • Trade creation: The lowering or removal of tariffs within a group of nations could result in an increase in the mount of trade among members. • Trade diversion: The lowering or removal of tariffs and other barriers within a group of nations could divert trade from (more efficient) non-members to (less efficient) members.

  7. Welfare Effects S g Sm+t h i Snm+t Po a b c d a Sm p1 e j Snm D o q2 q3 q1 qo Q

  8. Other Implications • Economies of Scale • The possibility of more competition within the group • Monopoly power • More market power: Optimal tariff • Incentives for freer trade globally

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