The WTO and Regional Economic Integrations

Dr. Aminul Islam Akanda

B. Sc. (Agr. Econ), M. S. (Agr. Econ) Ph. D. (Agr. & Resource Econ.)

The 20th to the 21st Century

First World War
Worldwide economic depression

Second world war

Cold war and divide between communistsocialist-capitalist approach to economic development Marshall Plan for rebuilding Europe in 1947

The 20th to the 21st Century

Financial and industrial development assistance to rebuild Japan Role of the Agency for International Development to foster economic growth in the underdeveloped world Greater demand for U.S. goods and services Greater cooperation among trading nations through reduction of tariffs and trade barriers via GATT GATT replaced by the WTO and new era of free trade

How different is the WTO from the GATT?

The General Agreement on Tariffs and Trade (GATT), established in 1947, was a provisional agreement, while the World Trade Organization (WTO), established in 1995, is a full-fledged international organization.

The GATT applied only to trade of goods, while the WTO included rules on trade of services in the General Agreement on Trade in Services (GATS) and on international application of property rights in the Trade Related Intellectual Property Rights (TRIPS).
The WTO has a new dispute settlement legal procedure designed to reach judgments in a much shorter time.

WTO prohibits the imposition of:

Export Subsidies (except for agricultural products)

Import quotas (except when imports threaten market disruption)

Tariffs (any new tariff or increase in a tariff must be offset by a reductions
in other tariffs to compensate the affected exporting countries)

WTO and Preferential Trading Agreements

The WTO follows the principle of non-discrimination called the Most Favored Nation (MFN) and National Treatment (NT).
MFN does not mean that some of the countries will get more favors. But it means that every country will be treated as the most favored without discrimination as to enter foreign markets. NT principle treats the foreign and local products equally. Foreign products once enter in local market, should be treated no less favorably then like or directly competitive to domestic products.

Regional Trade Agreement is a departure from MFN, if

Regional agreements discriminates between members of RTA vis-vis other third countries Facilitate trade between constituent territories

Not to raise barriers to the trade of others with such territories

Nations can establish preferential trading agreements under which they lower tariffs and integrate regionally with respect to each other

Levels of Economic Integrations

Free Trade Area (FTA)
All barriers to trade of goods/services are removed No internal tariffs among members, but each country imposes its own external tariffs to the third country.

Customs Union
No internal tariffs Adopts common external tariff policy for other countries

Common Market
No internal tariffs and common external tariffs Allows factors of production to mover freely among members

Economic Union
Common market plus common currency Requires common currency, harmonization of tax rates, common monetary & fiscal policy

Political Union
Central political system coordinates economic & foreign policies.

Regional Integrations in force

Around the World As of 8th July 2005
FTAs : 117 Customs Unions : 11 Economic Union : 1

Evolution of RTAs

Few Major FTAs in the World

North American Free Trade Agreement [NAFTA]
Canada, Mexico & USA

European Free Trade Agreement [EFTA]

25 states of EC, Iceland, Liechtenstein and Norway

Southern African Development Community [SADC]

Angola, Botswana, Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe

Closer Economic Relations [CER]

Australia, New Zealand

European Commission [EC] has entered into separate agreements with many countries
Lebanon, South Africa, Morocco, Israel, Mexico, Syria, etc.

Regionalism in South Asia

Geopolitical Context: Conflict as a major feature
Continuous degradation of inter-state relations Difficulties in coping up with conflict situations

South Asian Association for Reg. Cooperation

Victim of distrust, suspicion and intra-regional tensions Economic Integration not foreseen until 1990s

South Asian Preferential Trade Agreement (SAPTA)

Established in 1993, reduce the barriers to trade

South Asian Free Trade Area (SAFTA)

Started in 2004, Governed by the principles of WTO Small in terms of economic size and share of world exports High level of protectionism, restrictive measures Low level of implementation impeding meaningful economic cooperation, largely due to India - Pakistan rivalries.

SAFTA: Road Map of South Asian Economic Integration

Common Market Preferential Trading Arrangement (SAPTA)

Free Trade Area (SAFTA)

Economic Union

Customs Union

Common Currency / Economic Policies

Internal Capital and Labour Mobility

Common External Tariff

Internal Tariff Removal

Internal Tariff Reduction

European Union
The European Union (EU) is an economic and political union of 27 member states, located primarily in Europe After 2nd world war- Rebuilt of Europe in terms of economically, politically and culturally End of War powerless and economic crisis US helped Europe through Marshall plan OEEC was formed in 1947 then OCED in 1961 1948 Benelux ( Belgium, Netherlands and Luxemburg) 1948 Western European Union ( UK, France, Belgium, Netherlands and Luxemburg) 1949 NATO (USA, Canada and 10 Western European countries) 1957 European Economic Community (EEC): (Belgium, France, Germany, Italy, Netherlands and Luxemburg) 1973 UK, Ireland and Denmark Joined in EEC Expanded in 1980s and 1990s and still expanding.

Member States pre-Enlargement

Enlargement - New Members

Institutions: Economic Union

Single Market
The single market is all about bringing down barriers and simplifying existing rules to enable everyone in the EU - individuals, consumers and businesses - to make the most of the opportunities offered to them by having direct access to 480 million people of EU countries

European Central Bank and Common Currency

The Euro has been introduced in: Belgium, Germany, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal, Slovenia and Finland.

Harmonized Tax system

Through partial harmonization of indirect taxes (value-added tax and excise duties), the EU has reached a considerable degree of fiscal neutrality.

Institutions: Political union

European Council
Heads of State & President of European Commission Deals with common foreign and security policy issues sit twice a year

European Commission Brussels, Belgium

Proposing, implementing & monitoring compliance - EU laws Commissioners appointed by each country 5 year terms Commissioners regulate the competition and M&A

Council of the European Union

Ultimate controlling authority approves proposed laws 1 representative from each state varies with topic Use majority voting rules rather than unanimous agreement

European Parliament Strasbourg, France

Directly elected by population 732 members Debates legislation Consultative body

Court of Justice, Luxembourg

Supreme appeals court for EU law 1 judge from each state required to act as independent officials

Some Key Questions

Does South Asia offer adequate pre-conditions for establishing and sustaining a preferential trading arrangement? Will the SAFTA regime create unequivocal gains for all its members? Would it be better to promote multilateral non-discriminatory trade liberalization in this region? Does a preferential arrangement in the like of SAPTA or SAFTA promote unilateral trade liberalization? How far it is for South Asia be an economic union?