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Chapter 12 Trade Policy: Blocs and Blocks
Link to syllabus
Figure 12.1 page 260
Types of economic blocs
Asean
Countries
(Significant overlap with APEC)
Central American Common Market
FTAs in Latin
America
LAFTA
1960s
Andean
Pact
Mercosur
Argentina, Brazil
Paraguay, Uruguay
East Africa Association
Figure12.2 page 263
Trade diversion and creation in a trading bloc
Map of Canada
Map of Mexico
Comparative Data
Table 1-1.
Comparative Data: Canada, Mexico, and the United States.
GDP/cap
Population
GDP
V.A. Mfg
Exports
Imports
Investment/GDP
Relative Wage
(US$)
(million)
(billion US$)
(billion US$)
(billion US$)
(billion US$)
(percent)
(US=100)
Canada
Mexico
19030
26
489
NA
114
113
23
103
2010
85
201
47
23
22
17
16
United States
20910
249
5156
866
347
492
15
100
Sources: World Bank World Development Report, 1991.
Wages (index of hourly compensation costs for production workers
in manufacturing) U.S. Statistical Abstract, 1991, Table No. 1468
Data refer to 1989 except for value added in manufacturing, which is
1988.
(tabl1/tables)
Ex-Figure 12.3 taken out
Estimates of the effects of NAFTA on national incomes
Go Blue!!
Figure 12.3 page 275
Effects of an embargo on exports to Iraq
Figure 12.4 page 277
Two kinds of economically unsuccessful embargoes
New Europe Map: NYT Oct. 21, 2002
Antecedents
Julius Cesar, Charlemagne, Napoleon, Hitler,
Post WWII: Marshall Plan, ECSC.
Political/economic vision of people such as the Frenchmen R.
Schuman, and J. Monnet, and P.H. Spaak of Belgium, for whom the
goal was to eliminate conflicts inside Europe.
France and Germany shared primacy forming the core of post-war
Europe.
Current institutional structure
Council (one rep. per country),
Commission (~civil service: technocrats above national interests,
~20 currently)
Parliament,
Court of Justice.
European Central Bank – nominally distinct from EU
No army.
Link to Europa on Parliament
Parliament
http://www.europa.eu.int/institutions/parliament/index_en.htm
~730 seats. Shares power with Council
Seats by Parties (Greens, CDs, Socialists, Free marketers)
The European Council
One per country. Rotates every six months. Chief decision making
group. Javier Solano is chief foreign minister.
Key responsibilities:
To pass European laws – jointly with the European Parliament in any
policy areas.
To co-ordinate the broad economic policies of the member states.
To conclude international agreements between the EU and other
countries or international organizations.
To approve the EU’s budget, jointly with the European Parliament.
To develop the EU’s Common Foreign and Security Policy (CFSP),
based on guidelines set by the European Council.
To co-ordinate co-operation between the national courts and police
forces in criminal matters.
Link to Europa: Commissions
Commissions
http://europa.eu/about-eu/institutions-bodies/european-parliament/index_en.htm
There are ~25 Commissions. Each Commissioner pledges to be nonnational in terms of policies. Led by the President – currently Jose
Manuel Barroso. A very successful one was Jacques Delors
Tasks:
Proposes legislation
Implements EU Policies
Enforces laws (along with the European Court of Justice
Represents the EU in International contexts
(something of a Civil Service
Link to Europa on Enlargement
Link to Europa expansion countries , at
http://ec.europa.eu/enlargement/index_en.htm
Economic Analysis
Tariff reduction, Trade creation vs. trade diversion
Tariffs to keep out US products have led to US FDI
CAP, (common agricultural policy) (not-free trade)
Regional development funds.
Free movement of labor (Schengen Accords, 1985-1990)
EMS & the Euro: is monetary unification a good idea –
is Europe an ‘optimum currency area?’
Table 5.5 CAP Budget Expenditures. P. 90
Figure 2.1 Population Growth 1960-2050. Page 20
Evaluation of Economic Progress
Growth rates of income, trade, etc., have been quite high compared to
historical trends.
However, because this has happened elsewhere in industrial nations,
it would be questionable to attribute this success to membership in
the EU.
The weakest economic variable is unemployment, which averages
over 10%.
Inflation and exchange rates (before the Euro) have been less
unstable than in previous periods, although still presenting problems
for further integration.
Current problems with debt in Greece, Ireland, Portugal, Spain and
Italy threaten the Euro, and ultimately the entire EU arrangement.
Robert Mundell
Born in Kingston, Canada in 1932.
Taught at U. of Chicago, now at Columbia
Nobel prize 1999
Optimum currency areas: Where costs of relocation are minimized.
Exports and imports are subject to similar shocks. Example, western US
and Canada (raw materials); eastern US and Ontario/eastern Canada
(industry/services).
This argument suggests unifying countries with similar macro
characteristics: inflation, growth of exports and GDP, technology, deficits.
Neither perspective suggests that the Euroland is an optimal currency area
This treatment consciously avoids political criteria (mt thinks this is the
opposite of what the European leaders had in mind initially).
Monetary Integration and the EURO (i)
a. convergence criteria: Similar levels of inflation, growth, interest
rates, and government deficits are required for a monetary union. Not
all EU members satisfied these criteria by Jan. 1, 1999.
b. The transition process to a unified currency presented numerous
potential problems, but nothing happened.
c. participation in EMU eliminates possibility of domestic monetary
policy, and forces countries to try to maintain performance of the
leading economies, such as Germany.
d) Economic benefits: small benefits to tourists and other consumers,
significant benefits to some middle size firms. As normally measured,
the aggregate benefits are small. Cost of failure is high.
e) tremendous symbolic impact of a single currency to the person on the
street in Europe. The ECB may also be seen as a politically acceptable
way to disguise German dominance of European monetary matters.
Monetary Integration (ii)
f) Britain, Sweden, and Denmark have opted out. Vision of "twotrack" Europe: core countries (Germany, France, Neth., Austria etc.),
vs. the Club Med (Italy, Spain, Portugal, Greece), and/or Nordic
(Denmark, Sweden, Finland). Fudging compliance would be a
dangerous precedent.
g) Claim that greater official support for EMU comes from non-core
countries, interpreted as a means of further linking their economies to
that of “core” Europe, and imposing fiscal conservatism.
h) Any central bank inevitably represents concentration of power. It is
hard to understand why this is pursued now, when so little consensus
exists on concentrating power. US economists thought it was a bad
idea; that judgment looks good in late 2011. Note that the ECB does
not fulfill the task of ‘lender of last resort.’
Political Evaluation (i)
a) avoid another conflict (Napoleonic wars, Franco-Prussian War,
WWI and WWII). Evaluation: complete success. Same for reunification of Germany inside Europe.
b) strengthen traditional European values : Democracy, human
rights, individualism, Greco-Roman/Judaeo-Christian heritage,
market economy. Evaluation: This factor is inherently long term,
difficult to evaluate, fraught with ambiguity, prone to hypocrisy.
Scandalous response to Turkish request for inclusion
c) speak for a united Europe on other international political issues.
Evaluation: weak, most tragically in the former Yugoslavia, less
negative in ex-USSR
d) provide, within NATO, a bulwark against the Soviet block.
Evaluation complete success, and no longer necessary
e) help strengthen these traditional European values (both
political and economic) in other countries by using membership in
EU as part of carrot and stick routine. [continued on next page]
Political Evaluation (ii)
Evaluation: This is evidently true in cases such as Greece, and
Spain/Portugal, and arguably also with entrants from the ex-Soviet
block. It is evidently false when analyzing entrance of Scandinavian
countries. It is unclear if present-day abandonment of socialist ideals is
fixed in all the ex-Soviet areas.
There is complete befuddlement when looking at the institutional
structure of the EU. Although nationalism has been avoided in the
Commission (bureaucrats) and in the Parliament, whose members are
elected representing pan-European ideological parties (Greens, Christian
Democrats, Socialists, Free Marketers), the unwillingness to cede power
to elected EU officials means that any change only comes from the
bureaucrats (Jacques Delors was outstandingly successful). Inevitably,
this paints the EU as an anti-democratic Leviathan, unpalatable to
traditional european values, explaining much hostility to it. Some fear the
establishment of a logic of bureaucratic momentum.
Current buzzword is the democratic deficit.
Jacques Delors
French, born 1925
Leader of the Socialist Party
President of the European Commission 19851995. Was able to forge the Maastricht accord,
which achieved the formalization of the EU
(single market), and started off EMU & Euro.
Three questions:
Can monetary union be achieved before political union?
Can there be, as per Roosevelt, Kissinger, and Kohl, primacy of
politics over economics?
How unified should Europe be?
Thesis: mt argues that the EEC/EU was started by people wishing for a
united Europe. Sixty years later that dream may have run out of steam.
The evolution of the EU integration reflects a complex leapfrogging of
economic and political considerations, attempting economic progress
when political progress is stymied. The strictly economic arguments in
favor of Euro are weak. However, the political benefits of a unified
currency, and the enforcing of convergence criteria on spendthrift
countries, may result to be strong.
The political costs of failure of the Euro are both high and visible.
Figure 3.1 Employment in the EUR15, USA and Japan, 1960-1997. P.35
Figure 3.4 Unemployment in the Civilian Labor Force,
1960-1997. Page 38
Figure 3.9 Unions and bargaining power, 1994 p. 51
Table 6.2 Shares of World Exports. page 117
Figure 6.1 Extra-EUR Trade/GDP Page 119
Figure 6.2 Intra and extra-EU Trade. Page 122
Figure 3.2 Employment in Industry, 1960-1997. P. 36
Performance Criteria for Maastricht/EURO.
Source: Hansen European Integration
P. 497
EYE ON THE GLOBAL ECONOMY
The Sliding Euro
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Table 4.2 Determinants of growth of productivity in EUR15 page 60
Table 4.4 GDP per capita, structural funds, and investment p. 73
Table 6.1 Average External Tariff p. 116
Mercosur
Argentina
Brazil
Paraguay
Uruguay