ĐẠI HỌC FPT CẦN THƠ

Session 2

Chapter 2 c

International and
Regional Agreements
Affecting Trade
 Contents
• The GATT and WTO
1

• Regional Integration Agreements (RIAs)

2

• The North American Free Trade

3 Agreement (NAFTA)

• The European Union

4

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 The GATT and WTO
GATT: General Agreement on Tariffs and Trade
GATT – provisional agreement (1945) pending
the creation of an International Trade
Organization (ITO).

The ITO draft charter, which was the result of

trade negotiations at the Havana Conference of
1948, never came into being due to the failure
of the U.S. Congress to approve it.

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 The GATT and WTO
Principal objectives of the GATT / WTO:
v Nondiscrimination
ü MFN: Members must be treated in the same way with
respect to import-export duties and charges.
ü NT: a Contracting Parties is required to treat foreign
imports the same way it treats similar domestic products
v Trade liberalization: reduce trade barriers.
v Settlement of trade disputes
v Trade in goods and services: The WTO rules were
originally intended to govern trade in merchandise
(primarily imports). The rules have, however, been
extended to include trade in services and trade-related
intellectual property.
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 GATT Negotiations (1947-2001)
GATT Round Explanation
Geneva (1947) Twenty-three countries participated in establishing the GATT in 1947.
Annecy, France (1949) Thirty-three countries participated in tariff reductions.
Torquay, UK
Thirty-four countries participated in tariff reductions.
(1951)
Geneva Twenty-two countries participated in tariff reductions on trade
(1956) estimated at $2.5 billion.
Dillon Forty-five countries participated in tariff reductions on trade estimated
(1960-61) at $5 billion.
Kennedy Forty-eight countries participated in tariff reductions on trade estimated
(1962-67 ) at $40 billion.
Tokyo Ninety-nine countries participated in reductions of of tariff and non-
(1973-79 ) tariff barriers on trade valued at $155 billion.
Uruguay Broadening of the GATT to include services, intellectual property and
(1986-1994) investment.
Doha Reduction of agricultural subsidies and other trade barriers led to the
(2001- ) establishment of the WTO
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 Uruguay Round
Major accomplishments of the Uruguay Round
q Trade Liberalization : Reduction of trade
barriers in areas such as agriculture, textiles
q New trade rules on dumping, subsidies, import
safeguards
q Broadened coverage from merchandise to
services, intellectual property etc,
q Institutional reforms: Permanent trade
organization (WTO) established; strengthened
dispute settlement system.

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 REGIONAL INTEGRATION
AGREEMENTS (RIAs)

WTO members are permitted to enter into RIAs

under specific conditions: Requires free trade on
most goods & members to refrain from raising
their tariffs against countries outside the
agreement.

Since January, 1995 about 546 RIAs have been

notified to the WTO with 354 currently in effect.

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 Major drivers of RIAs

Consolidation of peace, regional security and

free market reforms in many countries
Promotion of deeper levels of economic
integration than what is available under the
WTO ( issues pertaining to competition,
investment, labor and the environment)
Market access and a means of attracting FDI.
Sluggish progress in multilateral trade talks.

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 ECONOMIC INTEGRATION

Economic
Union
Common -all the
Market elements of a
- all the common
Custom Union elements of a market
- All barriers are customs union - unify
removed on trade
among members - allows free monetary and
movement of fiscal policies
Free Trade –Common
external tariff
labor and of member
Area
capital among states
- All barriers member
are removed nations
on trade
among
members
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 The North American
Free Trade Agreement (NAFTA)
Establishes a free trade area between Canada,
the United States and Mexico. The agreement
came into effect on January 1, 1994.
The first reciprocal free trade pact between a
developing nation and industrial countries
495 million people and a joint gross domestic
product exceeding $24 trillion (2020)
July 1, 2020: USMCA

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 Country objectives behind NAFTA

United States: Attractive framework for trade

liberalization; response to prevailing economic
relations between countries (The European
Union and other regional trade agreements); 2
countries are important trading partners
Canada: Secure access to a large consumer
market
Mexico: Secure access to US and Canadian
markets, attractive to FDI, fosters and
consolidates economic reform
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 Merchandise Exports
Intra NAFTA trade in 2011 and 2019

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 Overview of NAFTA

v Market access for goods: No discrimination

in favor of domestic goods. Application of
national treatment standard. Provides for
gradual elimination of tariffs over fifteen years
(except for certain agriculture products). Goods
must be wholly or substantially made within
member countries to qualify for preferential
market access.

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 NAFTA

vMarket access to services: Application of

national treatment standard. Provides for
gradual elimination of restriction on services
trade during the transitional period.
v Investment: Application of national
treatment standard, prohibition on the
imposition of performance requirements.
Exceptions made in the case of certain strategic
industries such as energy (Mexico), cultural
industries (Canada), nuclear energy and
broadcasting ( all three countries).
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 NAFTA
v Protection of intellectual property rights such as
patents, trademarks, copyrights, trade secrets etc.
ü Patents are valid for 20 years from the date of filing or 17 years from the date of
grant.
ü Registered trademarks for a term of no fewer than 7years, renewable indefinitely
v Government procurement: Equal treatment to all
member country providers for all goods and services
procured by federal government entities ( some
exceptions apply).
ü $50,000 for contract of goods and/or services and $6.5 million for construction
contracts procured by federal government entities.
ü For government enterprises, the threshold is $250,000 for contract of goods
and/or services and $8 million for construction services

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 NAFTA
v Safeguards: Emergency actions (temporary) to
protect domestic industry if a surge in imports causes
serious injury to domestic industry.
v Technical and Other Standards: No use of
standards as a disguised restriction to trade.
v Dispute settlement: Consultations, mediation,
conciliation, a panel of nongovernmental experts.

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 PRELIMINARY
ASSESSMENT OF NAFTA
vOverall Increase in Trade between
Members: Intra-NAFTA trade jumped from
$304 billion in 1993 to $1.3 trillion in 2019.
vIncrease in the U.S. Trade Deficit: The U.S.
merchandise trade deficit with Canada and
Mexico stands at $44 and $102 billion,
respectively (2019).
vNAFTA’s Impact on Jobs is Uncertain
vSubstantial Increase in Foreign
Investment in all Countries
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 The European Union
Major objectives of the European Union:

v To create free trade and a common external

tariff among members
v To abolish restrictions on the free movement of
all factors of production
vTo establish common policies in the areas of
transport, agriculture, competition, etc.

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 European Union
Institutions of the European Union

The European Council: Composed of representatives (Ministers) of member states, the council
sets out general direction of the union. The council approves legislation and international
agreements, acting on a proposal from the commission and after consulting with the European
Parliament.

The European Commission: Members of the commission are chosen by the mutual agreement
of national governments and serve four year terms. Larger nations appoint two while smaller
nations appoint one Commissioner. They neither represent nor take orders from member states.
The commission initiates policies and ensures members’ compliance with the treaty.

The European Parliament: Composed of 732 representatives directly elected, the European
Parliament supervises the commission, adopts the community budget and influences the
legislative process. Any agreement concerning international co-operation must be reviewed and
accepted by Parliament before it is concluded. The parliament, however, does not have express
legislative powers.

The Court of Justice: Settles disputes arising from the treaty (i.e. interprets and applies the EU
treaty). The judges are appointed by mutual agreement of member states and serve six-year
terms. The court ensures uniform interpretation and application of community law, evaluates
legality of legislation adopted by the council and the commission, and provides rulings on
community law when requested by national courts in member states.

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 EU and NAFTA

TABLE 2.4 NAFTA and EU: Major Differences

NAFTA EU
NAFTA does not provide for a common EU has a common external tariff
external tariff
NAFTA has no provision for economic EU provides for economic assistance to
assistance or economic /monetary union members and economic/monetary union
NAFTA does not provide for free movement of EU allows for free movement of labor
labor

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 QUIZ
1. NAFTA has facilitated substantial increases of foreign direct
investment in which country?
a. United States
b. Canada
c. Mexico
d. All of the above
2. By entering into regional agreements, groups of countries aim to
..... trade barriers more ...... than can be achieved under the auspices
of the World Trade Organization.
A. reduce, rapidly
B. reduce, slowly
C. increase, rapidly
D. increase, slowly

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 QUIZ
3. The.......means that once imported goods have been cleared customs, a
contracting party of GATT is required to treat foreign imports in the same
way as it treats similar domestic products.
A. Most favored nations (MFN) standard
B. National treatment (NT) standard
C. Fair standard
D. Discrimination standard
4. Smaller nations enter into the Regional Integration Agreements
(RIA) for which reasons:
A. Market access and creation of joint ventures with other less
developing nations
B. Market access and establishing trade and FDI relations with
transition economies
C. Market access and to deal more effectively with larger economies
in multilateral trade talks and other areas
D. None of
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 QUIZ
5. What is an agreement between countries in a geographic region to
reduce tariff and nontariff barriers to the free flow of goods, services, and
factors of production between each other?
A. Regional economic integration
B. Harmonization
C. Centralization
D. Decentralization
6. Which level of international economic integration involves the free
flow of products and factors of production between members, the
adoption of a common extremal trade policy, as well as requiring a
common currency, harmonization of a tax rates, and a common
monetary and fiscal policy?
A. Free trade area
B. Customs union
C. Economic union
D. Common
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 QUIZ
7. In............all barriers to trade of goods and services among
members countries are removed and the countries
A. Free trade area
B. Customs union
C. Preferential agreement
D. None of the others
8. Which of the following is seen as a disadvantage of the euro?
A. Higher foreign exchange and hedging costs.
B. National authorities losing control over monetary policy.
C. It becomes difficult to compare prices across Europe
D. Undermines the development of a pan-European capital market.

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 QUIZ
9. Which of the following is true of a common market
A. All barriers to the trade of goods and services among member countries are
removed and each country maintains its own policy toward nonmember
countries
B. It involves the free flow of products and factors of production between
member countries and adoption of individual external trade policies
C. It has no barriers to trade between member countries, includes a common
external trade policy, and allows factors of production to move freely between
member
D. It eliminates trade barriers between member countries and adopts a
common external trade policy and a common currency
10. The Southern African Customs Union has the following as its objective:
a. Common currency and common external tariff
b. Common currency and free movement of goods
c. Common currency, common external tariff, and free movement of goods
d. Common external tariff and free movement of goods
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 REVIEW QUESTIONS
1. What were the major achievements of the Uruguay Round of
the GATT/WTO?
2. Distinguish between the most-favored nation and national
treatment standard in international trade.
3. Discuss the major drivers of regional trade agreements.
4. Compare and contrast the negotiating objectives of Canada and
Mexico behind NAFTA.
5. Discuss NAFTA pertaining to services and investment. Has it
increased trade between the member countries?
6. What are the various stages of economic integration?
7. What are the objectives of European integration? Which
countries joined the EU in 2004?
8. Discuss the major differences between NAFTA and the EU.
9. What were the major achievements of the Single European Act?
10. What is the role of the EU commission?
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ĐẠI HỌC FPT CẦN THƠ

Chapter 2