International Economic Course

Day 5: Economic Integration - EU – AEC

– RCEP – EV-FTA - WTO
Presented by:

Anh Duy Nguyen, PhD. International Economics

Duyna@uef.edu.vn
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Agenda
Overview
– Economic Integration : overview,
theory
– Examples of PTAs: NAFTA, European Union
– WTO
– ASEAN, AEC,
– Recent topics: TPP, BREXIT

Case study:

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 Gain from Trade

Things you already know!! ☺

– All countries can benefit if each country specializes
in production those goods it can produce best and
satisfy their other wants and needs by trading for
them

– Static Gains from trade are gains in world

output that result from specialization and trade

– Dynamic gains from trade are gains from

trade over time that occur because trade induces
greater efficiency in the use of existing resources
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Assignment:

1/ Describe the opportunities and economic

benefits (Dynamic gains ) of Vietnam in
the AEC , with EV-FTA, CP-TPP.
2/ What are the benefits of Single market of
EU ? Describe the current challenges of EU ?
3/ Why the theory of Comparative Advantage is more relevant to the
modern trade situation? How do gains from trade arise with
Comparative Advantage?

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 Economic Integration

Regional Integration vs. Multilateralism

WTO
– Promote trade liberalization through worldwide agreements
– Trade liberalization by any one nation
Extended to all WTO members, 160 nations
– Nondiscriminatory
Regional trading arrangements
– Nations reduce trade barriers only for a small group of
partner nations
– Discriminating against the rest of the world

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Economic Integration

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 RCEP
RCEP
– “Regional Comprehensive Economic Partnership”
– Large FTA negotiated since 2013 by
ASEAN 10 countries plus 5: China, Japan, South Korea,
Australia and New Zealand
India also, until it recently dropped out
– Signed Nov 15, 2020

Class 20: FTAs and Other Trade Deals 7

RCEP – Một Hiệp định quen…

RCEP – an agreement not quite new...

FTA thứ 15 của Việt Nam

Vietnam’ 15th FTA FTA mới với các đối tác FTA truyền thống
(ASEAN, Australia, New Zealand, Nhật Bản, Hàn Quốc, Trung Quốc)
A new FTA with previous-FTA partners (ASEAN, Australia, New Zealand, Japan,
FTA thế hệ mới Korea, China)
New-generation FTA

CPTPP,
ACFTA AJCEP AIFTA, AANZFTA VKFTA AHKFTA UKVFTA
2003 2008 2010 2015 2019 2021

1993 2007 2009 2014 2016 2020 2022

AFTA AKFTA VJEPA VCFTA VN - EAEU FTA EVFTA RCEP

(dự kiến/expected)

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 Các FTA chung có giữa Việt Nam với các
đối tác RCEP
Mutual FTAs between Vietnam and RCEP partners

Đối tác RCEP FTA chung với Việt Nam

RCEP partners Mutual FTAs with Vietnam

Brunei, Malaysia, Singapore AFTA, ACFTA, AIFTA, AKFTA, AJCEP, AANZFTA, AHKFTA, RCEP, CPTPP

Campuchia, Indonesia, AFTA, ACFTA, AIFTA, AKFTA, AJCEP, AANZFTA, AHKFTA, RCEP
Lào/Laos, Myanmar,
Philippines, Thái Lan/Thailand
Nhật Bản/Japan AJCEP, VJEPA, CPTPP, RCEP

Hàn Quốc/Korea AKFTA, VKFTA, RCEP

Australia, New Zealand AANZFTA, CPTPP, RCEP

Trung Quốc/China ACFTA, RCEP

Class 20: FTAs and Other Trade Deals 10

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 RCEP – Một Hiệp định quen… mà lạ
RCEP – an agreement not quite new… but different

FTA của những kỷ lục/ The FTA of records:

Quy mô lớn nhất Quy tụ các nguồn cung lớn nhất Quy tụ các đối tác FDI hàng đầu
(30% GDP, 30% dân số thế giới) (Trung Quốc, Hàn Quốc, ASEAN…) (Hàn Quốc, Nhật Bản, Singapore, Trung Quốc…)

Largest FTA Covering Vietnam’s largest suppliers Covering Vietnam’s largest in-flow FDI sources
(accounts for 30% of global GDP, 30% (China, Korea, ASEAN…) (Korea, Japan, Singapore, China…)
of world’ population)

RCEP – Một Hiệp định quen… mà lạ

RCEP – an agreement not quite new… but different

Source: CIEM
(2021).

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Class 20: FTAs and Other Trade Deals 13

Class 20: FTAs and Other Trade Deals 14

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 Questions on Economist,
“Big Deal…”
• When was RCEP signed, by whom, and
after how many years of negotiation?
• By when is it expected to be ratified?
• In what ways is RCEP weaker than other
agreements?
• Of the trade of these countries, how much
will be newly covered by a trade
agreement? Why?
Class 20: FTAs and Other Trade 15
Deals

CPTPP
• CPTPP
– “Comprehensive and Progressive Trans-
Pacific Partnership”
– Successor to TPP after Trump/US pulled out
– Includes 11 countries, including
• Japan
• Canada
• Mexico
• Australia
• Chile
Class 20: FTAs and Other Trade 16
Deals

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Class 20: FTAs and Other Trade Deals 17

Class 20: FTAs and Other Trade Deals 18

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 Vietnam: International Economic
Integration

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Coca Cola Case Study:

Coca-Cola is sold in all but 2 countries on Earth. Here's what
their ads look like around the world.

• Once a US trade
embargo lifted in 1994,
Vietnamese citizens saw
the return of the soda
brand within the year,
around three decades
after it had been pulled
from the market due to
the Vietnam War.

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 Vietnam’s Economic Integration
Economic integration with the global and
regional economy has recently been a clear
trend in Vietnam.
During the past 20 years

Join Join Sign

The Asssociation of The World Trade Free trade agreements

Southeast Asian Nations Organization (WTO) - (FTAs)
(ASEAN) - 1995 2007

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 FTAs END OF RCEP
17 FREE TRADE
NEGOTIATION
AGREEMENT IN
VIETNAM
VN– EFTA FTA
AFTA VCFTA

ACFTA VKFTA

AKFTA IN
VN – EAEU FTA
NEGOTIATION
AJCEP SIGNED CPTPP
AND
VJEPA EFFECTIVE AHKFTA
FTAs

AIFTA EVFTA
VN – Israel FTA

AANZFTA UKVFTA

Economic Integration

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 Economic Integration

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Less Globalization, More Multilateralism

While some degree of deglobalization may be desirable today, this

process also carries grave risks, from skyrocketing production costs
to geopolitical conflict. The only way to mitigate those risks is
through enhanced multilateral cooperation.
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 Economic Integration

Economic Integration
– Process of eliminating restrictions on
international trade, payments, and
factor mobility
– Results in the uniting of two or more
national economies in a regional trading
arrangement
Thus boosting the free movement of trade,
investment, and services across national boundaries
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Economic Integration

Integration creates high levels of globalization and

regionalization
… economic & political agreements that give preference to
members within the agreement

– Global (Multi-lateral)

– Regional … (or Bilateral)

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 BILATERAL TRADE AND
MULTILATERAL TRADE

1. THE MAIN DIFFERENT BETWEEN

1. DEFINITION OF MULTILATERAL AND
MULTILATERAL AND
BILATERAL TRADE BILATERAL
RELATIONS?
TRADE RELATIONS?
Bilateral trade Multilateral trade

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 New-generation free trade agreements - FTAs
• Trade barriers
• US “left the game”
• Environmental Protection
• Retains the main commitments
• Good governance TPP CPTPP of the TPP Agreement
• Human rights
• Allows countries to suspend the
• Intellectual property
Trans-Pacific Partnership implementation of about 20
• Investor-state arbitration
obligations in important areas
• Labour standards
• Regulatory cooperation
Agreement (TPP)

CPTPP

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 Value Expect
It is expected to eliminate about 90% of
the tariffs on imports between its
signatories within 20 years of coming
into force, and establish common rules
for e-commerce, trade, and intellectual
property.

Economic integration is an arrangement among nations that

typically includes the reduction or elimination of trade barriers and
the coordination of monetary and fiscal policies

Economic
Integration

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 Economic Integration Theory

1. Preferential Trade

Arrangement (PTA)

2. Free Trade

Area/Agreement (FTA)
4. Common Market (CM)
3. Custom Union (CU) 5. Economic Union (EU)

6. Political Union (PU)

What is Economic Integration ?

➢ Economic integration, also referred to as regional

integration, describes different ways how economies
can integrate. The degree of economic
integration can be classified into six stages:
1. Preferential Trade Agreement (PTA)
2. Free Trade Agreement (FTA)
3. Customs Union (CU)
4. Common Market
5. Economic Union
6. Political Union

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 Economic Integration
Economic What are PTAs?
A Preferential Trading Arrangement (PTA) is a trade
policy that favors one country over another
– Most obvious cases: Charge a lower, or zero, tariff on
imports from one country while charging a higher tariff on
imports from another
– Also called a Regional Trade Agreement (RTA – the
term used by the Gerber textbook and by the WTO, or
FTAs) when a group of countries in a region do this with each
other
Term is used even when the countries are not near each other

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Trading blocs
A trading bloc is an agreement among countries to work
toward eliminating trade barriers. Trading blocs may be
regional (e.g., NAFTA, EU), yet there are different degrees of
integration possible.
• Coordination of economic
Economic union
policies among members

• Allows free movement of

Common market
factors of production

• Common trade policy regarding

Customs union
nonmembers

• Trading block with no trade

Free trade area (FTA)
barriers

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 Economic Integration
+ Unification of + Political
+ Form a monetary and unification,
common + Free fiscal policies, formation of a
+ Eliminate tariff on movemen harmonisation single nation
tariffs & other imports t of of tax rates
restrictions against factors
amongst non-
Political
member Common
Economic Union
members
countries Market Union

Customs
Free Union MERCOSUR East & West
Trade
Area
AEC Germany

NAFTA BENELUX
CARICOM
AFTA EU
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Economic Integration

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 Economic Integration: Benefits

1. Increased competition
Lowers prices and increases quantity
2. Cost of production declines
Easier access to natural resources and technology
3. Increased access to technology and knowledge
4. Increased specialization
5. Greater opportunity for economies of scale
6. Increased employment
7. Increased income
8. Increased interdependence among members
Less chance of conflicts
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Economic Integration: Types of Regional

Trading Agreements

Free – Trade Area

– Association of trading nations
– Members agree to remove all tariff and
nontariff barriers among themselves
– Each member maintains its own set of trade
restrictions against outsiders
– North American Free Trade Agreement
(NAFTA)
Canada, Mexico, and the United States
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 Free Trade Area & Free Trade
Agreement (FTA)
▪ Free Trade Area is a region in which a group of countries has signed a free trade
agreement and maintain little or no barriers to trade in the form of tariffs or quotas
between each other

North American Free Trade Area (NAFTA)

European Free Trade

Association (EFTA)

Canada

United States

Mexico

Venezuela

Colombia

Peru
Brazil

RTAs in America Bolivia

NAFTA (3)
CARICOM (13)
CACM (5)
Argentina
ANDEAN (5)
MERCOSUR (4)

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Thị trường chung Nam Mỹ Mercosur: 6 thành viên

Mercosur (tiếng Tây Ban

Nha: Mercado Común
del Sur) hiệp định thương
mại tự do từ 1991gồm
Brasil,Argentina,
Uruguay, Paraguay.
6/2012: Venezuela.
12/2012: Bolivia,
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ASEAN - AEC

Aim of AEC
A single market and Competitive
common production economic region
base

Balanced economic Global Economic

development integration

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 South-Africa Development Community

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 Why Study International Economics?

Importance of International Economics:

– Give me an example of the interdependency
of todays world economies.

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WTO

Class 0: Introduction & Overview 54

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 55

Economic Integration: Types of Regional

Trading Agreements

Custom Union
– Agreement among two or more trading partners
– To remove all tariff and nontariff trade
barriers between themselves
– Each member nation imposes identical trade
restrictions against nonparticipants
– Ex: EU- Turkey Custom Union
– Belgium, the Netherlands, and Luxembourg

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 Economic Integration: Types of Regional
Trading Agreements

Common Market
– Group of trading nations
– Free movement of goods and services among
member nations
– Initiation of common external trade restrictions
against nonmembers
– Free movement of factors of production across
national borders within the economic bloc
– European Union (EU), 1992

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Economic Integration: Types of Regional

Trading Agreements

Economic Union:
– National, social, taxation, and fiscal
policies are harmonized and
administered by a supranational
institution
–Requires an agreement to transfer
economic sovereignty to a
supranational authority
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 Economic Integration: Types of Regional
Trading Agreements
Monetary Union:
– Ultimate degree of economic union
– Unification of national monetary policies
– Acceptance of a common currency administered by a
supranational monetary authority
The United States - Monetary union
– Fifty states with a common currency
– Federal Reserve
Single central bank for the nation
– Free trade among the states
– Labor and capital move freely
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Economic Integration: Types of Regional

Trading Agreements
Monetary Union: The United States - Monetary union
– Fifty states with a common currency
– Federal Reserve
Single central bank for the nation
– Free trade among the states
– Labor and capital move freely
– Federal government
Nation’s fiscal policy
National defense
Retirement and health programs
International affairs
– States can keep their identity within the union
Police protection and education
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Regional Economic Integration (review)
Partial Trade
– Free trade in “select “industries
Free Trade Area (FTA):
– No internal tariffs at all
Customs union:
– … & … common external tariffs
Common market:
– … & … Factor (labor, capital, technology) mobility
Economic union:
– … & … Common currency
Political union:
– … & … Political integration

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Impetus for Regionalism

(positive impacts)
Motivations for regional trading arrangements
– Prospect of enhanced economic growth
Economies of large-scale production
Foster specialization and learning-by-doing
Attract foreign investment
– Foster a variety of noneconomic objectives
Managing immigration flows
Promoting regional security
– Enhance & solidify domestic economic reforms

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 Effects of a Regional Trading
Arrangement
Static effects of economic integration
– On productive efficiency
– And consumer welfare
Dynamic effects of economic
integration
– Relate to long-term rates of growth

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Effects of a Regional Trading

Arrangement
Static effects
– Trade-creation effect
Welfare gain
Some domestic production of one customs-union member
– Replaced by another member’s lower-cost imports
Consumption effect
Production effect
– Trade-diversion effect
Welfare loss
Imports from a low-cost supplier outside the union
– Are replaced by purchases from a higher-cost supplier within the
union
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 Static Effects of Economic Integration

Trade creation: Domestic products are replaced by more

competitive regional products.
➢ Effects: a) displacement of non-competitive domestic producers by regional
competitors; b) positive consumer effects.
Trade diversion: Products which were formerly imported from the
RoW are now imported from regional producers as their production
costs are lower than those of the rest of the world plus customs duty.
➢ Effects: a) increased producer surplus of the regional suppliers; b) negative
consumer effects.

➢ Trade creation shifts production towards the more competitive

regional producers, resulting in an optimal factor allocation within
the region;
➢ Trade diversion is ‘welfare decreasing’ as it promotes inefficient
production.
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Dynamic effects of economic integration

Economic effects:
✓ Increased specialisation due to concentration on comparative advantages;
✓ Economies of scale due to enlarged market;
✓ Enhanced efficiency of resource allocation due to increased
competition; consumer benefits;
✓ Technology transfer, innovation and learning effects;
✓ Option to reap higher levels of FDI.
➢ Political motivations: Advanced relevance in bi- and multilateral trade
negotiations, increased economic and political reputation since trade
reforms are “locked-in”; increased security and stability in the region

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 Dynamic effects of regional integration
schemes (cont.)
Lock-in reforms: use of an RTA to send a signal to private and
public agents that there will be no recidivism (=helps to lock in
reforms as in the case of WTO accession).
This MAY  uncertainty and  investment, in particular foreign
direct investment, as in the case of Mexico:
12.000
Launch of
NAFTA 10.000
negotiations 8.000
6.000
NAFTA put 4.000
into force
2.000
0
1985 1987 1989 1991 1993 1995

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 APEC (FTAAP)
Hong Kong, PNG, Russia,
Chinese Taipei

RCEP
TPP
China,
Korea Chile
India Australia
Japan, NZ Peru
ASEAN NAFTA
Canada
Brunei Mexico
Cambodia Indonesia Malaysia U.S.
Laos Philippines Singapore
Myanmar Thailand Vietnam

Note: Countries in red are those with which Korea has signed an FTA.

Reducing trade barriers in services

The future of trade is virtual rather than face-face exchanges but Vietnam has still many trade
barriers in services

V
N

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Economic Integration: Effects of PTAs

Two main effects of a PTA

– Trade Creation
= Importing from the partner what
you previously produced at home
– Trade Diversion
= Importing from the partner what you
previously imported from another
(“third”) country
© AD at UEF 73

Economic Integration: Effects of PTAs

Welfare effects of one country reducing its

tariff on a good from a partner country:
– Importing country
Gains from trade creation
Loses from trade diversion (we’ll see why
shortly)
– Partner country gains regardless
– Rest of world
Loses from trade diversion
Not much affected by trade creation
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 Economic Integration: Effects of PTAs

Reasons
– Trade creation is much like true free trade
At zero tariff, import from partner only if
its cost is lower
Thus resources are used more efficiently
– Trade diversion is not like true free trade
What was imported from 3rd country, not
partner, when both paid the same tariff, must
have cost more in the partner than in the 3rd
country
Switching to the partner is a switch to a higher
cost source for the good
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Question & Answer: Take aways

Reflective Questions:
❑ What are the benefits of FTAs in the context of
Economic Integration ?
❑ Give some examples of static and dynamic effects of
economic integration ?
Is the US – South Korea free trade agreement good for
Americans ? Give your explanations in terms of benefits
vs. cost , jobs

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 The European Union (EU)

Initially began with the 1958

Treaty of Rome
Objective is to harmonize
national laws and regulations so
that goods, services, people,
and money could flow freely
across national boundaries
1991 Maastricht Treaty set
stage for transition to an
Lithuania joined the euro zone
On January 1, 2015.
economic union with a central
bank and single currency (the
Euro)
Copyright © 2017 Pearson Education, Inc. 3-77

The European Union (EU)

EU = European Union
Group of 28 countries, among which there is free
flow of
– Goods
– Capital
– Labor (but not yet including those who joined most recently)
– Harmonization of laws and regulations
– Price transparency
– No customs at national borders

Added 10 countries Jan 1, 2004

Added Romania and Bulgaria on Jan 1, 2007
Added Croatia July 1, 2013
UK voted to leave June 23, 2016 (Brexit) 78
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– Plans to initiate the process by end of March, 2017

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 The European Union: Timeline
Year Initiative/Treaty Members Added

1951 European Coal and Steel France, Germany, Italy, Luxembourg, Netherlands
Community/Treaty of Paris
1958 European Economic
Community/Treaty of Rome
1973 Enlargement Denmark, Ireland, United Kingdom
1981 Enlargement Greece
1986 Enlargement Portugal, Spain
1992 European Union/Maastricht Treaty
1995 Enlargement Austria, Finland, Sweden
1999 European Monetary Union United Kingdom, Sweden and Denmark not included
2002 Common EMU currency: the euro United Kingdom, Sweden and Denmark not included
2004 Enlargement Cyprus, Czech Republic, Estonia, Hungary
Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia
2007 Enlargement Bulgaria, Romania
2007 EU Constitution/Lisbon Treaty
2013 Enlargement Croatia

Founders

New ideas for lasting peace and prosperity…

Konrad Adenauer Alcide De Gasperi

Winston Churchill

Robert Schuman Jean Monnet

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The EU symbols

The motto:
United in diversity The European anthem

The euro The European flag Europe Day, 9 May

24 official languages

Български English latviešu valoda português

Čeština español lietuvių kalba Română
dansk français magyar slovenčina
Deutsch Gaeilge Malti slovenščina
eesti keel hrvatski Nederlands suomi
Ελληνικά Italiano polski svenska

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Candidate countries and potential candidates

Wealth
Area Population
Country (gross domestic
(x 1000 km²) (millions)
product per person)

Bosnia and
51 3.8 7 800
Herzegovina

Montenegro 14 0.6 10 600

Kosovo under UN
Security Resolution 11 1.8 :
1244

North Macedonia 25 2.1 10 000

Albania 28 2.9 7 800

Serbia 77 7.2 9 600

Turkey 783 77.7 14 400

The 28 EU countries
4 272 508.2 27 400
together

The treaties – basis for democratic cooperation built on law

1952 The European Coal and Steel Community

1958 The treaties of Rome:

• The European Economic Community
• The European Atomic Energy Community
(EURATOM)

1987 The European Single Act: the Single

Market

1993 Treaty on European Union -

Maastricht
1999 Treaty of Amsterdam

2003 Treaty of Nice

2009 Treaty of Lisbon

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The EU Charter of Fundamental Rights

Binding for all the EU's activities

54 articles under 6 titles:

Dignity Freedoms Equality

Solidarity Citizens’ rights Justice

Croatia 2013

6 Economic Integration - 6.1 Institutions Of International Finance 86

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Organization of EU
European Council
– Heads of State & President of European Commission
– Resolves major policy issues & sets direction – 2x year
European Commission – Brussels, Belgium
– Proposing, implementing & monitoring compliance - EU laws
– Commissioners appointed by each country – 5 year renewable terms
– Competition Commissioner regulator of 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
– Supreme appeals court for EU law
– 1 judge from each state – required to act as independent officials

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 France 633

Spain 506

Sweden 439

Germany 357

Finland 338

Union
Poland 313

Italy 302

United Kingdom 249 European

Romania 238

Greece 132

Bulgaria 111

Hungary 93

Portugal 92

Croatia 88

How big are the EU countries?

Austria 84

Czechia 79

Ireland 70

Copyright © 2017 Pearson Education, Inc.

Lithuania 65

Latvia 65

Slovakia 49

Surface area (x 1000 km²)

Estonia 45

Denmark 43

Netherlands 42

Belgium 31

Slovenia 20

Cyprus 9

Luxembourg 2.6
3-89

Malta 0.3

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 How many people live in the EU?

Population in millions (2015)

508 million in total
81.2

66.4

64.8

60.8

46.5

38

19.8

16.9

11.3

10.8

10.5

10.4

9.8

9.7

8.6

7.2

5.6

5.5

5.4

4.6

4.2

2.9

2.1

1.3

0.8

0.6

0.4
2

Λουξεμβούργο
Αυστρία

Κροατία

Κύπρος

Μάλτα
Γερμανία

Κάτω Χώρες
Ισπανία

Ελλάδα

Πορτογαλία
Ρουμανία

Ουγγαρία
Σουηδία

Βουλγαρία

Ιρλανδία

Λετονία
Εσθονία
Γαλλία

Ιταλία

Πολωνία
Ηνωμ Βασίλειο

Βέλγιο

Τσεχία

Δανία

Σλοβακία

Σλοβενία
Λιθουανία
Φινλανδία

Economic Integration: European Union

European Union - monetary union
– The Maastricht Treaty, 1991
Full-fledged European Monetary Union (EMU) by 2003
Single currency, the euro
– The euro - official currency of 16 of the 27 member states of the
European Union
– The eurozone:
Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia,
and Spain
– Also used in another five European countries
– Used daily by some 327 million Europeans
– Over 175 million people worldwide
Use currencies that are pegged to the euro
– The second largest reserve currency
– The second most traded currency in the world

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 Pros and Cons of Unification:EU
Proponents expected
– Complete the internal market
– Improved competition & efficiency
– Arbitrage across national borders
– New era of prosperity
– Stable prices
– Fiscal discipline
– Lower interest rate
➢ thus higher investment
➢ Stronger growth
– More jobs

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The single market: freedom of choice

Four freedoms of
movement:
• goods
• services
• people
• capital
The single market has led to:

• significant reductions in the price

of many products and services,
including airfares and phone calls
• more choice for consumers
• 2.8 million new jobs

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 Free to move

‘Schengen’

• No police or customs checks at borders

between most EU countries

• Controls strengthened at the EU’s

external borders

• More cooperation between police from

different EU countries

• Buy and bring back any goods for

personal use when you travel between
EU countries

Going abroad to learn

Erasmus+
Every year, more than 400
000 young people study or
pursue personal development
in other European countries
with the support of the EU’s
Erasmus+ programme for
education, training,

youth and sport.

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Protecting consumers' rights

As a consumer you are protected by basic laws all

over the EU, even when you travel or shop online
• Clear labelling

•Health and safety standards

• Unfair practice in contracts prohibited

• Passengers’ rights, such as compensation for long delays

• Help to resolve problems

An area of freedom, security and justice

• EU Charter of Fundamental Rights

• Joint fight against terrorism

• Cooperation between police and law-

enforcers in different EU countries

• Coordinated asylum and immigration

policies

• Civil law cooperation

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 Pros and Cons of Unification: EU

Opponents expected:
– Division of the EU
– Loss of sovereignty
– Little popular support
– Regulatory & other costs
– Difficulties of adjustment to asymmetric shocks
(As had happened before, e.g., with German
unification and discovery of North Sea Oil)

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Pros and Cons of Unification: EU

Why adjustment is hard
– Like states in the US, countries in Eurozone have
No exchange-rate tool
No separate monetary policies
Very limited fiscal policies (due to SGP)
– Unlike US states, however, in Eurozone
Labor is less mobile across countries
Wages are less flexible, due to social policies
No mechanism for fiscal transfers among countries
Without adjustment
– When one country is hit with a shock that others are not
(i.e., an “asymmetric shock”),
Its markets don’t adjust (rigid wages)
Its people don’t move
It has fewer policies to deal with this
Other countries don’t help
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Europe vs European Union

Europe
• Size: 10.180.000 km² European Union
• Inhabitants: 742,452,000 • Size:
• 50 officially recognized 4,324,782 km2
countries, 5 countries • Inhabitants:
with limited recognition 508,191,116

EU - Institutions, Bodies and Agencies

European Council
(summit)

Council of Ministers
European Parliament (The Council) European Commission

Court of Court of Economic and Social Committee of the

Justice Auditors Committee Regions

European Investment
Agencies European Central Bank
Bank

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 EU - Three Key players

The European Parliament

- voice of the people

The European Commission The European Council and the

- promoting the common Council
interest - voice of the Member States

https://www.youtube.com/watch?v=j9MjHN-lU1I

The European Commission – promoting the common interest

28 independent members, one from each EU country

• Proposes new legislation

• Executive organ
• Guardian of the treaties
• Represents the EU on the international stage

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EU Legislature

• Treaties: Two core functional treaties, the Treaty on European Union

(originally signed in Maastricht in 1992) and the Treaty on the Functioning
of the European Union

• Regulation: is a legal act of the EU that becomes immediately enforceable

as law in all MS simultaneously.

• Directive: is a legal act of the EU, which requires MS to achieve a

particular result without dictating the means of achieving that result.

• Decision: is binding on those to whom it is addressed (e.g. an EU country

or an individual company) and is directly applicable.

• Recommendation: is an act without legal force. Though without

binding effect, they do have a political weight.

Common EU trade policy

Free Trade Area: no customs tariffs and quantity restrictions in

mutual trade
➢ ASEAN

Customs union: Free trade area plus common external customs

tariff
➢ EU customs Union with Turkey, Mercosur

Common Market: Customs Union plus some common policy

areas plus free internal movement of goods , services, capital
and people
➢ EU

Economic and Monetary Union: Common market plus common

monetary policy plus single currency
➢ Euro zone

Political Union: the full integration process

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 Common EU trade policy
Title I of Part I of the consolidated Treaty on the Functioning of the European
Union:

"The Union has exclusive competence to make directives and conclude

international agreements when provided for in a Union legislative act."

• the customs union

• the establishing of the competition rules necessary for the functioning of
the internal market
• monetary policy for the Member States whose currency is the euro
• the conservation of marine biological resources under the common fisheries
policy
• common commercial policy
• conclusion of certain international agreements

➢ The EU policy is integrated in international trade agreements

➢ The EU policy applies also on bilateral or regional levels

Euro zone: 19 countries

• 4 countries use the euro

an basis of an monetary
agreement

• 2 countries adopted the

Euro unilaterally

EU countries using the euro

EU countries not using the euro

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 France 633

Spain 506

Sweden 439

Germany 357

Finland 338

Poland 313

Surface area (x 1000 km²)

Italy 302
The Schengen Area

United Kingdom 249

Romania 238

Greece 132

Bulgaria 111
between most EU countries

Hungary 93

Portugal 92

Croatia 88

Austria 84
• No police or customs checks at borders

Czech Republic 79

Do we have a common European heritage?

Ireland 70 • Schengen Visa for the participating countries
Lithuania 65

Latvia 65

Slovakia 49

Estonia 45

Denmark 43

Netherlands 42

Belgium 31

Slovenia 20

Cyprus 9

Luxembourg 2.6

Malta 0.3

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Do we have a common European heritage?

Population in millions (2015)

508 million in total

Do we have a common European heritage?

GDP per inhabitant (2014)

Index where the average of the 28 EU countries is 100

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Do we have a common European heritage?

GDP: 13.9 trillion € (1st)

GDP per capita: 27.400 €
Inflation: 1,5 %

500 Mio. Consumers

135 Fortune 500 companies
(1st)

➢ Services: 73%
➢ Industry: 25%
➢ Agriculture: 2%

Do we have a common European heritage?

24 official languages
More then 35 recognised regional minority-languages
As many CULTURAL differences…

ALL KIND OF CONSUMERS WITH DIFFERENT TASTES &

HABITS
ALL KIND OF PARTNERS WITH DIFFERENT STYLE &
MENTALITY

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EU Free Trade Agreements

115

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 World Institution:
World Trade Organization

World Trade Organization

160 members as of 2014

AD @ UEF 2018

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World Trade Organization Rouds

Rounds of GATT
Multilateral Trade Negotiations
No. Years Name Accomplishments
1-5 1947-61 Reduced tariffs
6 1964-67 Kennedy Tariffs + anti-dumping
7 1973-79 Tokyo Tariffs + NTBs
8 1986-94 Uruguay Tariffs, NTBs, Services, Intellectual Property,
Textiles, Ag., Dispute Settlement, Created
WTO
9 2001-15 Doha FAILED: Doha Development Agenda

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 What the WTO Stands for….

Non-discrimination
More “open”- ness
Predictability and transparency
More competitiveness
Benefits for less developed countries (>75% are
“developing” or LDCs)
Protection for the environment***

© AD at UEF

WTO: Primary Functions

Administering WTO trade agreements
Forum for trade negotiations … (goods…+)
Handling trade disputes
Monitoring national trade policies
Technical assistance and training for developing
countries
Cooperation with other international organizations

© AD at UEF

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 WTO Functions
Communication Ministerials
Negotiating Rounds
Working Groups
Trade Policy Review
Mechanism
Councils and Committees

Lecture 9: WTO 123

WTO Functions
Constraints Tariff Bindings
Customs Valuation
Product Regulations
Quantitative Restrictions
Subsidies
Foreign Direct Investment (TRIMS)
Services (GATS)
Intellectual Property (TRIPs)

Lecture 9: WTO 124

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 WTO Functions
Exceptions Anti-Dumping
Countervailing Duties
Safeguards
Balance of Payments Protection
Preferential Trade Agreements

Lecture 9: WTO 125

WTO Functions
Dispute Settlement Consultation
Panel Recommendation
Appellate Body
Remedy Implementation
Compensation
Retaliation

Lecture 9: WTO 126

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 World Trade Organization: Today
WTO’s Two Basic Principles
1. MFN = Most Favored Nation
Each member country should treat all members as well as it
treats its “most favored nation” (i.e., the member that it
treats the best)
2. National Treatment
Once a product or seller has entered a country, it
should be treated the same as products or sellers that
originated inside that country
(There are many permitted exceptions to both of these principles)

Lecture 9: WTO 127

World Trade Organization: Today

WTO Decision Making
– Decisions by consensus: all countries present at
ministerial meetings must agree,
– In practice, large and rich countries dominate this
process
They first agree among themselves
(This originally done in “Green Room”, hence “Green Room Group”)
Then seek consensus based on that
– Is this “democratic”?
Yes: Every country has one vote
No: Rich countries dominate decisions in practice

Lecture 9: WTO 128

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 World Trade Organization: Today
The Doha Round/Doha Development Agenda (2001-
)
– Focused on trade issues of importance to developing countries

– Key issues of Doha

Development Agenda:
-Farm subsidies in high income countries of Europe, US, and Japan
-Greater market access by developing countries and strong farm
sector high income countries
-Trade in services
-Problems poor countries face in implementation
– Talks collapsed in July 2008.
– The main point of contention is trade in agriculture with major
industrialized nations such as the U.S., EU and Japan maintaining
production subsidies and import barriers

129

ASEAN Vision

“A concert of Southeast Asian

nations, outward looking, living
in peace, stability and
prosperity, bonded together in
partnership in dynamic
development and in a
community of caring societies.”

130
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ASEAN

3-131
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ASEAN Economic Integration

1992: Establishment of ASEAN FTA (AFTA) with Common Effective

Preferential Tariff (CEPT) to enter into force
2003: Decision to establish ASEAN Community by 31 December 2015:
1. ASEAN Political-Security Community
2. ASEAN Economic Community (AEC)
3. ASEAN Socio-Cultural Community
2007: Adoption of Economic Blueprint; defining four pillars of AEC and 176
priority actions to serve as a guide towards AEC implementation
2009: Asean Trade in Goods Agreement (ATIGA): consolidated all exiting
ASEAN initiatives and agreemens towards an effective ASEAN FTA; incl.
removal of non-tariff barriers (NTBs), customs procedures, rules of origin,
and transparent trade rules and regulations.
2009: ASEAN Framework Agreement on Services (AFTAS): gradually
liberalises intra-regional trade in services
2012: ASEAN Comprehensive Investment Agreement (ACIA): aims to
gradually establish an integrated ASEAN investment framework 132

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 ASEAN
Association of Southeast Asian
Nations
10 Member States:
Brunei Darussalam Myanmar
(7 January 1984) (23 July 1997)

Cambodia Philippines
(30 April 1999) (8 August 1967)

Indonesia Singapore
(8 August 1967) (8 August 1967)

Lao PDR Thailand

(23 July 1997) (8 August 1967)

Malaysia Viet Nam

(8 August 1967) (28 July 1995)

© AD at UEF 133

If ASEAN were a single country, it would already be the seventh-

largest economy in the world, with a combined GDP of $2.4
trillion in 2013.
It is projected to rank as the fourth-largest economy by 2050.
McKinsey & Co. – May 2014
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 Gross Domestic Product 2014

COUNTRIES GDP
1. United States 17,419,000
2. China 10,360,105
3. Japan 4,601,461
4. Germany 3,852,556
5. United Kingdom 2,941,886
ASEAN 6. France 2,829,192 USD 2.48
7. Brazil 2,346,118 trillion
8. Italy 2,144,338
9. India 2,066,902
10. Russia Federation 1,860,598

Indonesia (16) 888,538

World 77,868,768

Source: World Development Indicators, The World Bank (As of 1 July 135
2015)

ASEAN Economies’ Development Indexes:

Global Ranks’ Comparison
Doing Business
HDI Infrastructure Indicator
(2013) (2013) (2013)
Singapore 18 2 1
Brunei 30 58 79
Malaysia 64 29 12
Thailand 103 47 18
Philippines 114 96 138
Indonesia 121 61 128
Vietnam 127 82 99
Laos 138 84 163
Cambodia 138 101 133
Myanmar 149 141 n/a

136

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 ASEAN
Highly connected:
Physically,
Institutionally and
among the Peoples
Free trade agreements
with major regional
economies
Young, educated
labour force

© AD at UEF 137

ASEAN: A Community of Opportunities

GDP:
Huge Market:
USD 2.4
625 million+ people
trillion
Courtesy of ASEAN National Tourism
Organisations

FDI: Steady
USD 122.4 economic
billion growth rate

Courtesy of ASEAN National Tourism

Organisations

ROBUST AD @ UEF 2018 138

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 ASEAN: A Community of Opportunities

Young,
Highly Connected
educated labour
Region
force
Courtesy of ASEAN National Tourism Organisations

Free Trade
Agreements with
major regional
economies
Courtesy of ASEAN National Tourism Organisations
Image source: Flickr.com/RussellGilbert

DYNAMIC AD @ UEF 2018 139

ASEAN: A Community of Opportunities

Home to major Rich culture

religions

Courtesy of ASEAN National Tourism Organisations

Vast natural
resources
Courtesy of ASEAN National Tourism Organisations Courtesy of ASEAN National Tourism Organisations

DIVERSE AD @ UEF 2018 140

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 ASEAN Community Building

ASEAN:
A people-oriented community

ASEAN ASEAN ASEAN

Political-Security Economic Socio-Cultural
Community Community Community
(APSC) (AEC) (ASCC)

Narrowing the Development Gap (NDG) 141

AEC Blueprint: Adopted Nov 2007

ASEAN ECONOMIC
COMMUNITY
STRATEGIC SCHEDULE OF THE AEC BLUEPRINT (2008-2015)
1. Single Market 2. Competitive 3. Equitable 4. Integration into
& Production Base Economic Region Economic Global Economy
Development
• Free flow of goods • Competition policy • Coherent approach
• Free flow of • Consumer • SME development towards external
services protection Initiative for ASEAN economic relations
• Free flow of • Intellectual property Integration • Enhanced
investment rights participation in
• Freer flow of capital • Infrastructure global supply
• Free flow of skilled development networks
labour • Taxation
• Priority Integration • E-Commerce
Sectors
• Food, agriculture
and forestry

HUMAN RESOURCE RESEARCH & DEVELOPMENT

DEVELOPMENT 142

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 AEC Milestones

ASEAN ASEAN Bali Concord II Vientiane

Birth of Free Trade Vision (ASEAN Plan of ASEAN Bali Concord III
ASEAN Area 2020 Community) Action Charter (RCEP/AFEED)

1967 1977 1992 1995 1997 1998 2003 2004 2007 2008 2009 2011 2015

ASEAN ASEAN
Preferential Framework ASEAN Hanoi Roadmap for AEC
Trading Agreement Investment Plan of AEC an ASEAN
Agreement on Services Agreement Action Blueprint Community

143

AEC 2025

Integrated and Competitive, Enhanced sectoral

highly cohesive innovative and integration and
economy dynamic ASEAN cooperation

Resilient, inclusive,
people-oriented and
Global ASEAN
people-centered
ASEAN

144

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 Post-2015 Vision for AEC
An ASEAN Economic Community for 2016-2025 (AEC
2025) that includes an integrated and highly cohesive
economy, a competitive, innovative and dynamic ASEAN, a
resilient, inclusive and people-oriented, people-centred
ASEAN, enhanced sectoral integration and cooperation,
and a global ASEAN.

145

The ASEAN Plus Agreements

ASEAN has established FTAs with some of the world’s major economies
as part of its broader trade liberalisation agenda. The ASEAN Plus FTAs
are as follows:
ASEAN-China Free Trade Area (ACFTA)
ASEAN-Japan Comprehensive Economic Partnership (AJCEP)
ASEAN-Korea Free Trade Area (AKFTA)
ASEAN-Australia-New Zealand Free Trade Area (AANZFTA)
ASEAN-India Free Trade Area (AIFTA)
➢ Plus multiple bilateral FTAs of single ASEAN members
➢ Today: more than 90 bilateral, plurilateral and multilateral FTA
treaties concluded and under negotiations (ADB, 2015).

146

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Vietnam: International Economic
Integration

147
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Vietnam: International Economic

Integration

148
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 Vietnam: International Economic
Integration

149
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What is APEC?

• Established in 1989.
• Forum for facilitating economic growth,
cooperation, trade and investment in the Asia-
Pacific region.
• Intergovernmental grouping that operates on the
basis of non-binding commitments, open dialogue,
and equal respect for the views of all participants.
• Composed of 21 Member Economies.

Copyright © 2013 APEC Secretariat

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APEC Member Economies

APEC Official Observers

• Association of South East Asian Nations (ASEAN) Secretariat
• Pacific Economic Cooperation Council (PECC)
• Pacific Islands Forum (PIF) Copyright © 2013 APEC Secretariat

APEC’s Significance

Source: StatsAPEC, Key Indicators Database. Copyright © 2015 APEC Secretariat

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Trade and economic growth

• Economies trade because it is mutually beneficial

• Classical trade theory: specialise in goods you can make
efficiently (comparatively) and trade for goods you cannot make
efficiently (comparatively)
• New trade theories: global value chains, horizontal integration,
economic geography and networks, etc.
• Empirical data show synergies between trade and
economic growth
• More open economies grow faster than less open economies
• Economies that trade more get richer more quickly (e.g., East
Asian miracles)

Trade and economic growth

Elasticity
Period Observations Overall R2
(in %)
APEC Economies
1960-1988 0.428 376 0.687
1989-2013 0.565 453 0.783
Rest of the World
1960-1988 0.305 1,914 0.737
1989-2013 0.389 2,878 0.886

• Elasticities: impact on GDP growth of 1% growth in trade

• Positive for all economies; more positive in APEC
• More synergistic in recent decades
• But what about inclusive growth?

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