Email: hatran@neu.edu.

vn

COURSE:

INTERNATIONAL ECONOMICS
Tel: 0918726074

MSc. Tran Hoang Ha

Department of International Economics
School of Trade and International Economics

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Hanoi, December 2023
 ECONOMIC INTEGRATION
1. Introduction of economic integration
and the levels of international
economic integration
2. Understand the meaning of trade
creation, trade diversion and the
dynamic benefits of economic
integration
02
3. Introduce some regional-level
economic integration organizations

MSc. Tran Hoang Ha

 ECONOMIC INTEGRATION

“ If you want to make beautiful music,

you must play the black and
the white notes together”.
02
___Richard M. Nixon___

MSc. Tran Hoang Ha

 INTRODUCTION
Preferential trade
• International economic integration is the process of agreement
linking, exchanging and cooperating between the national
economy and other national economies or regional and Free trade area
global economic organizations.

• International economic integration is one major and Custom union

inevitable trends in the development process of each
country Common market
• The theory of economic integration refers to the commercial
policy of discriminatively reducing or eliminating trade Economic union
barriers only among the nations joining together

MSc. Tran Hoang Ha

 INTERNATIONAL ECONOMIC INTEGRATION (1)
1. Preferential trade agreements (Eg. The British Commonwealth
Preference Scheme, 1932)
- Loosest form of economic integration
- Lower trade barriers on trade
2. Free trade areas (E.g. European Free Trade Association [EFTA, 1960];
North American Free Trade Agreement [NAFTA, 1993]; Southern Common
Market [Mercosur, 1991]; etc.)
- All barriers on trade are removed
- Remain separate trade barriers on non-members
- Most common form of economic integration
MSc. Tran Hoang Ha
 INTERNATIONAL ECONOMIC INTEGRATION (2)
3. Custom Unions (E.g. European Union [EU, 1993]; European Common
Market [1957]; Zollverein [1934])
- All barriers on trade are removed
- Harmonize members’ trade policies towards non-members
4. Common Markets (Eg. EU, 1993)
- Allow the free movement of labor and capital
5. Economic Unions (Eg. Benelux, The USA)
- The most advanced type of economic integration
- Harmonize / Unify monetary and fiscal policies

MSc. Tran Hoang Ha

 INTERNATIONAL ECONOMIC INTEGRATION (3)

Preferential trade Free trade Custom Common Economic

agreements areas unions market Union
Removal of trade
No Yes Yes Yes Yes
barriers
Common external
No No Yes Yes Yes
trade policies
Factor mobility No No No Yes Yes

Harmonize economic
No No No No Yes
policies

MSc. Tran Hoang Ha

 INTERNATIONAL ECONOMIC INTEGRATION (4)
Leverage
Build trust Adapt competitive future
Gain market with limited
access influence

Avoid Why countries Weaken vested interests

conflicts integrate? and monopolies

Common
Terms-of-trade Domestic market-
interests
effects oriented reforms

MSc. Tran Hoang Ha

 TRADE – CREATING CUSTOMS UNION

Trade creation occurs when some domestic

production in a nation that is a member of
the custom union is replaced by lower cost
imports from another member nation
A trade-creating customs union leads to
greater specialization in production based
on comparative advantage and also
increases the welfare of nonmembers
because of spills over. Illustration of a Trade-Creating
Customs Union
MSc. Tran Hoang Ha
 TRADE – DIVERTING CUSTOMS UNION
Trade diversion occurs when lower-cost
imports from outside the customs union
are replaced by higher cost imports from
a union member
A trade-diverting customs union results
in both trade creation and trade diversion,
and therefore can increase or reduce the
welfare of union members, depending on
the relative strength of these two
Illustration of a Trade-diverting
opposing forces
Customs Union
MSc. Tran Hoang Ha
 THE THEORY OF THE SECOND BEST

[Viner, 1955] The formation of a customs union could increase or reduce the
welfare of member nations and the rest of the world, depending on the
circumstances under which it takes place.
➔ If all the conditions required to maximize welfare cannot be satisfied,
trying to satisfy as many of these conditions as possible does not necessarily
or usually lead to the second-best position

MSc. Tran Hoang Ha

 CONDITIONS MORE LIKELY TO LEAD TO INCREASED WELFARE

1. High pre-union trade barriers of member countries.

2. Low customs union’s barriers on trade with the rest
of the world.
1. Increase Competition
3. Great number of countries forming the customs
2. Economies of Scale
union (along with each nation’s size)
3. Stimulate investment
4. Competitive rather than complementary.
4. Free movements of
5. Being close geographically.
resources
6. Great pre-union trade and economic relationship
among potential members of the customs union.
MSc. Tran Hoang Ha
 OTHER WELFARE EFFECTS OF CUSTOMS UNION

Static effects Administration Dynamic Increased

savings effects competition

Economies of scale
Improve /
Deteriorate / no
effect on trade Stimulate
investment
Improve
bargaining power Utilize the
resources

MSc. Tran Hoang Ha

ASSOCIATION OF SOUTH-EAST ASIAN NATIONS – ASEAN

o Established on 8 August 1967 in Bangkok, Thailand

o Founder: Indonesia-Malaysia-Philippines-Singapore-Thailand
o Brunei Darussalam (07/01/1984), Viet Nam (28/07/1995), Lao
PDR & Myanmar (23/07/1997), & Cambodia (30/04/1999)
o Member: 10 (including Brunei, Cambodia, Laos, Indonesia,
Malaysia, Myanmar, Philippines, Singapore, Thailand, VN)
o Vision: ASEAN Vision 2025 "One Vision, One Identity,
One Community"
o Decision–making in ASEAN shall based on consultation and
consensus
 ASEAN – PRINCIPLES

Upholding the UN’s Charter • Independence

& international law
• Sovereignty
Peaceful dispute Respect &
settlement non- • Rights to decide
interference national existence
• Differences (cultures,
Regional peace,
security and prosperity languages, religions)

Good governance
Towards elimination
and Democracy Freedom, Human of all barriers
rights &Social justice
 ASEAN – ORGANIZATIONAL STRUCTURE

ASEAN COORDINATING ASEAN COMMUNITY

ASEAN SUMMIT
COUNCIL COUNCILS

SECRETARY – GENERAL COMMITTEE OF

ASEAN SECTORAL
OF ASEAN & ASEAN PERMANENT
MINISTERIAL BODIES
SECRETARIAT REPRESENTATIVES

ASEAN NATIONAL ASEAN HUMAN RIGHTS

ASEAN FOUNDATION
SECRETARIATS BODY

https://www.asean.org/wp-content/uploads/images/archive/AC-Vietnam.pdf
https://asean.org/wp-content/uploads/images/archive/publications/ASEAN-Charter.pdf
ASEAN – CONTEMPORARY CONTEXT

Strengths Weaknesses

Opportunities Threats
ASEAN COMMUNITY AND THE AEC
• 22/11/2015: signed the Declaration on
the Establishment of the ASEAN community on 31/12/2015
• Three main pillars: Political-Security, Economic, and Socio-Cultural Community
• The AEC Blueprint 2025 is towards more integrated economic community with
the following characteristics:

ASEAN Community
• A Highly Integrated and Cohesive Economy

Vision 2025.
• A Competitive, Innovative and Dynamic ASEAN
• Enhanced Connectivity and Sectoral Cooperation
• A Resilient, Inclusive, People Oriented and People-Centered ASEAN
• A Global ASEAN
ASEAN COMMUNITY AND THE AEC
• Main AEC agreements:
• ASEAN Trade in Goods Agreement (ATIGA); (effect from 17/05/2010)
• Formerly known as the Preferential Tariff Agreement (CEPT/AFTA, 1992)
• ASEAN's first comprehensive agreement regulating all intra-ASEAN trade in goods
• The tariff reduction roadmap of ASEAN-6 is often shorter than that of CLMV countries
• ASEAN Framework Agreement on Services (AFAS);
• ASEAN Comprehensive Investment Agreement (ACIA);
• ASEAN Agreement on Movement of Natural Persons within ASEAN (MNP, 2012);
• 8 occupations equivalently recognized: accountants, architects, dentists, doctors,
engineers, nurses, tourism and investigator
 ASEAN CRITICISM

CONCENSUS Time-consuming and difficult to reach common

MECHANISM consensus, especially in the security-political aspect

Cannot make a general judgment on the East Sea

POLITICAL VIEWPOINT
Cambodia vetoed (2012 and 2016 Summit)

Difficulties in deepening integration

DIFFERENCES
and regional unity
EUROPEAN UNION – EU

o Established: November 1, 1993 (as a single

unified market)
o Members: 27 countries (Austria, Belgium,
Bulgaria, Croatia, Cyprus, Czech Republic,
Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, Netherlands,
Poland, Portugal , Romania, Slovakia,
Slovenia, Spain, Sweden, The United
Kingdom(dropped out)) --- comparable in size
to NAFTA “United in Diversity”
EUROPEAN UNION – EU
o Intra-EU trade has been estimated double
what it would have been in the absence of
integration
o The formation of the EU:
o significantly expanded trade in industrial
goods with nonmembers.
o resulted in trade diversion in agricultural
commodities
o The static welfare benefits are estimated to be
1-2% of GDP, while the dynamic benefits are
estimated to be much larger (especially
politics) “United in Diversity”
EUROPEAN UNION – THE FORMATION

Treaty of
Treaty of Merger Treaty of
Rome
Paris (6) Treaty Maastricht
(25/3/57-
(18/4/51 - ECSC) (8/4/65 - EC) (7/2/92 - EU)
EURATOM, EEC)

• Gives the EU full legal entity

Treaty of Treaty of Treaty of • A formal procedure to
Amsterdam Nice Lisbon withdraw (Article 50)
(2/10/97 - EMU) (12/2000) (13/12/2007) • Switch from consensus to
vote on majority
 1) Promote peace, its values and the well-being of its citizens

EU – AIMS AND VALUES 2) Offer freedom, security and justice without internal borders

3) Sustainable development based on balanced economic

Human growth & price stability, a highly competitive market economy

Dignity
with full employment & social progress, and environmental
Human Freedom
Rights protection

4) Combat social exclusion and discrimination

EU
5) Promote scientific and technological progress

Democra- 6) Enhance economic, social and territorial cohesion and

Rule of
Law cy
solidarity among EU countries
Equality 7) Respect its rich cultural and linguistic diversity

8) Establish an economic and monetary union whose

currency is the euro.
 • GDP
Economy • Unemployment rate
• Crisis

Society • Common policies

• Intra bloc
EU – ASPECTS Politic
• Extra bloc

• NATO
Security
• WEU

Trade • 2nd to The USA

EU – CRITICISM
“European integration has been leveraged
to impose Franco-German interests, thereby
reproducing the structures of dependence and
subordination characteristic of “informal imperialism.”

__Tommaso Pavone (2012), The dark side of

European Integration__
EU – VIETNAM RELATIONSHIP

• 28/11/1990: officially established diplomatic relations

• 17/07/1995: signed EU-Vietnam Framework Cooperation
Agreement (FCA) → normalize trading relationship and establish
bilaterial relationships
• 27/06/2012: signed EU-Vietnam Framework agreement on
Comprehensive partnership and cooperation (PCA) → broadens
EU-Vietnam cooperation (trade, environment, energy, science
and technology, good governance, human rights, as well as
tourism, culture, migration and the fight against corruption and
organized crime).
Vietnam is the EU's
15th trade in goods
partner and the EU's
largest trading partner
in the ASEAN in 2020

The EVFTA is one of

Vietnam’s 1st new
generation FTAs

Vietnam is the 1st

developing country to
sign FTA with the EU;
and is the 4th country
in Asia after Japan,
South Korea, and
Singapore.
30/06/2019: signed EVFTA (01/08/2020 comes into force) and EVIPA (on going)
 New generation FTA
EU – VIETNAM FTA
Opportunities and
o EVFTA is a new generation FTA, with a wide scope of
commitments and a high level of commitment.
Challenges

o Commitment to eliminate tariffs as soon as EVFTA comes into Successes and

effect: 48.5% (EU 85.6%)
Drawbacks
o Commitment to eliminate tariffs according to the roadmap: 91.8%
after 07 years and 98.3% (EU 99.2%) after 10 years. Impacts

o About 1.7% of the remaining tariffs are either under quota or (general / sectors)
uncommitted (EU 0.8% tariff quota with in-quota tax = 0%)
Implementation
o Commitment to tariff quotas: sugar, salt, poultry eggs, tobacco...

o No tariff elimination: some automotive products

BREXIT
NORTH AMERICAN FREE TRADE AGREEMENTS – NAFTA
o Established: January 1st, 1994

o Members: the United States, Canada, and Mexico

o NAFTA was inspired by the success of the European Economic

Community (1957–93) in eliminating tariffs to stimulate trade
among members.
o Import tariffs elimination
o Protects the property rights of cross-border investors in
North America and eliminates practices that have long
discouraged foreign investment in Mexico
NORTH AMERICAN FREE TRADE AGREEMENTS – NAFTA

Although NAFTA is a long and complex agreement,

its purpose is simple: It aims to eliminate or lower
trade barriers to goods and services and create a
common market from “Yukon to Yuncata”

__David J. Sousa (2001)__

 NAFTA → USMCA
o 27/08/2018, President Donald Trump
announced a new trade deal with Mexico to
replace NAFTA (U.S.-Mexico Trade Agreement)
o 30/09/2018, this agreement was modified to
include Canada → USMCA took effect on
01/07/2020, completely replacing NAFTA.
o Key differences:
o Auto manufacturing boost (62.5 → 75%)
o Labor laws strengthening
o Dairy farmers get more market access
o Updating NAFTA for the digital era
o Environment protections
o Congress keeps control over biologic drugs
 NAFTA – VN TRADING RELATIONSHIP

AGREEMENT BETWEEN THE

UNITED STATES OF AMERICA AND
CPTPP (08/03/2018) CPTPP (08/03/2018)
THE SOCIALIST REPUBLIC OF
ASEAN-CANADA FTA (negotiating)
VIETNAM ON TRADE RELATIONS
(13/07/2000)
VN – US RELATIONSHIP
• The US intervened in the Vietnam War in the
period 1948-1975
• Normalized diplomatic relations on July 11, 1995
• The US has always been a leading partner in
importing goods from Vietnam
• The import-export turnover between Vietnam and
the US has increased year by year
• [Ministry of Planning and Investment] The US
ranks 11/138 countries investing in Vietnam
(>1,000 valid investment projects, total
investment ~ 9.4 billion USD)