trade integration sfls

PowerPoint Presentation

0Economic Integration

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Economic Integration:1.) Regional Economic Integration2.) Trade Creation/ Diversion

Globalization though these creations of trading blocsIssues that occur from these blocs

Process whereby countries in a geographic region cooperate to either reduce or eliminate barriers to the free flow of products, people, or capitalRegional Trade AgreementsSlowly coming together like this

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0Preferential Trade Agreements (PTA)- lower barriers trade among participating nations than with trade with non members.

1.) Regional Economic Integration

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0Stages of integrationFree imports & exportsCommon External TariffFree Factors of production movement Common CurrencyCommon Economic PolicyFree Trade AreaCustoms UnionCommonMarketMonetary UnionEconomic Union


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0-Removes all tariffs to trade in member countries.-Each member maintains own level & form of protection against non members.Free Trade AreaPreferential Trade Agreements (PTA)


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0Country B

Country ACountry C

$15$17with own tariffs $19with own tariffs

-Removes all tariffs to trade in member countries.-Each member maintains own level & form of protection against non members.Free Trade Area1.) Regional Economic Integrationwith own tariffs

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0Country B

Country ACountry C

$15$17with own tariffs $19with own tariffs

$10 with free trade-Removes all tariffs to trade in member countries.-Each member maintains own level & form of protection against non members.Free Trade Area1.) Regional Economic Integration

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NAFTANorth American Free Trade AreaIncludes:CanadaUnited StatesMexicoLargest example today(until Trump destroys it)

CISFTACommonwealth of Independent States Free Trade AreaIncludes:RussiaUkraineBelarusUzbekistanMoldovaArmeniaKyrgystanKazakhstan

ASEANAssociation of Southeast Asian NationsIncludes:ThailandVietnamIndonesiaSingaporePhilippinesMalaysiaLaosMyanmarCambodiaBruneiNot exactly a free trade area, (most real life trade zones dont fit neatly in these categories)



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0- Duty-free movement of products/services.-Common external tariff to non members.Free trade AreaPreferential Trade Agreements (PTA)Customs Union


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0If Germany, France, and Italy formed a custom unionThe tariff imposed on imports of South Korean digital cameras will be the same in the Germany, France, Italy.Individual countries cannot impose their own unilateraltariffs that differ from other in the customs union. Example:- Duty-free movement of products/services.-Common external tariff to non members.Free trade AreaPreferential Trade Agreements (PTA)Customs Union


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0Country B

Country ACountry C

$10$17with a single tariff$17with a single tariff

- Duty-free movement of products/services.-Common external tariff to non members.Customs Union1.) Regional Economic IntegrationNow A +B are like one price against C

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MERCOSURCommon market of the South ***(but not a common market yet)Includes:ArgentinaBrazilParaguayUruguayVenezuela* (suspended)

Have similar tariffs against non-members



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0- Customs union & free movement of workers and capital within member countries.Free trade AreaPreferential Trade Agreements (PTA)Customs UnionCommon Market

(Single Market)


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Country ACountry B

- Customs union & free movement of workers and capital within member countries.Common Market (Single Market) 1.) Regional Economic Integration

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EUEuropean Union(not yet a full political union)*Includes:GermanyItalyPolandRomaniaSwedenGreeceBulgariaFranceHungryFinland

AustriaSpainCzech RepublicCroatiaIrelandCyprusLithuaniaMaltaSlovakiaPortugalEstoniaBelgiumSloveniaLatviaDenmarkNetherlandsOfficially is a Common Market still working on becoming more integrated



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0- where two or more states share the same currency, though without there necessarily having any further integration.Free trade AreaPreferential Trade Agreements (PTA)Customs UnionCommon Market Monetary Union Economic Union(Currency Union)

1.) Regional Economic IntegrationMost Monetary Unions also have at least a Customs Union as well, or typically a Common Market.

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0- Common market & full integration of all members.- Supranational authority for joint economic policy making. Requires:*one central bank* single monetary system*unified fiscal system*common economy and foreign policyFree trade AreaPreferential Trade Agreements (PTA)Customs UnionCommon Market Economic Union 1.) Regional Economic Integration

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The United States is an economic example of this.



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Economic Integration:1.) Regional Economic Integration2.) Trade Creation/ Diversion

0Trade Creation higher priced domestic output replaced by lower priced imports increases welfareCountry ACountry B

$20$15

Buyer2.) Trade Creation / Diversion

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PQD

S

$15

Q1

$20

Q2

imports0A Country That Imports LEGOS

Trade Creation Country A is importing from country BCountry A

32PD > PW, so this country will import plasma TV sets from abroad.

The quantity of imports is simply the difference between the quantity demanded by domestic consumers and the quantity supplied by domestic firms at the world price.

0Trade Creation Country ACountry B

$20$15

BuyerFree Trade Area$102.) Trade Creation / Diversion

If remove the tariffs on country B with a Free Trade Area for example

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$15

PQD

S

$10

Q3Q1

Q2

Q4


Trade creation!Reduce TariffsTrade Creation

Free Trade AreaExample:Result in lower prices, more imports.

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0Trade Diversion 2.) Trade Creation / DiversionLower cost imports from outside the union are replaced by higher cost imports from member unions.

Preferential trade treatment result in the financing of inefficiency within a union.

Trade diverting union results in both trade creation and diversion and strength depends on the relative strength.

- Can increase or reduce welfare of members.

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0Trade Diversion trade diverted from low cost to high cost supplier decreases welfare

Country B

Country A

Country C$20$10$15Buyer2.) Trade Creation / Diversion

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0Trade Diversion

Country B

Country A

Country C$20$10$15Buyer2.) Trade Creation / DiversionSo for example, Country A is buying stuff from country B and NOT country C

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0

Country B

Country A

Country C$20$10$15

$17

Buyer2.) Trade Creation / DiversionTrade Diversion Now Country A and Country C create a Customs Union against Country B and impose tariffs

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0

$15

PQD

S

$10

Q3Q1

Q2

Q4

importsA Country That Imports LEGOSTrade diverted!Trade Diversion Customs UnionOld Price of B Price of C

$17New Price of B

Loss of WelfareExample:

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0Theory of Second BestSome forms economic integration may increase or decrease welfare of member nations and the world depending on circumstances under which it takes place.2.) Trade Creation / DiversionTrade Diversion trade diverted from low cost to high cost supplier decreases welfare

Integration is often good but this diversion might occur for some sectors of the economy, though there might be justified political, social or historical reasons to do it anyway

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04.) Terms of TradeTerms of Trade- A ratio of the indexed prices of exports and imports in a country.-List of all the prices put together. Index Index price of exports Index price of imports

X 100Base year is 100Equation:Dont forget this.

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So to summarize



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NAFTANorth American Free Trade AreaIncludes:CanadaUnited StatesMexico

CISFTACommonwealth of Independent States Free Trade AreaIncludes:RussiaUkraineBelarusUzbekistanMoldovaArmeniaKyrgystanKazakhstan

ASEANAssociation of Southeast Asian NationsIncludes:ThailandVietnamIndonesiaSingaporePhilippinesMalaysiaLaosMyanmarCambodiaBrunei

MERCOSURCommon market of the South ***(but not a common market yet)Includes:ArgentinaBrazilParaguayUruguayVenezuela* (suspended)

EUEuropean Union(not yet a full political union)*Includes:GermanyItalyPolandRomaniaSwedenGreeceBulgariaFranceHungryFinland

AustriaSpainCzech RepublicCroatiaIrelandCyprusLithuaniaMaltaSlovakiaPortugalEstoniaBelgiumSloveniaLatviaDenmarkNetherlands

0Trade Creation higher priced domestic output replaced by lower priced imports increases welfareCountry ACountry B

$20$15

BuyerFree Trade Area$102.) Trade Creation / Diversion

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$15

PQD

S

$10

Q3Q1

Q2

Q4


Trade creation!Reduce TariffsTrade Creation

Free Trade AreaExample:

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Country B

Country A

Country C$20$10$15

$17

Buyer2.) Trade Creation / DiversionTrade Diversion trade diverted from low cost to high cost supplier decreases welfare

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0

$15

PQD

S

$10

Q3Q1

Q2

Q4imports

A Country That Imports LEGOSTrade diverted!Trade Diversion Customs UnionOld Price of B Price of C

$17New Price of B

Loss of WelfareExample:

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The End

Thank you

trade integration sfls

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