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Chapter 11 Trade Blocs and Trade Blocks 贸易集团与贸易禁运. 11.1 Introduction. Chapter Objectives To examine the forms and effects of regional trading blocs and trade sanctions. Contents. Types of Economic Blocs Effects of Trade Blocs Trade Creation Trade Diversion Major Trade blocs
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Chapter 11Trade Blocs and Trade Blocks贸易集团与贸易禁运
11.1 Introduction • Chapter Objectives To examine the forms and effects of regional trading blocs and trade sanctions.
Contents • Types of Economic Blocs • Effects of Trade Blocs • Trade Creation • Trade Diversion • Major Trade blocs • Trade Sanctions
11.2 Types of Economic Blocs • Preferential Trading Arrangements 优惠贸易安排 • Free Trade Area 自由贸易区 • Customs Union 关税同盟 • Common Market 共同市场 • Economic Union 经济联盟
Is Trade Blocs Good or Bad? • Good • Moving toward free trade • Bad • Trade diversion • Trade discrimination • Trade friction
WTO Rules • Non-discrimination Most-Favored Nation(MFN)Principle • Deviations • Developing Countries • Among themselves • Preference from developed countries • Trade blocs
11.3 Effects of Trade Blocs • Trade Creation 贸易创造 • Trade Diversion 贸易转移
Background • The formation of a Customs Union • UK • Japan • Germany
Consumer Surplus: +(a+b) Tariff Revenue: - (a+c) Effect of TradeDiversion Effect of Trade Creation
Factors affecting the net effect of a Customs Union • The relative cost of the partner The lower the partner cost relative to the outside-world cost, the greater the gain. • The elasticity of home demand for imports The more elastic the import demand, the greater the gains.
Other Gains from a Trade Bloc • Increased competition reduces prices and costs of production. • Firms can lower costs by expanding production scale. • More local and foreign investments can be induced.
11.4 The EU Experience • From EEC to EU • 1948 Benelux Customs Union • 1951 The European Coal and Steel Community • 1957 European Economic Community, EEC European Atomic Energy Community, Euratom
11.4 The EU Experience • From EEC to EU • 1960: European Free Trade Area (EFTA) Austria, Denmark, Norway, Portugal, Sweden, Switzerland, the UK • 1967: The European Community • 1973: Demark, Ireland and the UK join the EC. • 1979: The European Monetary System begins to operate.
11.4 The EU Experience • From EEC to EU • 1981: Greece joins the EC. • 1986: Portugal and Spain joins the EC. • 1986-1987: Member governments approve and enact the Single European Act. • 1992: The Single European Act takes Effect. • 1993: The European Union is established.
11.4 The EU Experience • From EEC to EU • 1995: Austria, Sweden, and Finland joins the EU. • 1996: EU-Turkey Customs Union • 1999: The Birth of Euro • 2002: The Euro replaces the national currencies in 12 countries. • 2004: 10 new members joins the EU.
11.4 The EU Experience • From EEC to EU • 1981: Greece joins the EC. • 1986: Portugal and Spain joins the EC. • 1986-1987: Member governments approve and enact the Single European Act. • 1992: The Single European Act takes Effect. • 1993: The European Union is established.
11.4 The EU Experience • Effects of the EC/EU • Studies in 1960s-1970s: Net gains were small but positive. Balassa (1975) : 0.1% of GDP Problems: • Static • Common Agricultural Policy overlooked • Recent studies: Net gains: 2% of GDP
11.5 The NAFTA • 1988: The Canada-U.S. Free Trade Area • 1994: The NAFTA
11.5 The NAFTA • Effects on Canada • Canadian manufacturers now send more than half their production to the U.S. • In 2002, Canada was the most important destination for merchandise exports from 39 of the 50 U.S. states. • 86.6% of total Canadian merchandise exports go to NAFTA partners. • Canada has an increase of 17.5% in employment over pre-NAFTA levels.
11.5 The NAFTA • Effects on Mexico • Mexico’s share of the U.S. import market has almost doubled from 6.9% in pre-NAFTA 1993 to 11.6% in 2002. • Trade Diversion • FDI
11.5 The NAFTA • Estimates of Effects of NAFTA on National Incomes and Wage Rates P 261
11.6 FTAs Involving China • China-ASEAN Free Trade Area • 2000: 4th “10+1” conference in Singapore • 2001: 5th “10+1” conference in Brunei Expert Projections based on 2000 data, • ASEAN exports to China: + 48% • China exports to ASEAN : + 55% • GDP of ASEAN: + 0.9 percentage point • GDP of China: + 0.9 percentage point • 2002: 6th “10+1” conference in Cambodia
11.6 FTAs Involving China • China-Chilean Free Trade Area 2005. 11: Agreement was signed in Pusan, Korea
11.6 FTAs Involving China • China-New Zealand Free Trade Area • 2004.11 Talks started. • 2006.10 10th round of talks held in New Zealand
11.6 FTAs Involving China • China-Australian Free Trade Area • 2005.5 1th round of talks held in Sydney, Australia. • 2006.9 6th round of talks held in Beijing.
11.7 Trade Sanctions • The US Picture • In 1998, 75 countries were targets of sanctions of all level U.S. governmental unit. • 20 billion of U.S. exports per year were blocked in the mid-1990s. • Net cost was about 1 billion per year.
11.7 Trade Sanctions • Effects of Trade Sanctions • The target country: Iraq • The embargoing country: USA • The nonembargoing country: Iran
Net loss: a Q2 Q0 Q1
Loss for Iraq:b+c Loss for E.Countries: a Gain for N.E.Countries: b Net loss for the world: a+c d PE Q2 Q3 Q1
11.7 Trade Sanctions • Why do countries impose trade sanctions when both sides suffer losses? Trade measures are used for other purposes.
11.7 Trade Sanctions • Are trade sanctions effective ? A study by Gary Hufbauer and Jeffrey Schott shows: • 1945-1970, U.S. sanctions failed to affect the policies of the target countries; • 1970-1990, about 4/5 U.S. sanctions failed.
11.7 Trade Sanctions • Why do trade sanctions fail ? • Political Failure • Economic Failure
Cost to embargoers (a) Damage to the target country(b+c).
