Week
Five – Regional Economic and Knowledge IntegrationWeek
Five – Regional Economic and Knowledge Integration
How Trade Works
To many, trade is typified by the production of a tangible good which is exported to another country and then sold and consumed there. While this is a fundamental part of international trade it is only part of the picture and usually the least sophisticated.. The term commerce captures much more economic activity which much better reflects global business.
Trade, which is also a domestic activity, takes place because a specialized supplier of garments, cars, wheat, computer programs, clothing designs, engineering services, etc. etc. can offer to the market, either next door or anywhere in the world, a product that is somehow better and/or less expensive than another entity can provide.
Better and less expensive is not only the basic price and quality of the good or service. Reliability, good quality control, speed and cost of delivery, after sales service, cultural and language similarities between buyers and sellers all influence weather or not commerce will transpire. Then there are tariff and non tariff barriers that can so effectively disrupt otherwise viable trade. Here is where economic integration has a usually positive impact.
Levels of Economic Integration
Economic integration between nations generally means an opening of borders
for the freer flow of goods, services and sometimes people.
The most highly integrated regional entity is the EU which has a harmonized common external tariff, has a common currency, no internal tariffs and a near complete freedom of movement people between jurisdictions. Attempts are underway to enhanced political unification.
It was not always so, the 20th century had the various nation states in bitter wars with each other. A couple centuries before that, Germany alone consisted of several hundred autonomous principalities. Integration is a relatively new concept here.
The integration of Europe and the EU as we know today grew out of the ashes of the Second World War when in 1951 the European Coal and Steel Treaty came into effect to pool these resources . Here economic interests took a second seat to the pragmatic idea that no country could wage war if coal and steel were a continent wide integrated industry. However the economic benefits that this gave Europeans an appetite for total economic integration down to the minutia today of how straight or crooked a cucumber must be to enter into trans border European trade.
NAFTA, involving the US, Mexico and Canada is the next most integrated regional entity and is by all accounts a success – two way trade between all partners has expanded dramatically since tariff barriers and many trade irritants were eliminated. While this integration does not move much beyond a common internal tariff each of the three economies were able to take advantage of absolute and comparative advantages with all three economies coming out ahead.
APEC (Asia Pacific Economic Council – all nations that border the Pacific and a few more) and ASEAN, (Association of South East Asia Nations) are more political and less trade directed. Indeed ASEAN struggles with competing economies that are often quite similar in nature and do not lend themselves to true economic integration.
Similarly MERCOSUR, with Brazil, Argentina, Uruguay and Paraguay, is struggling to become a regional economic powerhouse partially because the economies are so dominated by Brazil and they tend to have more in common as competitors than traders.
Political and economic factors for and against
To be certain, Europe and North America started out as competitors between countries. However in these areas there was a strong political will that oversaw economic restructuring and the pain that goes with this to develop economies that are in harmony with each other.
For others the will, usually for domestic political and some economic reasons, are simply not there. Take Thailand and Vietnam for example. Not only did they fight a bitter war in living memory, they share a common agricultural base, low cost and abundant labor, and some similarity in natural resources. There is a lack of compelling reasons to make their joint membership in ASEAN to work towards a fuller economic integration.
Perhaps the most unusual situation is the profound economic integration between China and Taiwan. Deng Xiao Ping once remarked “It does not matter weather a cat is black or white – as long as it catches mice “. Here the cats couldn’t be more different. One is an open democracy and the other is old fashioned Communism – at least in political structure. They are the most belligerent of jurisdictions yet on the trade and investment front they do spectacularly well. China is Taiwan’s largest trading partner and for China, Taiwan is number three. Taiwanese investment in China is estimated to be between $80 and $100 billion, representing nearly 2/3 of their “foreign” investment.
The interesting thing here is that this integration which has no formal structure is the elixir that will keep peace between the two. The cost of conflict in terms of disrupted commerce is enough to make both sides keep to the rhetoric. As the Asia times put it, “Taiwan and China sometimes resemble the famous scorpions in a bottle. If one attacks, both will die.” The entire article covering this relationship in both political and economic terms is: http://www.atimes.com/atimes/China/EJ24Ad01.html
Structural arrangements and specific regional organizations
The EU has established their parliament in Strasburg and a monstrous bureaucracy in Brussels that is sometimes in conflict with member states. In contrast, NAFTA has modest secretariats in each country with a focus on commercial dispute settlement. Other regional entities also tend to be relatively low key on structural arrangements.
Now where does the WTO fit into all of this? Rather well in most instances. The WTO recognizes regional economic institutions as a global way of life and as long as they do not specifically inhibit international trade, which is not their wont, there is generally no conflict.
Indeed, the WTO is Global economic integration with a focus on rules based international commerce and increasingly reduced tariff and non tariff barriers. It has done more than any other institution in the last half century to integrate the global economy.
There is also country to country or bilateral economic integration. As recently as yesterday (June 20, 05), the Swiss Minister of Finance announced his country’s wishes to enter into a free trade agreement with the US which already has an impressive list of such bilateral agreements in place. These can be reviewed at: http://www.ustr.gov/Trade_Agreements/Section_Index.html.
On a final note, regional economic integration (aka globalization) appears to be an ever expanding phenomenon.
Yours,
Maurice Hladik