Preferential trade liberalization

Transcription

1 Eurpean Ecnmic Integratin Givanni Di Bartlme Class verview 1. Treaty f Rme 2. Dmin effect I 3. Single Market Prg. 4. Dmin effect II Eurpean Ecnmic Integratin EPOS Master in Advanced Ecnmics Givanni Di Bartlme Preferential trade liberalizatin Slides are largely based n Baldwin-Wyplsz s nes (textbk) EPOS Master in Advanced Ecnmics

2 Eurpean Ecnmic Integratin Givanni Di Bartlme Quantifying ecnmic integratin Ecnmic histrians have quantified the extent f integratin. EPOS Master in Advanced Ecnmics

3 Eurpean Ecnmic Integratin Givanni Di Bartlme Ecnmic integratin in the EU The Treaty f Rme was a far-reaching dcument. It laid ut virtually every aspect f ecnmic integratin implemented up t the 1992 Maastricht Treaty. The Treaty s intentin was t create a unified ecnmic area based n fur freedms : Gds Service Wrkers Capital Cmmn plicies where necessary. EPOS Master in Advanced Ecnmics

4 Eurpean Ecnmic Integratin Givanni Di Bartlme Main elements Free trade in gds: eliminate tariffs, qutas and all ther trade barriers. Cmmn trade plicy with the rest f the wrld: Custms Unin t trade deflectin. Ensuring undistrted cmpetitin (t avid deals that ffset trade barrier remval): - State aids are mstly prhibited - Anti-cmpetitive behavir regulated by Cmmissin - Apprximatin f laws (i.e., harmnizatin); - Taxes (weak restrictins but n explicit harmnizatin). - Unrestricted trade in services, but implementatin has been hard. EPOS Master in Advanced Ecnmics

5 Eurpean Ecnmic Integratin Givanni Di Bartlme Main elements Cmmn plicy in agriculture: set up in 1962, agriculture was much mre imprtant than it is tday (e.g., abut a third f French ppulatin was invlved in agriculture in 1950s; tday less than 5%). Hwever, still 40 % f EU Budget are devted t agriculture Exchange rate and macrecnmic crdinatin. Labr and capital market integratin: - free mvement f wrkers; - free mvement f capital in principle but many lphles; very little capital-market liberalizatin until the 1980s. EPOS Master in Advanced Ecnmics

6 Eurpean Ecnmic Integratin Givanni Di Bartlme Omitted elements: Scial plicy Scial harmnizatin very difficult plitically: - very different pinins n what types f scial plicies shuld be dictated by gvernments; - it is nt as an exchange f cncessins. Nt clear that Eurpean ecnmic integratin demands harmnizatin f scial plicies: natinal wage wuld adjust t ffset any unfair advantage. Lwer scial standards (lwer prductin csts), higher lng-term wages that ffset the advantage. EPOS Master in Advanced Ecnmics

7 Eurpean Ecnmic Integratin Givanni Di Bartlme Omitted elements: Tax plicy Similar t Scial plicy, tax plicy directly tuches the lives f mst citizens and it is the utcme f a natinal plitical cmprmise. Thus, EU leaders have always fund it difficult t harmnize taxes. EPOS Master in Advanced Ecnmics

8 Eurpean Ecnmic Integratin Givanni Di Bartlme Preferential trading agreements A free trade area allws free-trade amng members, but each member can have its wn trade plicy twards nn-member cuntries. A custms unin allws free trade amng members and requires a cmmn external trade plicy twards nn-member cuntries. A cmmn market is a custms unin with free factr mvements (especially labr) amng members. EPOS Master in Advanced Ecnmics

9 Eurpean Ecnmic Integratin Givanni Di Bartlme Unilateral discriminatry liberalizatin Smith s certitude by Adam Smith: freign firms gain (i.e., higher price and mre exprts) when tariffs against them are eliminated; Haberler s spillver by Gttfried Haberler: third natins thse excluded frm the preferences must lse; Viner s ambigüita by Jacb Viner: preferential liberalizatin might harm the preference-giving natin because.discriminatry liberalizatin is bth liberalizatin which remves sme price wedges and thus tends t imprve ecnmic efficiency and hme welfare and discriminatin which intrduces new price wedges and thus tends t harm efficiency and welfare. EPOS Master in Advanced Ecnmics

10 Eurpean Ecnmic Integratin Givanni Di Bartlme Effects f a tariff Small-pen ecnmy Price, P S Wrld price plus tariff Wrld price Prductin distrtin Cnsumptin distrtin D Quantity, Q EPOS Master in Advanced Ecnmics

11 Eurpean Ecnmic Integratin Givanni Di Bartlme Effects f a tariff Price, P ~ P P F t Freign exprt supply P W Hme imprt demand Quantity, Q EPOS Master in Advanced Ecnmics

12 Eurpean Ecnmic Integratin Givanni Di Bartlme Effects f a tariff Large-pen ecnmy Price, P S ~ P P F P W Lss Gain D Q 1 Q 2 D 2 D 1 Quantity, Q EPOS Master in Advanced Ecnmics

13 Eurpean Ecnmic Integratin Givanni Di Bartlme Tw nn-verlapping circles Situatin by the late 1960s EPOS Master in Advanced Ecnmics

14 Eurpean Ecnmic Integratin Givanni Di Bartlme Are preferential trading agreements gd? It depends n whether it leads t Trade creatin Trade diversin EPOS Master in Advanced Ecnmics

15 Eurpean Ecnmic Integratin Givanni Di Bartlme Are preferential trading agreements gd? It depends n whether it leads t trade creatin r trade diversin. Trade creatin. Occurs when the frmatin f a preferential trading agreement leads t replacement f high-cst dmestic prductin by lw-cst imprts frm ther members. Trade diversin. Occurs when the frmatin f a preferential trading agreement leads t the replacement f lw-cst imprts frm nn members with higher-cst imprts frm member natins. EPOS Master in Advanced Ecnmics

16 Eurpean Ecnmic Integratin Givanni Di Bartlme Evlutin t tw cncentric circles EPOS Master in Advanced Ecnmics

17 Eurpean Ecnmic Integratin Givanni Di Bartlme Dmin effect I Falling trade barriers within the EEC and within EFTA lead t discriminatin. The GDP (i.e., ptential market size) f the EEC much larger than that f EFTA (and EEC incmes were grwing twice as fast) Thus, the EEC club was far mre attractive t exprters and this lead t new plitical pressure fr EFTA natins t jin the EEC. The UK applied fr membership in Denmark, Ireland, and Nrway als fllwed since they wuld therwise face strnger discriminatin (ther EFTA natins did nt apply because f plitical reasns). Charles De Gaulle stpped UK membership twice. Denmark, Ireland, and UK jin in 1973 while Nrwegians said n in a referendum. EPOS Master in Advanced Ecnmics

18 Eurpean Ecnmic Integratin Givanni Di Bartlme Supply-switching effects f EEC EPOS Master in Advanced Ecnmics

19 Eurpean Ecnmic Integratin Givanni Di Bartlme Frictinal barriers: the 1992 Prgram Since the mid-1970s and especially since the 1986 Single Eurpean Act, mst ecnmic integratin has invlved the remval f frictinal barriers t trade. Frictinal barriers can be cnceptualized as tariffs where the tariff revenue is thrwn away. Fr such barriers, Smith s certitude and Haberler s spillver still hld, but Viner s ambiguity disappears. Reciprcal preferential frictinal barrier liberalizatin leads t: lwer Hme s dmestic and brder price; higher price received by Partner exprters and lwer price received by RW exprters. Thus, Hme imprts rise and Partner exprts rise while RW exprts fall. Supply switching still ccurs. EPOS Master in Advanced Ecnmics

20 Eurpean Ecnmic Integratin Givanni Di Bartlme Deeper circles: Single Market Prgram 1970s Eur pessimism began. Jacques Delrs launches cmpletin f the internal market. The Single Eurpean Act (SEA, 1987) aims t create an area withut internal frntiers in which the free mvement f gds, persns, services and capital is ensured (i.e., the fur freedms prmised by the Treaty f Rme). It als implemented imprtant institutinal changes: majrity vting instead n unanimity n issues related t the Single Market. EPOS Master in Advanced Ecnmics

21 Eurpean Ecnmic Integratin Givanni Di Bartlme Basic elements: Single Market Prgram Gds trade liberalizatin Streamlining r eliminatin f brder frmalities; Harmnizatin f VAT rates within wide bands; Liberalizatin f gvernment prcurement; Harmnizatin and mutual recgnitin f technical standards in prductin, packaging and marketing. Factr trade liberalizatin Remval f all capital cntrls; Liberalizatin f crss-brder market-entry plicies, including mutual recgnitin f apprval by natinal regulatry agencies. EPOS Master in Advanced Ecnmics

22 Eurpean Ecnmic Integratin Givanni Di Bartlme Deeper circles: Dmin effect II Deeper integratin in EC12 strengthened the frce fr inclusin in remaining EFTA natins. New frces fr inclusin lead t a dmin effect: EEA initiative (1989) t extend single market t EFTA Membership applicatins by all EFTA natins except Iceland and Liechtenstein; Nrwegian rejected (again) membership in a referendum; Switzerland nly adpted a EEA-like bilateral deal with EU. The furth enlargement (1995) adds Austria, Finland, Sweden and leads t the EC15. In 1993, the EU sets the Cpenhagen criteria fr accessin f CEECs. Cpenhagen summit (2002) says CEEC natins plus Cyprus and Malta jin in 2004 (5th enlargement). EPOS Master in Advanced Ecnmics

23 Eurpean Ecnmic Integratin Givanni Di Bartlme Dynamic welfare effects In the lng run, integratin may increase a cuntry s welfare because: increased cmpetitin may ccur, leading t lwer prices, larger markets may allw ecnmies f scale t be realized, mre investment may be attracted, increased factr mbility may lead t greater efficiency. EPOS Master in Advanced Ecnmics