Fta Trainer

Introduction to Free Trade Agreements

Content

Introduction1

Principles – The Nuts and Bolts2

Example of Impacts3

Practice and Databases4

References and Additional Materials5

Content

Introduction1


Example of Impacts3



Introduction

• Generalities on Free Trade Agreements• Scope of this training - Will and will not • Initial brainstorm on company impact

Introduction

Free Trade Agreements (FTAs) are the vehicle to achieve the advantages of economic integration and free trade.

• Promote free trade• Improve customer value• Achieve efficiencies in global resource allocation• Boost growth and development• Reduce / disappear tariffs• Reduce non-tariff barriers

– Quotas– Bans– Unfair procedures

• Ensure free exchange of goods, services and intellectual capital

Introduction

• Classical economist studies– David Ricardo further scenarios – Adam Smith

• Detail on correlations on FTAs impacts

• Controversial / extremist positions towards FTAs

• Industry structure of FTAs

What will be covered and what will not be covered in this training session about Free Trade Agreements (FTAs).

• FTAs underlying principles• A glance of economic integration

schemes and trends• Role and evolution of the World

Trade Organization as moderator/arbitrager in FTAs

• General stats about world trade• Overview of FTAs impact• Provide material for future

references

Will Will NOT

Introduction

How can Free Trade Agreements (FTAs) be used in our organization?

What are the company’s

products, and services?

What are new opportunities for exports/imports?

Why?What about treats? Why?

What about its intellectual

capital / property?

A brainstorm exercise…

Other implications?

How can FTAs be used in our organization?

To what countries is the company

exporting? from what importing?

Introduction

Content

Introduction1


Example of Impacts3



As international trade continue to rise, the level of economic cooperation or integration among countries and group of countries is also deepening.

• Basic principles for economic integration and cooperation• Proposed models for economic integration and cooperation

– Formal models– Alternative models– Examples

• From bilateral to regional blocks of trade• Evolution of international trade cooperation since WWII

Principles – The Nuts and Bolts

Classical economist, David Ricardo made one of the strongest arguments for free trade, in his analysis of comparative advantage.

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0 2 4 6 8 10 12 14 16

Product A

Prod

uct B

Country 1Country 2

Theoretical Ricardian Model

y m x b

Country 1 12 -1.5 0 12

Country 2 0 -0.6 14 8

Maximum at Specialization(26.0)

Product A Product B

0.0 12.0

14.0 0.0

14.0 12.0

Product A Product B

4.0 6.0

10.0 2.3

14.0 8.3

Product A Product B

8.0 0.0

0.0 8.0

8.0 8.0

(16.0)(22.3)


A model for stages of economic integration is described by Michael Holden, Economics Division, Government of Canada.

Economic Union (EU)

Common Market (CM)

Customs Union (CU)

Free Trade Agreement (FTA)

CM + common economic policies and institutions

CU + free movement of capitals and labor force

FTA + common external tariffs

Reduced/no tariffs and reduced non‑tariff barriers

Autarky


The World Trade Organization is working to standardize integration practices in the world.

Economic Integration Agreement (EIA)

Custom Union (CU)


Partial Scope FTAs (PS)

CU + rules for movement of capitals/investment, taxes and labor force; Generally under GATS Art. V

FTA + common external tariffs; generally under GATT Art. XXIV

Reduced/no tariffs and reduced non‑tariff barriers; generally under GATT Art. XXIV

Partial FTA; generally in the specific industries and/or zones, or an enabling zone

Autarky


Regional blocks and bilateral (two countries / economies) agreements under the World Trade Organization umbrella…

• GCC - Gulf Cooperation Council ’03(Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates)

• NAFTA - North American Free Trade Agreement ’94

(Canada, Mexico, United States)

• AFTA - Asian Free Trade Area ’92(Brunei, Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar,

Philippines, Singapore, Thailand, Vietnam)

• EC - European Communities(Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland

France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Poland Portugal, Romania Slovak Republic Slovenia Spain Sweden The Netherlands United Kingdom)

EC accession of Austria, Finland and Sweden ’95

Regional Blocks

• India – Singapore ’05• Japan – Mexico ’05• USA – Chile ’04 • United States – Jordan ’01

Bilateral

… refer to database to review complete list of agreements.

• EC (European Union) – Turkey • EFTA (European Free Trade Association)

– Korea ’06(EFTA includes Iceland Liechtenstein Norway Switzerland)

• ASEAN (Association of South East Asian Nations) – China ’03

(ASEAN Brunei Darussalam Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam)


As the world as become more complex in matters of trade, a more comprehensive international regulator has emerged.

1947 – 1986

GATT150 countries

• General Agreement on Tariffs and Trade (GATT) to “substantially reduce tariffs and other trade barriers, and to eliminate preferences, on a reciprocal and mutually advantageous basis.” GATT

• Before WWII trade was regulated typically through bilateral treaties between two nations

1986 – 1993/4

Uruguay Rounds

• Addressed issues such as tariffs, services, and the trade related aspects of intellectual property and investment measures.

• Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations

• Proposal to create the World Trade Organization

Pre WWII1995 – to date

• The World Trade Organization (WTO)• Implementation of integration agreements• Forum for negotiating additional reductions of

trade barriers and for settling policy disputes• Impartial arbitrage• Niche negotiations e.g. telecommunications,

information, and financial services• Implementation of GATT, GATS, TRIPS

WTO117 countries


Basis for:

Free Exchange of:

Agreements aim to free trade considering six main areas:

Products

Services Intellectual Property

Dispute Settlemen

t

Policy review

General Agreement on Trade and Tariffs (GATT)

Trade-Related Aspects of Intellectual Property

Rights (TRIPS)

General Agreement on Trade in Services (GATS)

Agreement Establishment


The World Trade Organization (WTO) is the international organization dealing with the global rules of trade between nations…

1. Peace

2. Disputes

3. Rules

4. Cost of living

5. Choice

6. Incomes

7. Growth and jobs

8. Efficiency

9. Lobbying

10. Good government

… its main function is to ensure that trade flows as smoothly, predictably and freely as possible.”

Benefits

1. WTO dictates

2. Blindly for trade

3. Ignores development

4. Anti-green

5. Anti-health

6. Wrecks jobs

7. Small left out

8. Tool of lobbies

9. Weak forced to join

10. Undemocratic

Misunderstandings


Content

Introduction1


Example of Impacts3



Analyzing Canada’s Free Trade Agreements and other economics integration efforts.

• Canadian macroeconomics• Other relevant measures of the country• Top exporters and importers• Canada specific agreements• Trade flows and impacts

Example of Impacts

Economic basic figures provide the first clues for international trade…

Population(inhabitants million)

GNI(USD trillion)

Land(km2 million)

% of World

1 China 1,305 20%

2 India 1,095 17%

3 EU 314 5%

4 USA 296 5%

5 Indonesia 221 3%

6 Brazil 186 3%

7 Pakistan 156 2%

8 Russia 143 2%

9 Bangladesh 142 2%

10 Nigeria 141 2%

11 Japan 128 2%

12 Mexico 103 2%

13 Vietnam 83 1%

…

37 Canada 33 <1%

% of World

1 USA 12,913 29%

2 EU 10,076 22%

3 Japan 4,976 11%

4 Germany 2,876 6%

5 UK 2,274 5%

6 China 2,273 5%

7 France 2,169 5%

8 Italy 1,773 4%

9 Spain 1,096 2%

10 Canada 1,053 2%

11 India 804 2%

12 Korea 767 2%

13 Mexico 753 2%

14 Brazil 726 2%

15 Australia 673 1%

% of World

1 Russian 17 13%

2 Canada 10 7%

3 USA 10 7%

4 China 10 7%

5 Brazil 9 6%

6 Australia 8 6%

7 India 3 2%

8 Argentina 3 2%

9 Kazakhstan 3 2%

10 EU 3 2%

11 Sudan 3 2%

12 Algeria 2 2%

13 Congo 2 2%

14 Saudi Arabia 2 1%

15 Mexico 2 1%

Source: World Bank 2006

Example of Impacts

… as well as other relevant measures

Transparency(2006 CPI)

Source: Transparency International

Top 10 from a list of 179 countries

Oil(2006 Barrels per day million)

High-Tec Exports(2006 Billion US$)

1 Denmark 9.4

1 Finland 9.4

1 New Zealand 9.4

4 Singapore 9.3

4 Sweden 9.3

6 Iceland 9.2

7 Holland 9.0

7 Switzerland 9.0

9 Canada 8.7

9 Norway 8.7

1 Saudi Arabia 10.7

2 Russia 9.7

3 USA 8.4

4 Iran 4.1

5 Mexico 3.8

6 China 3.7

7 Canada 3.3

8 Arab Emirates 2.9

9 Venezuela 2.8

10 Norway 2.8

1 United States 3,973

2 EU 1,597

3 Japan 997

4 China 696

5 UK 616

6 Germany 475

7 France 425

8 South Korea 253

9 Netherlands 187

10 Canada 156

Source: World Bank 2006 Source: International Energy Agency

Example of Impacts

The major players (exports / imports) account for about 70 percent of trade worldwide.

Top Importers Top Exporters

Source: World Trade Organization 2006

% of World

% of GDP

1 USA 1,919 15% 15%

2 Germany 909 7% 31%

3 China 791 6% 30%

4 UK 619 5% 26%

5 Japan 580 5% 13%

6 France 535 4% 24%

7 Italy 437 4% 24%

8 Netherlands 416 3% 63%

9 Canada 358 3% 29%

10 Belgium 354 3% 90%

11 Hong Kong, China 336 3% 177%

12 Spain 316 3% 26%

13 South Korea 309 2% 35%

14 Mexico 268 2% 32%

15 Singapore 239 2% 181%

(2006 current US$ billion) (2006 current US$ billion)

% of World

% of GDP

1 Germany 1,112 9% 38%

2 USA 1,038 9% 8%

3 China 969 8% 36%

4 Japan 650 5% 15%

5 France 490 4% 22%

6 Netherlands 462 4% 70%

7 UK 448 4% 19%

8 Italy 411 3% 22%

9 Canada 390 3% 31%

10 Belgium 369 3% 94%

11 Korea 325 3% 37%

12 Hong Kong, China 323 3% 170%

13 Russia 305 3% 31%

14 Singapore 272 2% 206%

15 Mexico 250 2% 30%

Example of Impacts

http://www.wto.org/index.htm

Canada has established a series of Economic Integration Agreements (EIA) and Free Trade Agreements (FTA).

Block EIA (Apr ’94), originally FTA (Jan ’94)• NAFTA - North American Free Trade Agreement – Including Canada, Mexico,

and United States

* Canada and USA share the largest non guarded border in the World

Bilateral EIA:• Canada-Chile ’97

Bilateral FTAs:• Canada-Costa Rica ’02• Canada-Chile ’97• Canada-Israel ’97

Example of Impacts

The inertia created by Freed Trade Agreements improved Canadian exports to Mexico and Chile significantly above average.

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EU (2

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Effect on Exports

Billion US$ Growth

1 USA 316.67 5%

2 EU (25) 25.40 24%

3 Japan 8.30 10%

4 China 6.76 16%

5 Mexico 3.87 44%

Top 5 360.99 7%

… Chile 0.42 23%

… Israel 0.39 11%

Top 30 382.17 8%


Exports Growth by Country Vs. Average

(2006)

Example of Impacts


… similarly to Israel imports to Canada.

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USA

EU (2

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Billion US$ Growth

1 USA 192 8%

2 EU (25) 43 15%

3 Japan 30 25%

4 China 14 17%

5 Mexico 14 11%

Top 5 293 11%

… Chile 1 15%

… Israel 1 24%

Top 30 341 12%

Effect on Imports(2006)

Imports Growth by Country Vs. Average

Example of Impacts


Content

Introduction1


Example of Impacts3



Live exercise—use the Excel* Document/Dbase provided to search for the following information:

• Gross Domestic Product (GDP), imports and exports for Country– Compare to Gross National Income (GNI) World Bank measure

• Example countries or group f countries in different economic integration stage• Regional blocks for Country• Bilateral agreements for Country

Practice and Databases

Identify examples of countries and groups of countries in the Holden Simplified Model:

Economic Union (EU)

Common Market (CM)

Customs Union (CU)


Autarky


Identify examples of countries and groups of countries in the Holden Simplified Model:

Economic Union (EU)

Common Market (CM)

Customs Union (CU)


Autarky

European Union (countries attached to the Euro policies)

The UK and the rest of the European Union

United States and Canada

North America, area of NAFTA

Identify all regional blocks with which Country has formed agreements under the Word Trade Organization umbrella:


Identify all regional blocks with which Mexico has formed agreements under the Word Trade Organization umbrella:

• GSTP - General System of Trade Preferences among Developing Countries(Algeria Argentina Bangladesh Benin Bolivia Brazil Cameroon Chile Colombia Cuba Democratic People's

Republic of Korea Ecuador Egypt Ghana Guinea Guyana India Indonesia Islamic Republic of Iran Iraq Libya Malaysia Mexico Morocco Mozambique Myanmar Nicaragua Nigeria Pakistan Peru Philippines Republic of Korea Romania Singapore Sri Lanka Sudan Thailand Trinidad and Tobago Tunisia United Republic of Tanzania Venezuela Vietnam Yugoslavia Zimbabwe)

• PTN - Protocol relating to Trade Negotiations among Developing Countries(Bangladesh Brazil Chile Egypt Israel Mexico Pakistan Paraguay Peru Philippines Republic of Korea Romania Tunisia Turkey

Uruguay Yugoslavia)

• NAFTA - North American Free Trade Agreement

(Canada Mexico United States)

• LAIA - Latin American Integration Association

(Argentina Bolivia Brazil Chile Colombia Cuba Ecuador Mexico Paraguay Peru Uruguay Venezuela)

Identify all bilateral agreements of Country with other countries…


Identify all bilateral agreements of Chile with other countries…

• Chile-Japan Sep-2007 EIA• EC-Chile Mar-2005 EIA• EFTA-Chile Dic-2004 EIA• Republic of Korea-Chile Abr-2004

EIA• Chile-El Salvador Jun-2002 EIA• United States-Chile Ene-2004 EIA• Chile-Costa Rica Feb-2002 EIA• Chile-Mexico Ago-1999 EIA• Canada-Chile Jul-1997 EIA• Chile-Japan Sep-2007 FTA• Chile-China Oct-2006 FTA• EFTA-Chile Dic-2004 FTA• Republic of Korea-Chile Abr-2004

FTA• Chile-El Salvador Jun-2002 FTA• EC-Chile Feb-2003 FTA• United States-Chile Ene-2004 FTA• Chile-Costa Rica Feb-2002 FTA• Chile-Mexico Ago-1999 FTA• Canada-Chile Jul-1997 FTA

… Country with other economies through the country’s blocks:


… Chile with other economies through the country’s blocks:

• GSTP – General System of Trade Preferences among Developing CountriesAlgeria Argentina Bangladesh Benin Bolivia Brazil Cameroon Chile Colombia Cuba Democratic People's Republic of Korea

Ecuador Egypt Ghana Guinea Guyana India Indonesia Islamic Republic of Iran Iraq Libya Malaysia Mexico Morocco Mozambique Myanmar Nicaragua Nigeria Pakistan Peru Philippines Republic of Korea Romania Singapore Sri Lanka Sudan Thailand Trinidad and Tobago Tunisia United Republic of Tanzania Venezuela Vietnam Yugoslavia Zimbabwe

• LAIA – Latin American Integration AssociationArgentina Bolivia Brazil Chile Colombia Cuba Ecuador Mexico Paraguay Peru Uruguay Venezuela

• PTN – Protocol relating to Trade Negotiations among Developing CountriesBangladesh Brazil Chile Egypt Israel Mexico Pakistan Paraguay Peru Philippines Republic of Korea Romania Tunisia Turkey

Uruguay Yugoslavia

• Trans-Pacific SEP – Trans-Pacific Strategic Economic PartnershipBrunei Darussalam Chile New Zealand Singapore

Content

Introduction1


Example of Impacts3



References and additional materials

• “International Trade Theory and Policy”Steven M. Suranovic. CHAPTER 40. The Ricardian Model of Comparative Advantage.http://internationalecon.com/Trade/Tch40/Tch40.php

• “Understanding the WTO”WTOChapter 1: BasicsChapter 2: The AgreementsChapter 3: Settling disputesChapter 5: The Doha Agendahttp://www.wto.org/english/thewto_e/whatis_e/tif_e/understanding_e.pdf

• WTO webcasting seriesWTOVideo: To the heart of the WTO Video: From GATT to WTO Video: Case studies of WTO dispute settlement Other trainings videoshttp://www.wto.org/english/res_e/webcas_e/webcas_e.htm

http://internationalecon.com/Trade/Tch40/Tch40.php

http://www.wto.org/english/thewto_e/whatis_e/tif_e/understanding_e.pdf

http://www.wto.org/english/res_e/webcas_e/webcas_e.htm

http://www.wto.org/english/res_e/webcas_e/webcas_e.htm

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