УДК 339.923 ББК У 43 М-21 M. MALSKY, M. MYKIEVYCH, L. KOVTUN, R. MOSKALYK Regional Trading Agreements in International Economic Relations. Lviv: Ivan Franko National University of Lviv Press, 2003. – 97 p. Published according to the decision of the Scientific Board of the Ivan Franko National University of Lviv (Protocol No.___, 28.05.2003) The main objectives of this publication are as follows: (1) to explore the economic and political debate surrounding regional economic integration, paying particular attention to the economic and political benefits and costs of integration; (2) to review progress toward regional economic integration around the world; and (3) to examine the WTO rules about regional trading agreements. Particular attention is paid to the integration process in Europe and CIS countries. The publication is supposed to be useful for scientists, businessmen, lawyers, economists, officials of state authorities, students and postgraduate students. This publication was made possible through the joint co-operation of the Ivan Franko National CIDA Centre for University of Lviv, Ukraine and the Centre for Trade Policy Trade Policy and Law (CTPL), Ottawa, Canada and Law with the financial support of the Government of Canada provided through the Canadian International Development Agency (CIDA). ____________________________________________________________________ Reviewers: Prof. I.M.Hrabynsky, Doctor of Sciences (Economics) Prof. V.M.Denisov, Doctor of Sciences (Law) © M. Malsky, M. Mykievych, L. Kovtun, R. Moskalyk, 2003 © Ivan Franko National ISBN 966-613-257-5 University of Lviv, 2003 УДК 339.923 ББК У 43 М-21 МАЛЬСЬКИЙ М.З., МИКІЄВИЧ М.М., КОВТУН Л.Р., МОСКАЛИК Р.Я. Регіональні торгівельні угоди в міжнародних економічних відносинах. Львів: Львівський національний університет імені Івана Франка, 2003. – 97 с. Друкується за ухвалою Вченої Ради Львівського національного університету імені Івана Франка (Протокол №__ від 28.05.2003) Ця публікація присвячена дослідженню економічних та політичних аспектів регіональних торгівельних угод, їх переваг і недоліків; огляд тенденцій розвитку регіональної економічної інтеграції у світі; аналіз положень офіційних документів СОТ про регіональні торгівельні угоди. Особлива увага приділяється інтеграційним торгівельним угодам в Європі та СНД. Для наукових працівників і аспірантів, практиків, юристів та економістів, державних службовців, студентів. Видано в рамках проекту співпраці між Львівським національним університетом CIDA Centre for імені Івана Франка та Центром торгової Trade Policy політики та права (Оттава, Канада) за and Law фінансової підтримки уряду Канади через Канадське агентство міжнародного розвитку. ____________________________________________________________________ Рецензенти: Грабинський I.M, доктор економічних наук, професор Денисов В.М., доктор юридичних наук, професор © M. Мальський, M. Mикієвич, Л. Ковтун, Р. Москалик, 2003 ISBN 966-613-257-5 © Львівський національний університет імені Івана Франка 3 CONTENTS 1. THEORETICAL BACKGROUND: WHAT IS REGIONAL INTEGRATION …………………………... 7 1.1.What Does Regional Integration Mean ………… 7 1.2. The Spread of RTAs …………………………… 8 1.3. The Coverage of RTAs ………………………… 9 1.4. Forms of Regional Integration …………………. 10 1.5. Motives for Regional Integration ……………… 12 1.6. Benefits of Regional Integration ………………. 14 1.7. Regionalism versus Multilateralism …………… 14 1.8. Regionalism versus Nationalism ………………. 16 2. THE EUROPEAN UNION …………………………... 19 2.1. Evolution of the EU …………………………… 19 2.2. Legal issues of the European Union …………… 22 2.3. Institutions of the EU ………………………….. 23 2.4. Common Policies of the EU …………………… 25 2.5. Economic and Monetary Union ……………….. 26 2.6. Political Union …………………………………. 27 2.7. Common Foreign and Security Policy ………… 28 2.8. Enlargement of the EU ………………………… 29 2.9. The European Union and the World …………… 31 2.10. Future Prospects ……………………………… 33 3. THE REGIONAL INTEGRATION IN THE POST- SOVIET COUNTRIES …………………………………. 36 3.1. Commonwealth of Independent States (CIS) ….. 36 3.1.1. Collapse of the USSR and Creation of the CIS ……………………………………………... 36 3.1.2. Goals, Principles and Activities of the CIS 37 3.1.3. The CIS Coordinating Institutions ……… 38 3.1.4. Trade Dynamics of the CIS States ……… 40 3.1.5. Economic Effects of the CIS ……………. 42 3.1.6. Why is not the CIS effective? …………… 43 3.1.7. Summit 2003 and Future of the CIS ……. 44 4 3.2. Black Sea Economic Co-operation (BSEC) …… 46 3.2.1. What is the Black Sea region? ………….. 46 3.2.2. Formation of the BSEC ………………… 47 3.2.3. Goals and Principles of the BSEC ……… 47 3.2.4. Organisational Structure and Levels of Economic Cooperation ………………………… 48 3.2.5. What has BSEC Achieved Since 10 Years? ………………………………………….. 50 3.2.6. Future Horizons …………………………. 51 3.3. GUUAM ………………………………………. 52 3.3.1. History, Goals and Principles …………… 52 3.3.2. What Unites the GUUAM? ……………... 53 3.3.3. Objectives of Cooperation ……………… 54 3.3.4. Directions of Cooperation ……………… 55 3.3.5. Organisational Structure of the GUUAM . 55 3.3.6. Economic Cooperation …………………. 55 3.3.7. Political Cooperation and Cooperation in 56 the Field of Security …………………………… 3.3.8. Future of the GUUAM: Views, 57 Perspectives and Recommendations ………….. 3.4. Eurasian Economic Community (EURASEC) … 58 3.4.1. Emergence of the Concept of Eurasianism 58 3.4.2. Creation and Main Principles of the 59 Eurasian Economic Community ………………. 3.4.3. Governing Bodies of the EURASEC …… 61 3.4.4. The EURASEC – Alternative of the CIS? 61 3.4.5. Prospects for Policy Harmonisation ……. 62 4. RTAs IN THE AMERICAS …………………………. 64 4.1. The North American Free Trade Agreement ….. 64 4.1.1. NAFTA's Contents ……………………… 64 4.1.2. Free Trade Area ………………………… 65 4.1.3. Principles ……………………………….. 65 4.1.4. Benefits for the NAFTA’s Countries ..….. 67 4.2. The Andean Pact ………………………………. 68 5 4.3. MERCOSUR ………………………………….. 71 4.4. Central American Common Market (CACM) …. 72 4.5. CARICOM …………………………………….. 74 4.6. Free Trade Area of the Americas ……………… 75 5. RTAs IN ASIA AND AFRICA ……………………… 77 5.1. Association of Southeast Asian Nations (ASEAN) …………………………………………… 77 5.2. Asia Pacific Economic Cooperation (APEC) …. 79 6. RTAs IN THE WTO …………………………………. 82 6.1. A note of Caution ……………………………… 82 6.2. The WTO Rules about RTAs ………………….. 83 6.3. Policy Issues …………………………………… 86 6.4. Negotiations on the RTAs issues ………………. 87 Critical Discussion Questions …………………………… 88 Literature ……………….……………………………….. 89 Extra reading ……………………………………………. 95 Web-based resources ……………………………………. 97 Annex ……………………………………………………. 98 6 1. THEORETICAL BACKGROUND: WHAT IS REGIONAL INTEGRATION 1.1. What Does Regional Economic Integration Mean? One of the most significant trends in the world economy in recent years has been the accelerated movement toward regional economic integration. Regional economic integration can be defined as agreements among countries in a geographic region to reduce, and ultimately remove, tariff and nontariff barriers to the free flow of goods, services and factors of production between each other. 1 During the 1990s and in the beginning of 21 century we can see an unprecedented proliferation of regional arrangements. In Europe, these are mainly centred on the European Union, spreading to the Central and Eastern European countries, the Baltic, Mediterranean states and beyond. In the Americas, two agreements – NAFTA and MERCOSUR – have had a significant impact, but these may be overtaken by the Free Trade Area for the Americas. Along similar lines, 18 Pacific Rim countries, including the NAFTA member states, Japan, and China, have been discussing a possible pan-Pacific free trade area under the auspices of the Asian Pacific Economic Cooperation forum (APEC). There are also active attempts at regional economic integration in Central America, the Andean Region of South America, Southeast Asia and parts of Africa. Consistent with the predictions of international trade theory, particularly the theory of comparative advantage, the belief has been that agreements designed to promote freer trade within regions will produce gains from trade for all member countries. The General Agreement on Tariffs and Trade and its successor, 7 the World Trade Organisation, also seek to reduce trade barriers. However, with over 140 member states the WTO has a world-wide perspective. By entering into regional trading agreements, groups of countries aim to reduce trade barriers more rapidly than can be achieved under the auspices of the WTO. 1.2. The Spread of RTAs The vast majority of WTO members are party to one or more regional trade agreements. The surge in RTAs has continued unabated since the early 1990s. Some 250 RTAs have been notified to the GATT/WTO up to December 2002. Over 170 RTAs are currently in force; an additional 70 are estimated to be operational although not yet notified. 2 By the end of 2005, if RTAs reportedly planned or already under negotiation are concluded, the total number of RTAs in force might well approach 300. 3 In the period 1948-1994, the GATT received 124 notifications of RTAs (relating to trade in goods), and since the creation of the WTO in 1995, over 130 additional arrangements covering trade in goods or services have been notified (see Notifications to the GATT/WTO) 4. Not all RTAs notified in the last half century are still in force today. Many of the discontinued RTAs have, however, been superseded by redesigned agreements among the same signatories. The following chart 1 summarizes the status of notifications. Modern RTAs have a much wider network of participants and involve hundreds million of people. The Free Trade Area of the Americas and the European Union's agreements with Central and Eastern Europe and the Mediterranean each encompass 8 more than 500 million people. APEC, which does not (yet) allow for the mutual exchange of trade preferences, will cover some 40 per cent of the world's population. Chart 1. Evolution of Regional Trade Agreements in the world, 1948-2002 Source: WTO Secretariat 1.3. The Coverage of RTAs An important feature of modern RTAs is more extensive product coverage than in earlier agreements. But very few agreements have 100 per cent product coverage. Many of them have more selective coverage in sensitive sectors (agriculture, textile/clothing). Another feature of the new RTAs is that many of them go beyond the traditional tariff-cutting exercises. They now may cover services, investment, intellectual property, technical barriers to trade, dispute settlement, supra-national institutional arrangements and so on. Many agreements today contain disciplines limiting the use of quantitative restrictions and subsidies. In one important development, a number of agreements have provisions for the use of competition policy 9 instruments in place of anti-dumping procedures on trade among the parties, for example the EU, the Australia-New Zealand Agreement on Closer Economic Relations, the Canada-Chile FTA.5 On the whole, the wider scope of the new agreements makes sense for participants, allowing for greater efficiency gains than is possible from the elimination of frontier barriers alone. 1.4. Forms of Regional Economic Integration The traditional forms of economic integration are presented in the table 1. Table 1. Forms of regional economic integration and their features Features FTA CU CM EU PU Removal of tariffs among x x x x x members Common external tariffs x x x x Free movement of capital x x x and labour Harmonisation of economic x x policies (fiscal, monetary) Unification of political, x security, foreign activities FTA = free trade area, CU = customs union, CM = common market, EU = economic union, PU = political union Free Trade Area Free trade area (FTA) is the most popular form of integration. In a free trade area, all barriers to the trade of goods and services among member countries are removed. Each country, 10 however, is allowed to determine its own trade policies with regard to non-members. Thus, the tariffs placed on the products of non-member countries may vary from member to member. The examples of FTAs are NAFTA, Canada-Chile FTA, GUUAM. The most enduring free trade area in the world is the European Free Trade Association (EFTA). Customs Union A customs union eliminates trade barriers between member countries and adopts a common external trade policy. Establishment of a common external trade policy necessitates significant administrative machinery to oversee trade relations with non-members. The EU began as a customs union and has moved beyond this stage. Other customs unions around the world include the current version of the Andean Pact (between Bolivia, Colombia, Ecuador and Peru). The other examples are Russia-Belarus-Kazakhstan-Kyrgyz Republic, European Community-Turkey, European Community-Andorra customs unions. Common Market Unlike a customs union, a common market also allows factors of production to move freely between members. Labour and capital are free to move because there are no restrictions on immigration, emigration, or cross-border flows of capital between member countries. Currently, MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) and Central- American Common Market established themselves as common markets. Economic Union 11